VoIP service provider Nanu has shut its Indian operations, citing a lack of clarity from the Indian telecom regulator TRAI. Nanu had tied up with telecom operators to allow users to call regular phone numbers using Internet Telephony, with the call being funded by advertisers. To enable this, they were paying telecom operators a “termination fee”, for allowing the VoIP call to connect to a regular phone call.

Martin Nygate, CEO of Nanu, said that the company was growing very fast in India: “we had around 35,000 users signing up every day, completely organically. Our daily active users and monthly active users were far in excess of similar apps. Our daily active user rate was around 18% and our monthly active user rate was around 32% or 42%”, and, “Statistically we were growing very fast and our usage rate was very healthy. India was around 57% of our market for all users, and it was all fine.”

“We particularly developed this application for the Indian market. We had an innovation in our product that we ran on very very low bandwidth. We ran with 50-80% less bandwidth than Skype, WhatsApp, Viber, and WeChat. Because of this, we were working very well in 2G and congested 3G, which is a majority of India. We’re still getting emails from India, saying please bring back Nanu. Understand that this lack of (regulatory) clarity meant that we spend all of our investment funds on developing the Indian market. Once we ran out because of this, our investors said ‘hold on, you didn’t succeed in India because of lack of clarity, we’re going to starve you of funding.’ That’s why we shut it down completely. Because we spent millions of dollars developing the Indian market, but because of the lack of clarity, we weren’t able to forecast and generate the revenue we needed to sustain that growth.”

“We had a few people in India, and our office was spearheaded by Vijayant Dhaka. Vijayant did a great job in exposing us to advertisers and getting our growth. In the end, because of these (regulatory) problems, we had to shut down the whole operation.”

Lack of clarity and delay from TRAI hurts startups

Nanu’s fate highlights the danger of operating in a regulated sectors in India, such as telecom, where the future of businesses depend on the whims of regulators: historically the Insurance regulator IRDA is a prime example, and while the TRAI has perhaps been the most transparent and consultative of regulators (even the Ministry of Finance has not disclosed the submissions made that led to the Watal Committee ruling), Martin highlighted areas where the TRAI needs to improve its processes, given that the lack of clarity from the TRAI has hurt the company. The TRAI ran multiple consultations on VoIP last year, but the ruling isn’t out yet.

“Not only is it not out, but no one knows when it will come out or if it will ever come out,” Martin said. “You see that the problem here is that the government bodies in India are continuously doing consultation papers, and every time the consultation paper comes out, the market has changed, technology has changed. They can’t make a decision because every time they consult, the market has changed again. The market is changing dramatically, and the regulations are not able to catch up. I don’t know if there will every be clarity because they’ve taken simply too long to take a decision. No one wants to make a decision because, of course, you know that there’s a saying that people who never make decisions never make mistakes. So people are afraid to make decisions and I don’t know when there is going to be a decision. If the TRAI or the government of India says that on the 1st of January 2017, we will make a decision, and on the 1st of January 2017 they make a decision, then that’s okay. The problem is that there is no deadline for decision making. Because there is no deadline for decision making, we can’t plan.”

“Mr Sharma said to me very clearly that there is no intent (to regulate IP to IP calls): even through IP to IP can be interpreted as contravening the current regulation, TRAI recognizes that this is now common practice. So they’re not going to shut down Skype, Viber, WeChat and WhatsApp, even though if you interpret the law, even that could be interpreted as contravening the current regulation. The problem was IP to PSTN. Now, the issue here is that a consultation paper came out which suggests VoIP players can deliver IP to PTSN, but it costs – I don’t remember how many crores, but it was ridiculous, in millions of dollars. What that means is that no VoIP player in India has clarity and understanding about how much they’re going to be charged. Because of this, our investors said – hold on. We don’t know whether you’ll be able to operate. We don’t know how much it will cost, so we can’t fund it. That’s why we shut down.”

