Search the Internet          Tips  Sites: Finance, Investment

Telecom PSUs step up capex to counter competition

NetScribes/Ganesh Ramamoorthy

Faced with the absolute certainty of unlimited competition across telecom service sectors - cellular, basic services and long distance telephony - state-run telephony companies are stepping up capital spending to the tune of Rs 200 billion during the fiscal, to give a boost to their services to customers.

The recently formed, Bharat Sanchar Nigam Ltd leads the list with a total outlay of Rs 165 billion ($3.5 billion) for the fiscal, followed by Videsh Sanchar Nigam Ltd, Rs 20 billion and Mahanagar Telephone Nigam Ltd, Rs 14 billion.

The Rs 200-billion outlay, though not the first of its kind by the telecom PSUs, however assumes significance today, especially when the competition in the Indian telecom sector is mounting everyday.

Take the case of VSNL, for instance. VSNL is already facing competition from private players Satyam, Mantra, Caltiger, and Bharti (and from MTNL, BSNL) in its Internet access business.

The competition will only intensify further as new players like Reliance, Tata, NOW etc., enter the fray. Moreover, VSNL will lose its monopoly on international telephony, its largest revenue earner, by April 2002.

Also, VSNL's telecom accounting rate with US carriers have dropped from 85 cents per minute to 68 cents (effective April 2001), which means other carriers will pay VSNL less money, unless traffic increases.

For the year ended March 31, 2001, VSNL's net profit rose 88 per cent to Rs 15.78 billion on sales that rose a mere 3.6 per cent to Rs 73.15 billion rupees.

Over 90 percent of the revenues came from overseas calls, while the voice traffic volume grew 20 per cent to 2.69 billion minutes and Internet subscribers grew 72 per cent to 630,970.

With the revenue stream thinning down every passing day to the D-day, VSNL, which is sitting on a huge cash pile of Rs 50-billion, is now scrambling for new business areas that would shore up its revenues.

Of the Rs 20 billion earmarked for capex, VSNL will invest Rs 5 billion in DTH project - Rs 1 billion on the ground and Rs 4 billion for customer boxes.

Another Rs 6-7 billion will go towards the acquisition of an extra one-giga bit bandwidth. VSNL also plans to cover 25 per cent of the DLD project's investment cost in the year.

The rest of the expenditure will be directed towards other developmental projects and the ISP business, which VSNL plans to expand from the current nine cities to another 18 by the end of 2001.

MTNL, which provides fixed-line, cellular and Internet access services in Bombay and New Delhi has its own problems - it had applied for licenses for about 12 circles (all areas where BSNL operates), but the government shot down the proposal saying there can be no competition between "brethrens".

The move will be a severe blow to both MTNL, which had plans to become a national telephony operator, and VSNL, which was eyeing the fixed-line services to broaden its revenue base.

But unfazed by the government's ruling, MTNL announced Rs 14-billion plan to expand its global operations in alliance with Telecommunications Consultants India Limited. The alliance will look for opportunities in the Asian and African markets.

MTNL has also announced alliance with WorldTel to carry out telecom projects in Bangladesh. The project expected to become operational this year, would provide a 300,00 basic lines in Bangladesh on a built-operate and-transfer basis.

Besides, the PSU is also working on three more overseas projects including providing telecom facilities using WLL in Nepal in association with TCIL and VSNL, and has also picked up a 30 per cent equity stake in Malawi Telecom, to add muscle to its services.

BSNL, though has the advantage of being the largest fixed-line services provider in the country, yet has reasons to worry - private operators like Bharti, Reliance, BPL and others with deep pockets, cutting-edge technology, and an aggressive sales and customer support force, can still catch BSNL napping.

For the year ending March 31, 2001, BSNL made a profit of Rs 80 billion, largely due to revenues from fixed line business, where it will soon be facing competition from private players.

Even the expansion of the basic network would not help its bottom line much as unlike private operators who offer connections to subscribers with a potential of high volume traffic, BSNL cannot discriminate against low calling subscribers.

With its revenue per line of fixed telephones dwindling, BSNL is now chalking out plans to capture 50 per cent of the Indian cellular market in the next four years, and to offer voice over Internet protocol in the next couple of months.

BSNL will invest Rs 6 billion in the first phase of rollout (between November to March next year) to install 1.5 million lines both rural and urban areas, and will invest about Rs 10 billion, in the second phase to install about 2.5 million lines.

While the huge capex plans have raised hopes of improved services and better returns among the customers and investors, analysts say much will depend on telecom PSUs' ability to match the private operators in terms of quality of service, and their marketing and sales capabilities.

Money

Business News

Tell us what you think of this report