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MTNL scouting for stakes in private cell companies - Views on News from Equitymaster
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  • Apr 4, 2000

    MTNL scouting for stakes in private cell companies

    Mahanagar Telephone Nigam Limited (MTNL) is actively looking for stakes in private cell phone companies all over the country.

    MTNL is a public sector telecommunications giant with annual turnover of 503 bn and net profit of 126 bn.

    MTNL derives the bulk of its income from fixed line telephony services. Revenues from this sector have stagnated. They are expected to decline further on account of the recent decision announced by the Telecom Regulatory Authority of India (TRAI) to reduce the charges on Subscriber Trunk Dialing (STD) and International Subscriber Dialing (ISD).

    Ever since the telecom sector has been privatized, MTNL’s monopoly has been under a threat, as new entrants such as Hughes Ispat have invaded circles monopolized by MTNL.By virtue of offering better services they have been able to eat into MTNL’s market share.

    MTNL’s forays into areas such as ISDN, voice mail and video conferencing have failed to elicit an encouraging response.

    This has prompted MTNL to realign its strategies and focus on the cellular sector which has been booming. A decline in handset prices coupled with the increase in rental charges for fixed line telephony has triggered off an explosion in demand for cellular phones. The prospects of convergence, which facilitates internet access and banking through cellular phones in addition to a host of other services are making cellular phones the preferred option.There could also be a synergy with MTNL’s proposed internet services.

    The other reasons are improved clarity, decline in tariff on talk time and better portability.

    Several private cell operators have acquired licenses at exorbitant prices and find that their pay back period could extend to as long as five or six years. Because of intense competition in the sector, declining revenues from talk time, the break even point for private operators is expected to be stretched even further. It requires players with deep pockets to really sustain themselves in this sector.

    MTNL at the same time is eager to cash in on the boom without waiting for the gestation period for setting up the infrastructure for the services.

    Being a cash cow, MTNL can ideally acquire such companies or enter into strategic alliances with them.

    MTNL being a behemoth has the reserves and the technology to successfully combat international competition in the cellular market, which operates on the plank of high volumes and wafer thin margins.



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