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Making VoIP expensive – a smart or a bad move by Bharti? Bharti’s move to take
VoIP calls out of the bulk data packs and charge for these on a pay-as-you-go data rate
basis, while consistent with the company’s philosophical stand on net neutrality, is a
risky move, in our view. In addition to risking customer ire, such a move opens up the
possibility of an existing or a new competitor (like R-Jio) to use this as a fairly strong
competitive differentiation plank. We are in for some interesting times on this front.

The event – Bharti to charge differential (premium) rates for VoIP calls

In an unexpected, bold and risky move, Bharti has introduced a fine print in the terms and

conditions of its data packs that takes data usage for VoIP calls outside the data allowance

under the bulk data packs. The fine print suggests that the customers would instead have to

pay pay-as-you-go rates (4 paise per 10 KB for 3G, 10 paise per 10 KB for 2G; 17X/52X more

expensive than the respective 3G/2G 1 GB packs on a per MB basis) for data used on VoIP calls

(both incoming and outgoing). Here’s the fine print as stated on Bharti’s website – “All

Internet/data packs or plans (through which customer can avail discounted rate) shall

only be valid for internet browsing and will exclude VoIP (both incoming/ outgoing).

VoIP over data connectivity would be charged at standard data rates of 4p / 10 KB (3G

service) and 10p / 10 KB (2G service).” Even as Bharti’s move does not violate any

regulations, it is against the ‘net neutrality’* principle and is risky in more ways than one.

Intent of the move is to mitigate the risk of serious voice revenue cannibalization

Telecom operators’ discomfort with OTT applications rendering them dumb pipes is widely

known. Even in India we have seen discussions at an industry/regulatory level on how to

balance the value-capture more ‘fairly’ between the OTT players and telcos. OTT here stands for

over-the-top services like Skype, WhatsApp, Viber, etc., which use the telcos’ data networks but

cannibalize the telcos’ legacy voice and SMS revenues. Bharti’s move primarily aims at making

VoIP calls expensive versus legacy voice calls. The math – a VoIP voice call, depending on which

codec the VoIP service uses, takes anywhere between 0.5 and 1 MB of data per minute of call.

Effective call rate on pay-as-you-go rates, on 3G, would work out to `2-4 per minute versus

prevailing local/STD outgoing tariff of `0.5-1.5 per minute for legacy voice. Under the data

packs, the same VoIP call would cost `0.13-0.25 per minute. We do note that media reports

suggest that Bharti would launch separate VoIP data packs soon. Nonetheless, the intent clearly

appears to be to make VoIP calling expensive versus legacy calls in a bid to mitigate the risk of

voice revenue cannibalization without raising data pack rates.

The move is risky on more fronts than one

Quick thoughts on why we think Bharti’s move is risky –

 Within a few hours of Bharti making this fine print change, we have already seen a good

amount of customer outrage on social media. Unless other operators (especially Vodafone

and Idea) follow Bharti on this move, it has the potential to be counterproductive.

 It opens a meaningful differentiation proposition for competitors, extant and new (R-Jio),

who may choose not to follow Bharti’s VoIP pricing strategy. Bharti’s move provides visibility

to the aspect and makes it potentially powerful ‘marketing material’.

 It signals a defensive mindset where Bharti is pretty much accepting the threat of revenue

cannibalization from OTT voice.

What is net neutrality?

Wikipedia defines net neutrality as ‘the principle that Internet service providers and

governments should treat all data on the Internet equally, not discriminating or charging

differentially by user, content, site, platform, application, type of attached equipment, or

mode of communication.’ It is one of the most hotly debated topics in the global telecom

industry today. The wireless players believe that they should be allowed to (1) control the

quality of service (QoS) of different data services (to ensure optimal experience for all users

on the network) and/or (2) charge differentially for various data services to capture their fair

share of the value being created by mobile data explosion. Quite understandably, the OTT

players are on the other side of the fence on this debate.

Bharti’s move to charge for VoIP differentially is one example of violation of the net

neutrality principle. At a strict level, some of the prevalent discounted/free packs in India

(and other markets) for using specific social media sites like Facebook or WhatsApp also

violate the net neutrality principle.

Where do we stand on the debate?

At a philosophical level, while we understand the telcos’ point of view, we do not think the

way to overcome this challenge is to charge the customers differentially for different

services. QoS control, within well-defined limits, can be a way out but may not be the most

effective long-term solution, either. We believe the solution lies in some sort of a commercial

engagement between the telcos and the OTT players – something like bringing the OTT

players under the interconnect regime, for example. Large number of OTT players makes this

practically challenging; however, we do believe the solution lies somewhere in that direction.

Operators trying to block VoIP or charge differentially is not unprecedented

Blocking VoIP services in data packs (either for network management or for charging

separately) is not an uncommon phenomenon in Europe. Vodafone, for example, introduced

a clause excluding VoIP and P2P (peer-to-peer) services from data packs as early as April

2007. Also, a report by BEREC (Body of European Regulators for Electronic Communications)

in March 2012 found that blocking of VoIP and P2P traffic is common in Europe.

Some governments have taken a stand against such practices. For example, in May 2012,

the Dutch parliament made amendments to the National Telecommunications Act in order

“to limit the circumstances in which operators are able to engage in network management

and to prevent operators from varying the charges to end users by reference to the type of

internet service or application they wish to use”. The intention, clearly, was to prevent

operators from blocking or charging for VoIP and other internet services.

LINK
http://www.kotaksecurities.com/pdf/indiadaily/indiadaily26122014ao.pdf