VSNL to take hit as call charges to US are renegotiated - Views on News from Equitymaster

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  • Feb 28, 2000 - VSNL to take hit as call charges to US are renegotiated

VSNL to take hit as call charges to US are renegotiated

Feb 28, 2000

According to newspaper reports, Videsh Sanchar Nigam Limited (VSNL) has negotiated an effective settlement rate US$ 0.55 per minute (earlier US$ 0.64 per minute) with US telecom carriers. The rate is effective 1st April 1999. VSNL (FY99 Income Rs 71.76 bn) is India's monopoly provider of international telephony services. It also provides telex and telegraph services as well as value-added services such as leased lines, e-mail, Internet and video conferencing.

The decision to reduce the rates is likely to hurt topline growth of the company. The company has stated that the volume growth (on account of lower rates) is expected to make up for the decline in rates. However, as witnessed in the case of domestic long distance calls, a decline in tariffs failed to bring about the expected rise in volumes resulting in lower profits among domestic carriers.

It must however be mentioned that VSNL will only be affected marginally, as it is to absorb only 15% of the decline. The rest will be borne by the Department of Telecommunications (DoT). Therefore it is possible that the company may be able to make up by larger volumes. The DoT on the other hand is likely to be adversely affected as it will have to bear the brunt of the rate cut.

VSNL's topline growth in 3QFY00 declined marginally mainly due to the combined effect of sluggish growth in volumes and lower tariffs. The new rates will further dent topline growth.

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