VSNL market share to drop 50% as monopoly ends

MUMBAI: New York Stock Exchange-listed VSNL's market share will plummet by 45

to 50 per cent over the following three to four years, Crisil Advisory Services

(CAS) and PA Consulting Group (PA) said in a press release.

VSNL's market loss "over certain profitable routes may be more

significant", it added. Partly minimising the impact, however, will be the

growth of the overall market as calling charges fall.

Indian international phone traffic is expected to grow at a compounded annual

growth rate (CAGR) of 10 per cent over 2003-2010 -- more than doubling to about

7.5 billion minutes from 2.69 billion minutes.

Industry revenue from providing international service will initially decline,

then rise less steeply than traffic volume because of fierce price competition.

"The overall ILD (international long distance) market size will decline in

the short-term due to falling tariffs and settlement rates," the researcher

predicted.

"But over the long term, ILD revenues will grow at 2.5 per cent CAGR and

will rise from the current level of 72 billion rupees to 98 billion (rupees) by

2010."

The low barriers to entering the market set by the government "will lead

to a huge influx of competition...but only 4-5 players will survive," the

researcher said. The study predicted that competition and pressure applied by

the U.S. Federal Communications Commission and regulators in other countries

will drive down the average settlement rate to $0.13 per minute from $0.46 now.

The settlement rate is the fee the telecom firm where a call originates pays

to the phone company where a call terminates. It also predicted the average

tariff will fall to 20.2 rupees per minute by 2008, down more than 50 per cent

from current levels.

The report said three factors would be critical in determining which service

providers survive: the ability to negotiate favourable interconnect

arrangements, to offer bundled services "which translate into an overall

pricing benefit to the consumer, and quality of service.

Crisil Advisory Services is the financial advisory service division of CRISIL,

a major Indian credit rating company. PA Consulting Group is a management,

information and technology consultancy with offices in 20 countries.