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Entry rules key to India's VSNL sell-off success

India must spell out rules fast for allowing private competition in the international calls business if it hopes to reap big bucks from the sale of state-run telecom giant VSNL, analysts say.

VSNL's value slips each day as the end to its monopoly status as an overseas telecommunications carrier next April draws nearer, analysts say.

The government, which had originally planned to wrap up the sale in August, now hopes to complete the exercise in October.

But without rules governing private sector entry into the business, analysts say this could just be talk.

"Everything depends on these rules. No bidder will put in a price bid unless he knows what are going to be the entry fees for the business or how many players will the government allow," an official with one of the bidder companies said.

A telecom ministry official said that the ministry was awaiting draft rules in the form of a consultation paper from the country's telecom regulator.

The official, who did not wish to be identified, did not give a timeframe for when the government would finalise the rules.

The progress of this sale, billed as among India's most ambitious sell-offs undertaken in a decade of reforms, is being closely watched now that the high-profile privatisation of national long-haul carrier Air-India appears grounded.

Two of India's biggest groups -- the Reliance and Tata conglomerates and a consortium comprising India's BPL Communications and Sterling Ltd and US companies TyCom Ltd and Century Tel -- are in the three-horse race to acquire control of the state-run telecom giant.

Plans to cut stake

The government, which owns 52.97 per cent of Videsh Sanchar Nigam Ltd, plans to lower its holding to 26 per cent by selling a 25 per cent controlling stake to a strategic partner and another 1.97 per cent to VSNL's employees.

The government has announced plans to end VSNL's monopoly over the overseas calls business and throw open the business to private competition in April next year.

But without entry rules for private firms "how can any bidder decide on the valuation for VSNL without knowing how much it would cost a company to build the business from scratch?" asked an official of one of the bidders.

The privatisation of the New York Stock Exchange-listed VSNL has already been weakened by the exit earlier of three bidders -- India's Birla group, consumer electronics group Videocon and a consortium comprising Bharti Enterprises and Singapore Telecom.

VSNL, also India's largest Internet access provider, gets around 90 per cent of its revenues from its overseas calls business and analysts see competition in the business hurting its marketshare and severely denting its revenues.

Shares of VSNL, a profit-making company considered one of the government's crown jewels, have slid 43 per cent from a 2001 closing high of Rs 399.40 hit on February 5, days after the government announced its plan to privatise the company.

VSNL's share ended nearly 20 per cent lower at Rs 226.45 on Monday on the BSE after it went ex-dividend. The BSE Sensex closed 0.55 per cent lower.

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