Tata to telecom PDF Print E-mail
Monday, 19 September 2005 00:00
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At the outset, I must confess I usually lose money when investing directly in stocks; so it’s strictly mutual funds now. Even so, I was intrigued when a friend suggested investing in VSNL, especially since it had bought Tyco’s 60,000 km global undersea cable business.
Surely that’s stupid, I thought, given how the company’s main businesses are being hit one by one, and how Tata Teleservices, in which it is a big investor, has less than 3 per cent of the mobile market after so much investment.
In April, for instance, telecom regulator Trai recommended that tariffs be slashed for the international private leased circuit (IPLCs are leased lines used by BPO units mainly) on the grounds there was very little competition.
In the case of an E-1 IPLC connection, VSNL was charging $41,000 per year, as compared to a much lower $23,000 in Japan/South Korea and $33,000 in Singapore; the figure was $700,000 for the DS-3 circuit, versus $100,000 in Japan/South Korea and $170,000 in Singapore; and $1.8 million for an STM-1 connection, versus $200,000 in these two countries, and $300,000 in Singapore. Tariff levels suggested for the E-1 were 70 per cent of existing levels, and around a third in the other two cases.
VSNL challenged the order in the appellate tribunal, the TDSAT, which struck it down saying Trai had not shared its information with VSNL and so had to go through the process again. Eleven days ago, Trai reiterated the earlier numbers, with a caveat saying the tariffs still had a lot of padding, and would be reviewed.
How this will affect VSNL’s profitability, especially since international long-distance (ILD) telecom revenues are falling and margins are very low (6 per cent), is best seen from an April 2005 Morgan Stanley report, which says VSNL’s data business (which includes IPLC) contributes 54 per cent to its EBITDA and this will increase to 73 per cent in 2006-07.
Two months after the original IPLC order, Trai came out with a consultation paper on VSNL’s monopoly over cable landing stations, which control all telecom/data traffic in and out of the country.
Trai asked users for inputs on whether there was a case for fixing cost-based access charges, whether resellers should be allowed (that is, forcing VSNL to sell bulk ILD minutes to re-sellers at a discount, so that they could sell these to retail users to increase competition), and so on. The final recommendation is expected any time now.
In August, Trai dramatically lowered the entry fee for virtual private networks (VPN), which are essentially services that make internet communication secure for big users like banks; while the government had set an entry fee of Rs 10 crore, Trai recommended this be lowered to Rs 30 lakh in some cases and zero in others. In other words, expect a lot more competition in another high-growth data segment which VSNL entered in 2002.
Matters are not much brighter for Tata Tele, VSNL’s other big investment. Till now, tariffs for Tata Tele’s fixed wireless terminal (FWT) phones are similar to those on the land lines you get from BSNL/MTNL or Bharti.
The problem is BSNL said the FWT was nothing but a WLL-based mobile phone since you could take it around the city, for instance, and therefore Tata Tele should pay an access deficit charge (ADC) on it—under the law, every mobile phone has to pay an ADC whenever long-distance calls are made/received.
Since this ADC varies from 30 paise per minute for a national long-distance call to Rs 3.50 or so for international ones, Tata Tele will have no option but to raise tariffs to mobile phone levels.
But since it is unlikely an FWT-user will agree to pay mobile phone tariffs for essentially a home phone, a lot could move—of the company’s 5.2 million customers, 3 million are FWT users. Tata Tele challenged BSNL in the TDSAT, but lost the case on the ninth of this month.
All of which makes you wonder about where the group’s telecom business is headed as well as about the quality of regulatory expertise in a group which plans to invest Rs 30,000 crore more in the business. After all, in the FWT case, what tilted the balance, first, were the company’s own ads exhorting customers to “go mobile at landline rates” and enjoy the “freedom of mobility at landline rates”.
Second, in March, the government decided to interpret the licence differently for FWT, and yet the Tatas went after BSNL instead of the government.
Similarly, when Infocomm was avoiding paying ADCs on international calls, it managed to get a lot of ILD business away from VSNL, which paid ADCs, but the Tatas never went to court against Infocomm.
Postscript: Since April, when the first IPLC order came, prices of the VSNL stock have gone up from Rs 194.8 on April 1 to Rs 396.15 on September 15, proving that either the stock market doesn’t care about such facts, or that it has enough faith in VSNL’s ability to withstand the shocks and generate new business.


Last Updated ( Wednesday, 21 March 2012 09:30 )

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