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MTNL hives off Internet services. - Views on News from Equitymaster
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  • Apr 18, 2000

    MTNL hives off Internet services.

    Millennium Telecom, the wholly owned subsidiary of Mahanagar Telephone Nigam Ltd. (MTNL) is to begin operations in June 2000.

    MTNL with revenues of Rs 50 bn and profits after tax of Rs 12 bn for the year ended March 1999 is a government owned telecom major that is listed.

    Millennium Telecom has a paid up capital of Rs 500 m and shall completely take over the existing internet business of MTNL. The internet sector has become highly crowded with the emergence of several private internet service providers (ISPís) such as Satyam, Rolta, BSES, Dishnet etc. Previously Videsh Sanchar Nigam Limited, (VSNL) another public sector telecom giant was the only Internet service provider in the country which was followed by MTNL.

    Transferring of the existing Internet business of MTNL to Millennium Telecom will ensure better accountability and focus. It will also ensure better customer service, which is vital, as customers have become extremely choosy with regard to the cost of Internet services and quality of the same. Thus they expect better bandwidth, better connectivity and lesser charges per hour and more of reduced slabs. Private ISPís have already made a considerable dent into the market share of MTNL and VSNL.

    The hiving off of the Internet services into a separate company is an indication of the fact that MTNL has woken up to the increase in competition and is all set to combat the same.

    The other major advantage as a result of hiving off the company would be the 100% tax holiday that the new company would enjoy by virtue of being located in a software technology park (STP).

    Millennium Telecom would also create payment gateways to facilitate e-commerce which is an area with tremendous potential as e-commerce revenues is to increase from $ 3 bn currently to $ 200 bn by the end of 2002.

    As MTNL is also likely to shortly commence cellular services in certain key areas, it is ideally positioned to benefit from convergence of the Internet, cellular and the computer.

    The hiving off of Millennium shall also ensure better valuations for the company, were it to approach the capital markets for an issue. I t shall also ensure that Millennium shall procure funds on its own by way of debt or equity to finance its capital expansion plans and working capital needs without taking recourse to MTNL



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