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VSNL to invest Rs 20 billion in 2001-02

Indian telecom giant Videsh Sanchar Nigam Ltd, sitting on a cash pile of nearly Rs 50 billion at the end of March, will have to scout for more businesses to satisfy investors as it nears the end of its monopoly over international calls in April 2002.

At a meeting with VSNL management on Monday, various analysts appeared to be unsatisfied as the company laid out plans for Rs 20 billion of capital spending in the current year, without describing any long-term plans.

Of this amount, it set aside Rs 5 billion for constructing a cable network to provide television and Internet service directly into homes, another Rs 6-7 billion for expanding long-distance bandwidth through a submarine cable project, and an unspecified amount to expand Internet coverage across India.

Chairman and managing director S K Gupta said that the company would spend 25-30 per cent of the total investment in the national long-distance project in the current year.

But New York Stock Exchange-listed VSNL also acknowledged that it might fail to get the government's nod to become a rival for India's local fixed-line telephone service, which is potentially damaging to its future growth prospects.

Local phone service is now controlled by two state-owned companies, and the government is opening access to new rivals. VSNL applied for six licences to provide local service but did not get a single licence out of 40 applications approved by the government in end-March.

Chairman Gupta said the government's holding in VSNL may block its obtaining a licence.

"We have been given to understand that the policy makers do not favour a third state firm, in which the government owns more than 10 per cent stake, to enter the last-mile business," Gupta told analysts.

POST 2002 REVENUES WILL GROW

But Gupta said revenues will keep growing even after April 2002 when the company is set to lose its overseas monopoly, on the back of growing volumes of calls.

VSNL's net profit for the year ended March rose 88 per cent to Rs 15.78 billion on sales that rose a mere 3.6 per cent to Rs 73.15 billion.

The company gets over 90 per cent of revenues from overseas calls. It said voice traffic volume grew 20 per cent to 2.69 billion minutes.

Internet subscribers grew 72 per cent to 630,970. VSNL is India's largest Internet access provider.

VSNL, which reported its results during market hours, ended up 4.62 per cent at Rs 316.95 on the Bombay exchange, off highs of Rs 327. The exchange index closed 2.82 per cent higher.

The Indian government plans to cut its stake in VSNL to 26 per cent from 53 per cent. To compensate for the loss of its monopoly, the government has pledged VSNL free entry into the national long-distance business and an all-India Internet access provider licence.

But the company was cautious of the threat from cheaper Internet voice telephony, which if allowed could severely dent its main line of business.

An Indian government panel had advised the government in February to allow voice telephony over the Internet to bring down costs for users.

"It is a real threat. VSNL's stand is that international call rates should be slashed by at least 35-50 per cent before Internet telephony is allowed," Gupta said.

VSNL said it plans to spend up to Rs 5 billion on the cable network project and has set a target of 100,000 customer connections in the first year.

"Operators are interested in a neutral and an independent platform to offer television channels along with an Internet connection. We are not a broadcaster, and hence we suit the requirement."

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