No standardization of termination charges brought in business uncertainty

“The problem was that we were offering our users terminated calls that were being subsidized by advertising revenue. As you call, instead of a ringtone, you hear an advertisement, such as this call is brought to you by Flipkart. This sort of advertising was interesting for the advertiser. We were in the process of growing very fast in order to get the reach and the frequency, in terms of what you is the distribution of advertising, so the magnitude that the advertisers wanted,” he added. “However, the problem was with the unit economics: the income from advertising minus the call was very very difficult to predict. The income from advertising was very simple to predict because we knew how much the advertisers were willing to pay. So we knew that the average duration of the call was around 2.3 minutes. The problem we had was that the cost of terminating in India was very opaque. Because of the influence of government bodies in India – TRAI etc – there is no clarity on the cost of termination, and there is no clarity on the ability of VoIP companies to operate freely in India.”

A press release last year mentioned that Nanu had paid around $200,000 to telecom operators in termination charges. 

“Our money went in giving money to telcos to terminate the call. The thing is that we were paying the telcos more money to terminate the call than they were getting from the consumer. It is absurd. The telcos were happy with us and weren’t complaining. The unit economics, the amount of money we get (from the advertiser) for VOIP, let’s say is Rs 5 paise. If the average duration is 2.3 minutes. If the termination charge is 1 paise, then one call is 2.3 paise to terminate. If we get 5 paise from the advertiser, we make money. The problem was that 1 paise for termination charges was going to keep changing. It went up and down, and there was no clarity. If it were 1 paise, okay. If it went up to 2 paise, then we could have lost money. The advertiser would pay a fixed fee. We never knew because there was no clarity. Our money went to developing the market because we were paying the telcos.”

Why should the rates be the same?

If you think about it, Reliance Jio paid around Rs 1650 crore for a license which allowed it to terminate VoIP calls on PSTN networks .Under those circumstances, why should a company like Nanu get an advantage? If they want parity in termination charges, shouldn’t there be parity in license fees?

“First of all,” Martin said, “no startup like us has 1650 crores to spend on a license. That’s not realistic. By putting that in place, all you’re doing is restricting the innovative startups from penetrating the market. You have put the barriers of entry so high that you’re restricting it only to the telcos. You’re saying that reject any OTT because one of them can pay this. However, there is a solution. The solution is that if Airtel to Reliance termination is 1 paise. You can say that the OTT pays Rs 1 crore, or whatever, a small amount of money for a license, and they can say that their termination is not 1 paise. It’s 3 paise. That’s fair because then the OTT will know and can do their calculation about whether they can deliver free or subsidised calls or not. They can plan. I totally agree with you. If Reliance paid many crores, it’s not fair that someone else can come in and get the same deal. But in this case, the simple solution: don’t charge the OTTs a license fee. Let the OTTs pay a reasonable, and not an extortionist, termination charge.”

What about an MVNO license?

“Even with the MVNO license, they’re also restrictive. Do you understand, that when you have startups and innovative companies, or even WeChat. Do you really think they’ll start spending X amount of money in each country, buying an MVNO license? Why should they buy it in India when they don’t want to buy it in Pakistan? You have to understand that for these companies – all companies – India is an important market. It’s 1.3 billion people. If you’re going to put up a barrier to entry into the Indian market, then an OTT will say, hold on, let me go to another market with a billion people – like Africa or China, or other places. I agree that if Reliance or any telco takes a license, they should get cheaper termination charges. No dispute on that. But to have no clarity, there’s no chance because you can’t plan. How can I plan?”

“The less regulation, the more open it is to innovation. One is the USA and the other is the gulf countries. The US market doesn’t have this regulation, and it is pro-Net Neutrality. Then you look at highly regulated markets like the Gulf, like Dubai. There not only do you stifle innovation but the cost is high and the service is bad. The less the regulation, the more the innovation.”

Under what circumstances will Nanu return to India?

“It’s very simple,” Martin said. “If TRAI turned around tomorrow morning, and said look, that IP to PSTN terminated calls will be allowed on the 1st of June 2017 and you will pay the same rate as Indian telcos. Today, if today an Airtel customer terminates on a Reliance network, then Airtel pays Reliance x amount of money. If we knew how much that was, and that we were operating at the same level, but no one is giving a rate and no one knows. ”

Image credits: Flickr user daveynin under CC BY 2.0