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VSNL feels the pinch, goes on warfooting

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CIOL Bureau
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Rahul Gupta

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MUMBAI: It is feeling the heat of the deregulated market for the first time. Worse, the illegal ILD market is also eating into its revenues. All this is pretty much obvious from the now Tata company VSNL’s financial performance. Having monopolized almost all the telecom services it is offering for ages, the company at last fell flat with results.



The company reported a 39.50 percent decline in its net profit–from Rs 316.3 crore for the quarter ended March 31, 2002 to Rs 191.1 crore JFM 2003. Its net profit for 2002-03 declined 44.5 percent to Rs 780 crore as against Rs 1,407 crore in the previous fiscal. Net sales fell 30 percent to Rs 4,538 crore, from Rs 6,508 crore, while total income went down from Rs 7089 crore in FY 2001-02 to Rs 4812.5 crore in the year ended March 31, 2003. The board has recommended a final dividend of Rs 8.50 per share for the period.



One of the important reasons that led to the downfall is the growing ILD grey market. The new interconnect regime that was formalized in January 2003 has witnessed the sudden spurt in ILD grey market, and this has left VSNL in much anguish.



Most of the incoming calls coming into the country are illegal. These grey market operators use IP routers to tap international calls. The TRAI’s interconnect regime laid down the basics of what operators must pay each other to connect calls. Incoming and outgoing international calls too were covered under this regime and have paved the way for small players to set up a grey market operation for international telephone traffic.



No wonder then, VSNL’s revenues from ILD services( the company’s revenue mainstay) declined 53 percent to Rs 687 crore during the fourth quarter, from Rs 1,465 crore in the corresponding quarter last year. The company’s ILD revenues for the full year fell 35 percent to Rs 3,710 crore, compared with Rs 5,734 crore last year. The company handled a total of three billion minutes during the fiscal ended March 31-03, which was the same as the previous year. ILD service accounts for over four-fifth of VSNL’s total revenue.

Interestingly, however, despite the fact that the grey market has been growing DataAccess and Bharti managed to make handsome gains. Reliance has also stepped in their shoes and this certainly is not a good sign for VSNL in the coming days. To make things worse in days to come, BSNL has also acquired a license for ILD.

The saving grace for the company, however, was its value-added services–dial-up Internet access and corporate leased lines. This accounted for 25 percent of the company’s total income against 11 percent in fiscal 2001-02. Revenue from value-added services increased 26 percent to Rs 227 crore during the fourth quarter against Rs 180 crore in the corresponding quarter the previous year. For the full year, income from value-added services increased to Rs 829 crore against Rs 774 crore during the previous year.

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VSNL puts up a strong fight



Not the one to be dethroned soon, VSNL has taken some bold initiatives to overcome the problems. The company is foraying into new foreign markets and has sought a license for providing international long-distance services in Sri Lanka. It has also set up a ‘point of presence’ office in the US for voice over Internet protocol (VoIP) services.

VSNL already has a presence overseas in a joint venture company called United Telecom. The venture is being floated along with Telecommunications Consultants India, Mahanagar Telephone Nigam (MTNL) and Nepal Ventures Pvt Ltd to provide limited mobility services in Nepal.

The company has in a quick move, signed the interconnect agreement with the state-owned Bharat Sanchar Nigam Limited (BSNL) for international long distance (ILD) calls. It is expected to sign a similar agreement with MTNL too. The interconnect deal is significant as it allows VSNL to route its international calls on the networks that are owned by BSNL and MTNL. But in March next year it will lose its preferred carrier status as the current agreement holds good only till March 31 next year.

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BSNL is supposed to start its ILD services by April next year. The company has invested Rs 350 crore in the wholly owned Tata group-company Tata Teleservices (TTSL). While Rs 280 crore was put in TTSL during the last fiscal, VSNL has invested Rs 70 crore during the last two months. These are part of VSNL’s proposed investment of Rs 835.8 crore in the basic telecom operator, TTSL, over a seven-year period. VSNL management has been asserting that the investments are vital, as the company would get a captive customer base only by investing in Tata Teleservices.

Goes in for branding

VSNL has also adopted Tata Indicom brand to offer all its services. It has invested around Rs eight crore towards various brand-building exercises and retail initiatives undertaken during the fourth quarter ended March 2003. The is adopting the FMCG distribution model for its dial-up Internet pack to establish direct contact with end customers and strengthen brand presence.

It is also going full hog to retain its market share in the Internet business–planning a major overhaul of its infrastructure by launching a new messaging platform, enabling faster downloads and designing a single billing system. The company expects the changes to become operational by mid-June.

It is also implementing a system that would ensure downloads within a specific timeframe. It also plans to provide new messaging features and e-mail services similar to those offered by Yahoo! and Hotmail. VSNL, which currently has 700,000 Internet subscribers has also tied-up with ATM service providers like ICICI to enhance payment services. Nevertheless, VSNL is facing stiff competition from basic service providers like MTNL and BSNL, which offer direct Internet connectivity to their subscribers, obviating the need to purchase a prepaid card.

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