The Telecom Regulatory Authority of India (TRAI) is moving to relax restrictions on telcos and ISPs offering VOIP services in a bid to encourage the adoption of broadband services and push down the cost of rural telephony.

In a letter to the Department of Telecom, the regulator notes that "policy and regulatory roadblocks" have prevented VOIP services from taking off in the country.

"It was expected that access service providers will provide highly popular services like Internet Telephony and boost broadband penetration but it has not happened on the ground," TRAI says in its recommendations.

India's broadband subscriber rate has fallen well below the government's expectations, with 4.38 million connections at the end of June. Subscribers had been projected to reach 9 million by the end of 2007. (See India Looks to WiMax for Broadband .) In contrast, mobile operators added 52 million new subscribers in the first half of this year alone. (See India's Going Mobile! 52M New Subs in H1.)

"There seems to be complete market failure as our subscribers are denied advanced value-added services in contrast to [the] world scenario where such Internet-based services are very popular," it says. "ISPs are not permitted to provide unrestricted Internet Telephony though they have Internet protocol (IP)-based infrastructure."

Up until now, service providers have been able to offer PC-to-PC calls and connect to telephones abroad, but haven't been permitted to connect to the public switched telephone network (PSTN) within India. The TRAI is recommending that restriction be lifted so that telcos and ISPs can offer calls to domestic phones.

"Such regulatory restrictions discourage technological advancements and [the] result is grey market activities to provide these services," it says.

In its recommendations, the regulator says long-distance service providers will have to hash out the details of call termination on their networks with telcos and ISPs: "NLD [national long distance providers] shall make suitable commercial and technical arrangements with access providers (PSTN/PLMN) and ISPs to facilitate Internet telephony call termination on PSTN/PLMN and ISPs."

The government's Telecommunication Engineering Centre (TEC) would be required to conduct a study to assess the number of resources available for VOIP allocation. "Based on the study, appropriate number blocks may be earmarked for Internet telephony in newly recommended 11 digit numbering plan."

Welcoming the TRAI's approach, the ISP Association of India (ISPAI) noted in a statement, "Internet telephony will play a very positive role in increasing rural teledensity for whom the current long distance tariffs are still unaffordable."

According to the regulator, telecom penetration in rural areas is around 8 percent, or eight phones for every 100 people.

"In rural areas there are nearly 20,000 exchanges, which are connected through reliable media. These exchanges can help broadband penetration in rural areas," it says.

"Presently there are 11.64 million rural wireline subscribers at end of March 2008, which is declining. Provisions of broadband connections will not only provide value-added services and applications to our rural subscribers, but will also arrest declining trend of wireline subscribers and improve business model[s] of telecom operator[s] serving in rural area[s]."

"Internet telephony in India could become the 'killer app' for broadband penetration – which has sadly lagged far behind the very successful mobile telephony in India," said Rajesh Chharia, ISPAI's president.

The TRAI's push to further open up the voice market and increase competition follows recommendations to the Department of Telecom earlier this month on allowing mobile virtual network operators (MVNOs) to operate in India.

— Nicole Willing, Reporter, Light Reading