The Internet service policy unveiled on Saturday is likely to hit the industry hard. It may wipe off small and medium players in the country.

Moreover, the policy may also hit the bandwidth-dependant sectors including the corporates and the business process outsourcing industry.

"This policy will kill the industry, as it is bad in intention and spirit for Internet providers and users in the country. The government is reigning in a regulation similar to that in the telecom sector, without knowing that this is a very young segment," Internet Services Providers Association of India Director General and founding member Amitabh Singhal told Business Standard.

The Internet sector is not geographically bound and like the call centre and BPO sectors, it should be left to the market forces to chart the growth plan, he said.

The decision to do away the district level operators (category 'C' licence) will result in small and medium players becoming soft targets for the industry leaders.

A proposal that these companies may move to next level (category 'B' or state-level) might not really work due to the huge financial and operational constraints.

"More than a consolidation triggered by a spate of mergers and acquisitions, we might witness closing down of small and medium ISPs," Singhal added.

Reflecting these sentiments Net4india Chief Executive Officer Jasjit Sawhney said: "Overall this is a negative policy and rather than growth this will result in the death of the sector."

Additionally, most of the smaller players would not be able afford in the Rs 100-crore entry fee for offering IPTV services.

The policy has not brought in national voice over Internet protocol, which, in turn, will only favour the major telecom players in the country.

However, Sawhney ruled out a possibility of cartelisation in the sector that could lead to an increase in prices, stating that the prices were already at a nadir.

Naresh Ajwani, executive vice-president, Sify, said, "We need to look at the proposal carefully. There is a need for clarity on certain issues such as revenue-sharing aspect, especially in areas that are not purely internet-related. I am sure the government is considering providing voice and other revenue-generating opportunities for the ISPs too."

The government has also reduced FDI in Internet services to 74 per cent from the earlier 100 per cent and introduced a 6 per cent revenue share clause that may spell costlier Internet services for consumers.

"This will kill whatever the little interest global majors like AT&T, British Telecom, Verizon and Skype among others had in investing in the Indian Internet sector," Singhal said, adding, this will be sending "wrong signals" to the world.

In the Internet service policy unveiled on Saturday, the government had also introduced a higher entry fee of Rs 20 lakh (Rs 2 million) for category A (national-level) licence and Rs 10 lakh (Rs 1 million) for Category B (state-level) licence, against a flat fee of Re 1 earlier. It has done away with the Category C (local-level) licence altogether.

According to Sawhney, the higher entry-fee structure is also detrimental to the growth of the internet sector as the Telecom Regulatory Authority of India was looking at increasing broadband penetration to 40 million by 2010 from the present around 1.5 million. Policies that are favourable for the industry are the need of the hour, he added.