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VSNL: How hard can it bargain? - Views on News from Equitymaster
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  • Aug 21, 2000

    VSNL: How hard can it bargain?

    The last few weeks have not brought a lot of cheer for Videsh Sanchar Nigam Ltd. (VSNL). The Government has made a flurry of announcements, which impair the company's revenue earning capacity.

    However, there are still some deliberations over ending VSNL's monopoly. Being a listed company, VSNL is answerable to its shareholders for any loss in its revenue stream. These investors have contributed to the equity, based on the assumption of VSNL retaining its monopoly till 2004. Consequently, VSNL has demanded that it be adequately compensated for any loss in revenue arising out of break up of its monopoly status.

    VSNL's list of demands read as:

    • International traffic of Department of Telecommunication (DoT) and Mahanagar Telephone Nigam Ltd. (MTNL) should be routed through VSNL.
    • Exempted from payment of entry fee for domestic long distance (DLD).
    • Exempted from sharing DLD revenues for at least 5 years, which is expected to be 15% of revenues per annum.
    • Granted an all India Internet Service Provider (ISP) license.

    Such a deal looks extremely attractive for VSNL. Currently, the operations of private basic service providers are still very negligible. Till such time they build any significant market share VSNL will continue to control international telephony, as all MTNL and DoT traffic will be routed through them. Therefore, there is not much threat of losing market share despite giving up its monopoly.

    It has also demanded a DLD license without payment of license fee. This will save the company Rs 5 bn. Further, it is to be exempted from sharing its revenue for 5 years. The company has already set up several gateways across the country and will be able to leverage on this infrastructure if is granted an all India ISP license. VSNL will enjoy significant cost advantages as compared to its competitors. Currently, private ISP's purchase bandwidth from VSNL and are yet to set up there own gateways.

    The demands have been placed with the DoT and negotiations are underway. These are early days and we can expect several rounds of negotiations before a settlement is reached. VSNL will have to do some hard bargaining if it is to pull through with these demands.



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