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MTNL firms up plans to offer cellular service - Views on News from Equitymaster
 
 
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  • Jan 15, 2000

    MTNL firms up plans to offer cellular service

    According to newspaper reports, the Mahanagar Telephone Nigam Limited (MTNL) has firmed up plans to launch its cellular service in Delhi and Bombay by June 2000. The company is initially setting up a capacity of 100,000 lines each. This is expected to be increase to 400,000 each by 2003.

    MTNL (FY99 Revenues: Rs 52.47 bn), a public sector company, is a franchise of the Department of Telecom. The company has a 15-year telecom license to operate in New Delhi and Mumbai until the year 2013.

    MTNL, which plans to invest Rs 10 bn in this venture, is paying Rs 3,666 per line for the equipment. The company has stated that this is a very competitive rate and the benefits of this would be passed onto the customers.

    The company's decision to offer cellular telephony services will enable it to boost its sagging topline growth. The growth has been affected by lower calling charges implemented by the telecom authority and a rise in competition in its circles of operation - Bombay and Delhi. Moreover, given the synergies in the operations and the value-added nature of the new service, the company would be benefit from lower operating costs and higher margins. The business is nonetheless very competitive and subject to the regulations of the telecom authority. The first of these may prove to be a challenge for the monopoly telecom service provider.

    MTNL is simultaneously expanding its CDMA based wireless service in Delhi and Bombay. Although, this may cannibalise on the cellular user base, it nonetheless offers MTNL an opportunity to dominate the segment, as it is the sole provider of such a service.

    The company's decision to aggressively foray into the cellular market is a step in the right direction. It will also complement the company's Internet plans in the coming years as technologies converge. MTNL, however, needs to beef up its service standards and improve employee productivity in order to become internationally competitive.

     

     

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