VSNL: Value add services to differentiate…. - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

VSNL: Value add services to differentiate….

Jan 13, 2001

VSNL (Videsh Sanchar Nigam Limited), the state owned telecommunication behemoth, is attempting to transform itself from a state run monopoly to a customer-centric organisation. More importantly, the company has recognised the need to enhance the bandwidth capacity and increase the proportion of value-add services in its turnover. VSNL operates the gateway to connect the domestic telecom networks with the foreign networks in coordination with various international carriers. There are two major revenue streams for the company in international telephony. One, it derives revenues from the international carriers for connecting calls, originating abroad, to the Indian telecom network through its gateway. Secondly, it receives a revenue share from the Department of Telecommunications (DoT) for connecting international calls originating from India to the international carriers. International telecom services (telephone, telegraph and telex) are the dominant source of revenue for VSNL, and accounted for 90 percent of the company’s total income in fiscal year 2000. The DoT issued a license to VSNL in 1986 for international telephony, which is valid till April 2004.

Sales mix
% of sales FY99 FY00
Telephone 91.5% 90.2%
Telex 0.5% 0.4%
Leased lines 3.6% 4.3%
Internet 2.5% 3.0%
Satellite 1.1% 1.1%
Others 0.8% 1.0%

The company also entered into a Revenue Sharing Agreement (RSA) with DoT in 1997. As per this agreement, VSNL and DoT share revenues earned from calls originating and terminating in India on the basis that VSNL would pay DoT a charge per minute based on the weighted average ratio of incoming calls less Rs 10. DoT would pay a charge per minute based on the weighted average ratio of outgoing calls plus Rs 10. As this agreement with the DoT terminates in April 2002, VSNL will no longer be insulated from fluctuations in the international tariff structure.

The company provides other value-add services like leased line services, Internet access, electronic data interchange, video conferencing, television relay and video transmission. Income from value added services has gone up from 5 percent of the turnover in 1997 to 10 percent in fiscal year 2000. For instance, Internet Services has been one of the key contributors to the rapid growth in income from value added services. With just one percent computer penetration (out of which not more than 30 percent are connected to Internet), this business has shown good growth prospects for the company. The company offers Internet services in six cities and plans to increase that to ten in the current year.

Having understood its potential, the company has launched competitive Internet surfing packages to increase the subscriber base. The result of these initiatives are evident from the fact that income from Internet services has moved up from less than one percent in fiscal year 1998 to 3 percent in 2000. Going forward, revenue from Internet services are expected to touch Rs 5 billion by fiscal year 2003.

Earlier this year, the Council of Economic Affairs decided to end VSNL’s monopoly in international voice telephony in April 2002 instead of April 2004. However, to compensate the company, the government has proposed a comprehensive package both in monetary as well in non-monetary terms. This includes the grant of domestic long distance telephony (DLD) license and Category ‘A’ Internet Service Provider (ISP) license.

Besides, the government has also decided to share the international voice telephony revenues with VSNL for a period of three years i.e. 2003 to 2005. It has also plans to route international voice traffic arising from both Bharat Sanchar Nigam Limited (BSNL) and Mahanagar Telephone Nigam Limited (MTNL), the two other state owned telecom companies, through VSNL’s international gateway. The compensation package is estimated to be around Rs 7 billion.

However, there are some threats as well. The major one being Internet telephony. Internet telephony allows subscribers to talk long distance at the price, which may be only a fraction of conventional calls. Besides the United States Federal Communication Commission has asked the country’s telecom companies to reduce the rate at which international carriers transfer calls between their networks. This would further pressurize margins and slow down in realisations.

The company has asked the government for a license in providing domestic long distance telephony as well as cellular services (as the fourth cellular service provider) in each of the circles. We believe that value added service would be the only differentiating factor between telecom service providers in the coming years and VSNL. Let us hope they are geared up to meet competition.

Equitymaster requests your view! Post a comment on "VSNL: Value add services to differentiate…. ". Click here!


More Views on News

TATA COMM Announces Quarterly Results (2QFY22); Net Profit Up 10.3% (Quarterly Result Update)

Oct 26, 2021 | Updated on Oct 26, 2021

For the quarter ended September 2021, TATA COMM has posted a net profit of Rs 4 bn (up 10.3% YoY). Sales on the other hand came in at Rs 42 bn (down 5.2% YoY). Read on for a complete analysis of TATA COMM's quarterly results.

TATA COMM 2020-21 Annual Report Analysis (Annual Result Update)

Oct 22, 2021 | Updated on Oct 22, 2021

Here's an analysis of the annual report of TATA COMM for 2020-21. It includes a full income statement, balance sheet and cash flow analysis of TATA COMM. Also includes updates on the valuation of TATA COMM.

6 Stocks With High Financial Leverage (Views On News)

Aug 23, 2021

Interestingly, two Adani group companies top the list while a Tata group company also makes the cut.

1,300% in One Year - Are You Kidding Me? (Views On News)

Nov 29, 2021

An amount of Rs 1 lakh invested in the midcap stock a year ago would have turned into Rs 15 lakh today.

Bharti Airtel's Humongous Rights Issue to Open on 5 October. Key Points Investors Should Know (Views On News)

Sep 23, 2021

Shares of Bharti Airtel trade near record high ahead of rights issue.

More Views on News

Most Popular

Infosys vs TCS: Which is Better? (Views On News)

Nov 26, 2021

In the post pandemic era, the top two IT companies in India are fighting to capture the growing demand for IT.

This Multibagger Stock Zooms 20% After Dolly Khanna Buys Stake (Views On News)

Nov 24, 2021

Shares of this edible oil company zoomed over 50% in three days after ace investor bought around 1% stake.

6 Popular Stocks that Turned into Penny Stocks (Views On News)

Nov 27, 2021

A look at popular stocks that crashed big time and never recovered, i.e. which went from 'Multibaggers to Multibeggers'.

How to Find Your Next 10-Bagger in this Market (Profit Hunter)

Nov 19, 2021

The #1 make or break factor in your portfolio you shouldn't ignore.

MobiKwik IPO Opens for Subscription Soon. Key Things to Know Before Subscribing. (Views On News)

Nov 20, 2021

The Rs 19 bn issue is set to hit the market soon.


Become A Smarter Investor
In Just 5 Minutes

Multibagger Stock Guide 2022
Get our special report Multibagger Stocks Guide (2022 Edition) Now!
We will never sell or rent your email id.
Please read our Terms


Dec 1, 2021 (Close)


  • Track your investment in TATA COMM with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
  • Add To MyStocks