India's Phone Monopoly Pulls The Plug On Net Telephony

VSNL is trying to block cut-rate overseas Net calls

Talk may be cheap, but not in India. The state-owned phone company, Videsh Sanchar Nigam Ltd., or VSNL, currently charges $2.20 per minute to call the U.S.--more than double AT&T's business rate of $1.03 the other way around. In addition to holding the monopoly on overseas calls, VSNL also is India's sole provider of access to the Internet. So when foreign companies began offering Indians rates as low as 10 cents a minute to make calls via the Net, VSNL got nervous.

India's telephone monopoly is so nervous, in fact, that it has started blocking Web sites that offer Internet calling. On top of that, it has threatened to cancel users' Internet accounts if they make calls or send faxes through the Internet. The restrictions have incensed Web users and sparked a debate about free speech, unfettered access to information, India's business competitiveness, and access to India's telecom markets. "VSNL is not empowered to censor the Internet," complains New Delhi cyber-rights activist Arun Mehta. He petitioned the Telecom Regulatory Authority of India demanding that VSNL stop blocking the Web sites. Justice S.S. Sodhi says the authority is looking into taking action.

"UNSCRUPULOUS ELEMENTS." But VSNL claims the right to take action against Net telephony. Operations Director Amitabh Kumar says VSNL is "not obligated to provide access to those sites." And Chairman B.K. Syngal says Internet telephony "clutters the Internet" and would disrupt India's Internet service if allowed to go on unchecked. Still, he admits that VSNL may soon get in on the action itself with its own Internet telephone service--for an additional price. "People should learn to pay for additional service," says Syngal, calling those who complain of blocked Web sites "unscrupulous elements."

In addition to blocking the sites, VSNL sent E-mail messages to its 50,000 subscribers earlier this year, warning them against making Internet calls, which the company deems illegal. VSNL officials said that any customer found making Internet calls would be cut off from all future use of Internet services. It looks like a bluff, however. So far, no one has had an Internet account canceled, and techies in India say it is virtually impossible for VSNL to monitor such traffic.

The victims of the VSNL attacks are up in arms. Israel-based VocalTec Communications found its Web site and E-mail from its domain addresses blocked in January. It responded by frequently moving sites to keep one step ahead of VSNL. But its executives are frustrated. "It reminds us of things that happened before the Berlin Wall fell," says Ohad Finkelstein, a VocalTec vice-president. He says the Indians are fighting a losing battle, since "technically, there's nothing you can do to stop it." Indeed, Indian techies have been able to keep up, finding ways to hack around VSNL's efforts to block access. New Jersey-based IDT Corp. reports that business from India has grown 20% to 25% per month this year despite the restrictions.

TEAM OF SLEUTHS. India's latest roadblock to foreign telephone service comes after years of battling against callback services. The services, such as Seattle-based Kallback, enable those with access to foreign currency to make international calls through U.S. carriers and be billed at the half-price U.S. rates. VSNL estimates that it loses about 10% of outgoing calls that way. That meant lost revenues of about $41 million last year for VSNL's parent, the Telecommunications Dept. VSNL has spent five years trying to squelch the callbacks by blocking access to the telephone numbers for the services. But local agents for half a dozen such companies have been using unpublished numbers to register new customers. So VSNL has a team dedicated to searching for new callback ads and blocking those numbers, too.

Plenty of other people simply use the more old-fashioned "call-me-back" routine. In fact, according to the U.S. Federal Communications Commission, high VSNL rates have caused the volume of phone traffic from the U.S. to India to be 10 times greater than the volume from India to the States. While U.S. phone companies get higher revenue and volume, they are forced to pay the Indian government to connect all the calls. U.S. officials grumble that the towering interconnect charges added $300 million to the U.S. trade deficit. That prompted the U.S. to hold ongoing high-level talks urging VSNL to drop their prices--something no one expects anytime soon.

In an effort to bring down costs of doing business, most industrial nations have started deregulating their telephone markets rather than wage a war against new technology. In India, things clearly are different. VSNL seems ready to use every weapon to protect its monopoly profits.

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