Dark clouds brew over VSNL. - Views on News from Equitymaster

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Dark clouds brew over VSNL.

Aug 12, 2000

India Inc. is in the midst of industrial restructuring and at the forefront of such an initiative is the telecom sector. While the private sector is in an overdrive mode to consolidate the industry structure the government is not to far behind in making announcements for deregulating the industry. Over the past few months it has indicated its intention of opening up the sector to private players. Although, it is a step in the right direction it does not augur well for VSNL.

First, the Prime Minister in his announcement for opening up the national long distance (NLD) telephony also stated the termination of VSNL's monopoly over international bandwidth. VSNL has an exclusive agreement with Flag, undersea cable bandwidth provider, for selling international bandwidth to private players.

Only VSNL was permitted to set up submarine cable gateways. This announcement severely affected the monopoly status and revenue stream of the company. The Government however, has retraced its steps and has stated that it will not interfere in the agreement between Flag and VSNL.

Another blow to VSNL was from Mr. Paswan, Union Minister for Communication, for endorsing the view of ending VSNL's monopoly over international telephony by 2002. The earlier plan was to end the monopoly by 2004. However, there are some concerns regarding such a move. VSNL in its American Depository Receipt's (ADR's) issue had promised investors that the Government would retain its monopoly till 2004. If the policy is to go through it will further affect VSNL's revenues.

As if this was not enough, if voice over the net is permitted the company will suffer from another dent in its revenue. However, these are early days and the Government has not made any clear-cut policy. When it does so one can expect the Government to eep in mind the interest of the company and its investors before taking any final stand.

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