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Aggressive MTNL initiates internet price war - Views on News from Equitymaster
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  • Jun 16, 1999

    Aggressive MTNL initiates internet price war

    Telecom major Mahanagar Telephone Nigam Limited (MTNL) has decided to leverage on the autonomy that was granted to it by virtue of it's being given the 'navaratana' (jewel) status. As part of this exercise, the company plans to slash internet tariffs by 15-20%, form joint ventures and subsidiaries, and take decisions on expenditure exceeding Rs 500 m - without seeking prior approval of the concerned government authorities.

    MTNL, a government organization, provides telecom services in Delhi and Mumbai. While it is a sole provider of telecom fixed line services in Delhi, it has Hughes Ispat as a competitor in Mumbai. In order to augment its services, the company has begun providing services like internet, ISDN, voice mail, video conferencing, and electronic mail.

    The company's decision to slash internet tariffs has been taken in the midst of increasing competition amongst internet service providers (ISPs). Around 50 ISPs have been given licenses to date. This rate cut will help the company in achieving it's target of providing 50,000 connections by the end of the year. On the other hand, such a move could trigger off another round of industrywide rate cuts, thus wiping out the price advantage MTNL is likely to gain after this.

    MTNL has also decided to leverage on it's 'navaratana' status which permits the company to enjoy a higher level of autonomy in the decision making process. This would obviously speed up the decision making process and enable the company to react faster to the changes in the environment. This step would also help the company when it seeks listing on the New York Stock Exchange later this year.

    Market View:
    Sheriar Irani, Telecom Analyst, Jardine Fleming India, says that revenues from the internet contribute a very small amount to the total revenues of the company, and thus the fallout of this move is not significant. He goes onto add that as the internet sector is open to new entrants, the rates were bound to fall and this move by MTNL was therefore not surprising.



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