Explanatory memorandum to TRAI recommendations on Internet telephony

PREAMBLE

1. Terms of Reference

As per NTP-99, the Government was required to monitor the technological

innovations relating to Internet Telephony and its impact on national

development and review the present policy of not permitting any form of IP

Telephony. Accordingly, the Government has referred the issue of opening up of

Internet Telephony in India to the TRAI vide their letter No. 820-1/98-LR

(Vol.IV) dated 20.7.2001 placed at Annexure-A.

2. Consultation Process



A Consultation Paper on various techno-economic / regulatory issues relating
to Internet Telephony Service was brought out by the TRAI. It was released on

23rd November, 2001. Open House discussions were held by the Authority at the

four metro cities, i.e. Mumbai, Chennai, Kolkata and Delhi during Decmeber, 2001

and January, 2002 on the issues brought out in the Consultation Paper. All the

stakeholders such as Service Providers Associations (ISPAI, ABTO, COAI),

Consumer Organisations as well as reputed Telecommunication and IT professionals

participated in these consultations and gave their valuable inputs. A copy of

the Consultation Paper is placed at Annexure 'C'. Comments received in response

to the Consultation Paper are available at Annexure 'D'. These inputs/ comments

have been duly taken into consideration by the Authority while arriving at its

Recommendations.

3. Structure of the Memorandum



The explanatory memorandum gives the rationale behind the Authority's
Recommendations and is organized in following two sections.



SECTION -I gives the background related to the opening up of the Internet
Telephony Service with reference to the policy objectives of NTP-99 & the

present status of Internet Telephony /VOIP in other countries.






SECTION-II gives the rationale related to following aspects of introduction of
Internet Telephony:-






A. Timing of introduction of Internet Telephony.


B. Scope & Definition of Internet Telephony service.


C. Use of VOIP as a technology option by existing Facility Based Operators.


D. Issues relating to Digital Divide.


E. Quality of service (QOS)


F. Tariff

Section I

1. Background



1.1 Based on a reference (Annexure A) from the Department of Telecom,
relating to the Opening up of Internet Telephony in the country, the Authority

has examined the various issues comprehensively through detailed consultations

with all the stakeholders, Consumer Organisations & telecom/IT

professionals. Open House discussions were held at Mumbai, Chennai, Kolkata

& Delhi based on a Consultation Paper (Annexure C). The paper was put on

TRAI website and comments were invited from all the stakeholders as well as

general public, on the specific issues brought out in the consultation paper.






1.2 In the Open House discussions, there was a broad consensus among
participants that Internet Telephony & VOIP technology should be permitted

It was argued that the benefits of technology (VOIP) should not be denied to the

customers. It was also felt that VOIP technology could provide a cheaper option

to engineer a telecom network and will thus help the industry in meeting one of

the most important objectives of NTP 99, i.e. of providing affordable

telecommunication services to the customer. A contrary view was that its

introduction at this point of time, would adversely impact the revenue streams

of Access Providers (CMSOs/BSOs), NLDOs/ILDOs through the bypass of their

traffic. It would particularly affect the ILDOs, as a significant proportion of

their incoming international calls will be routed through the public Internet,

thus bypassing the PSTN/ISDN based settlement system. Such an adverse impact on

their revenue streams, will affect their ability to rollout facility based

networks which in turn would adversely affect the achievement of teledensity

targets set out in NTP 99, as well as infrastructure building, which is one of

the goals of country's economic policy. According to this view, Internet

Telephony should be introduced, only after tariff rebalancing is completed,

i.e., only when no tariff arbitrage is available to the providers of Internet

Telephony. Majority of the participants in the public consultations were against

creation of another licensing category called Internet Telephone Service

Providers (ITSPs), who could be licensed to provide Internet Telephony. It was

felt that this new service should be provided under the existing licensing

framework, so as to cause least disturbance to the existing regulatory &

policy framework. It was evident from the deliberations and inputs provided by

experts that a full featured end-to-end public Internet Telephony system

comparable to PSTN/ISDN/IN was not yet available, and the Quality of Service

(QOS) parameters cannot be specified and ensured on the public Internet.






