According to newspaper reports, Videsh Sanchar Nigam Limited (VSNL) is planning to enter into a strategic alliance with a partner to provide domestic long distance telephony services.
VSNL (FY99 Income Rs 71.76 bn) is India's monopoly provider of international telephony services. It also provides telex and telegraph services as well as value-added services such as leased lines, e-mail, internet and video conferencing.
VSNL has stated that it is looking at both domestic and foreign companies to form a strategic alliance for providing such services. The rationale for inviting private sector participation is that these companies will bring marketing expertise. The decision needs to be appreciated in view of the low standards of service provided by most public sector companies.
VSNL's decision to make a foray in the domestic market is a logical extension of its existing business. The company has experience in providing long distance telephony services and is thus technologically competent. Moreover, its operations will become more integrated, driving both topline and bottomline growth.
VSNL's existing business is becoming more competitive. It is increasingly focussing on its Internet business to generate growth. Now, it has another avenue to do so. This will also hedge its future prospects even as its monopoly in the international telephony services market is diluted.
However, the company currently operates in a protected market and therefore it is uncertain whether it will be able to successfully establish itself in the competitive domestic long distance market (MTNL has already stated its intention to enter this segment). The company would have to resort to large-scale advertising and promotional expenditures while at the same time offering competitive rates, both of which will expert a downward pressure on profit margins.
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