India has decided to ask Internet Telephony companies, including Skype, to set up servers in the country, and also ask ISPs and telcos to segregate IP addresses on a state-wise basis reports the Economic Times, citing minutes of an April 23rd Home Ministry meeting. Skype appears to be the key concern here, and the lack of regulation and as well as iffy jurisdiction scenario poses concerns for companies.

We’ve been tracking the Internet Telephony space since (our) inception, so here’s something of a complete overview, and opinion on its status. If we’ve missed something out, or if there are errors, please do let us know:

– Security concerns are real: Internet Telephony was used in the terrorist attacks in Mumbai, and the Indian police explained last year how easy it was to trace, and how easy it was to set up a service, across different jurisdictions. Do read How VoIP Was Used For The Mumbai Terrorist Attacks: Aditya Mishra, IPS. This explains why India is so keep to intercept Internet Telephony.

– Internet Telephony not allowed to terminate on Telecom networks: At present, Internet Telephony calls originating out of India are not allowed to terminate on Public Service Telephone Networks (PSTN) in India: i.e. using an Indian mobile number, you cannot make an Internet Telephony call to another mobile phone number. Do read the applicable policy on Internet Telephony in India here.

– A workaround for Internet Telephony traffic is the routing of calls internationally, and then terminating them within India. More details in our story on how Spokn, a company backed by Geodesic, was dealing with India’s Internet telephony regime.

– The call for blocking Internet telephony isn’t new. Back in 2006, comments from stakeholders (and not the government) to TRAI’s consultation on ISP licenses and Internet Telephony called for the blocking of Internet Telephony: “since Skype / Google type service providers are not licensed to provide such services in India without having facility for lawful interception, therefore, the vigilance and monitoring efforts are required to be beefed up, as these applications not only bypass the laws and regulations of the land, but also pose a threat to security. As such these services should be blocked.” The ISPs saw Internet Telephony as a means of getting more revenues, making a tiny little dent in the telecom business. The telecom operators obviously lobbied for a prevention of change in policy.

The TRAI had recommended unrestricted Internet Telephony in India in 2008. The Government did not allow it, and the policy remained unchanged, as we found out via RTI.

– Carrot and stick: the approach is changing. The Indian government has realized that they can’t block Internet Telephony (especially IP to IP communication over data networks), so they’re offering the carrot of a license (via Unified Licenses), with the stick of interception. Cue Nimbuzz, which launched its messenger with Tata Indicom in 2009 with voice calls disabled; it is now eyeing a licensed Internet Telephony service via Unified Licenses.

Conclusion: Telecom Operators want protection, Government wants revenue

Telecom operators are now riding the tiger that is Mobile Internet. They had no choice but to get on board, after paying for 3G and 4G spectrum, and the pace of growth of Mobile Internet in India is both a boon and a bane: data revenues are increasing rapidly, as is data ARPU (see: Airtel, Idea, Reliance Communications), and messaging and VAS is on the decline, threatened, in particular, by the rise of messaging over Internet Protocol (MoIP?) services like Whatsapp. Note that these can’t be intercepted either (though the police claims that it can), and like it happened with BlackBerry in India, the game with other messaging services will also eventually resume. The same pattern is being seen in Internet Telephony.

So what does each stakeholder want? The government wants revenue and security, so it will push for a licensing and interception, thereby getting control of an unregulated space and a pseudo license-raj-red-tape being put into place. Very few can argue/lobby against the use National Security as a ruse to introduce licensing, especially with valid security concerns (as was indicated by the terror attacks case), although there are valid privacy concerns which get swept under the carpet, given that India doesn’t have a Privacy law (though one is in the works). Also see social media monitoring in the context of the PUCL case

Telecom operators want to slow down the pace of decline of some revenue streams (messaging) and preserve others (voice revenue), so they will do two things – firstly, they will argue that these service providers need to pay telecom operators money, since they account for a significant amount of traffic and data consumption, never mind net neutrality and the fact that consumers are already paying them for Internet access. The Unified Licence might change this, separating content from carriage, but bringing with them their own issues of controlling content on the Internet.

Secondly, they’ll use the security bugbear to push for licensing of Internet Telephony, and for bringing it on par with telecom services, although (in my opinion) those arguments would be misplaced since both Internet Services and Telecom services are already licensed, and the government would end up creating a licensing regime on top of a licensing regime.

Remember that these are services which can operate without licenses, but are being forced to take licenses only because of policy restrictions – and not technology restrictions. The cost of a license will limit the entry of startups without significant backing, and curtail innovation.

Interesting times ahead, albeit worrying.