1.3 While examining the question of Internet Telephony, according to ITU, most
of the developing countries have taken the following factors into consideration:

>>Universal Service/Universal Access



>>Affordable telecommunication services


>>Tariff re-balancing


>>Ensuring a level-playing field for incumbents and new entrants


>>Promotion of new technologies and services


>>Stimulating investment in network build-out and new services


>>Impact on revenue streams of incumbent operators


>>Technology transfer


>>Human resource development


>>Economic growth as a whole and in particular in the Communications
sector.

1.4 Taking account of the above factors, as well as the inputs received

during its public consultations, the Authority is of the view that Internet

Telephony should be permitted in India, but with the least disturbance to the

existing licensing regime/level playing field. In this context, the Authority is

of the view that there is a need to clearly differentiate between PSTN based

real-time telephony, and Internet Telephony offered on the public Internet,

which is a voice application, based on client server architecture of Internet,

and is non real-time and thus at present cannot be compared to the conventional

telephony service derived from PSTN / ISDN / PLMN etc. Another distinction

between the two types of service is the fact that for conventional telephony

service, the subscriber dials a generic telephone numbers, whereas for PC-to-PC

Internet Telephony an Internet address needs to be keyed.

1.5 The Authority has received a lot of inputs from 3rd World Telecom Policy

Forum organised by the ITU last year on IP Telephony, in which more than 100

countries participated. ITU has also brought out a report on IP Telephony last

year. As per this report, IP Telephony traffic as a percentage of total

international traffic has been increasing steadily from 0.2% in 1998 to 5.5% in

2001. However, application of VOIP/IP Telephony in the national networks

(NLDO/BSO) was less than 1% in North America and Europe till end of 2000. This

figure has not increased significantly during 2001. It would, therefore, seem

that the key factor for deployment of IP Telephony in the ILD market in

developed countries, is the opportunity it gives to their ILD operators to

bypass the Settlement system of the developing countries. The latter received

about 7 billion dollars in settlement from developed countries, particularly

USA.

1.6 In European countries, like Spain, Belgium, Germany, England and other

countries of European Union, the Internet based telephony does not qualify as

equivalent to voice telephony because of serious quality issues involving such

performance parameters as end-to-end delay, jitter & packet loss. In these

countries, most of the carriers make use of VOIP technology only for the purpose

of efficient transmission of data & voice traffic on their backbone. In

China also, the national domestic carriers only, are permitted to use VOIP as a

technology option for transmission of voice traffic. In Malaysia, the IP based

Phone to Phone telephony is treated same as public telephony and PC to PC voice

service over Internet is treated as enhanced Value Added Service which is

lightly regulated. Similar policy has been adopted in Canada, where

Phone-to-Phone Telephony is permitted on the 'managed IP backbone' as well as on

public Internet, but subject to regulation & obligations at par with PSTN,

such as USO contribution, whereas PC-to-PC voice over Internet called 'PC voice'

is not regulated as a telephony service, but as computer application service.

1.7 The status of Internet Telephony in a few selected countries about which

information could be collected from ITU publication or directly, are given

below:

1.7.1 Malaysia:

1.7.1.1 Till last year, 29 licences were issued to provide IP Telephony

service in Malaysia. PC-to-PC voice over public Internet is not treated as

telephony and is exempted from normal licensing. Phone-to-Phone telephony over

Internet or by way of VOIP as a technology option is treated as functionally

equivalent to PSTN Telephony, as it involves a compulsory interface, i.e.,

gateway between the circuit switched network and the IP based network. Whereas

PC-to-PC Internet Telephony is exempt from normal licensing, with no USO

obligation, Phone-to-Phone telephony based on VOIP is licensed with license fee

and USO obligation.

1.7.2 China:

1.7.2.1 Ministry of Information Industry (MII), until 1999 resisted the

proliferation of IP Telephony services by declaring it illegal and hence IP

Telephony only existed as grey market activities through ISPs, computer shops

and local CATV networks. A lawsuit filed against the MII by a computer company,

changed the scenario in this respect wherein 'Computer Service' was ruled not to

be covered by relevant legislation.






1.7.2.2 In 1999, there was a major change when MII created licensing framework
for Internet Telephony and issued licenses to their facility based operators

(Government owned) such as China Telecom, China Unicom and Jitong to begin

6-month trial in 26 cities (later extended to one year), thus ending the long

distance and international monopoly of China Telecom.