Tatas To Become An Integrated Telecom Player

Analysts believe the bid made for Videsh Sanchar Nigam Ltd (VSNL) at Rs 202 per share by the Tata group of companies is on the higher side as the company will lose its monopoly in international long distance (ILD) telephony business from April 1, 2002, and its bottomline from the ILD business will be squeezed in the next 2-3 years, analysts said.

"The market was expecting a price of around Rs 150 from the bidders. The bid by the Tata group is on a higher side. However, in the long run, the strategic stake in VSNL could help the Tatas become an integrated player in the telecom market in the country," Satish Jain, a senior analyst with ASK Raymond James told Business Standard.

VSNL's net profit from the international long distance telecom business will come down from the present approximately Rs 1,600 crore to Rs 600 crore in the next 2-3 years, analysts indicated. However, VSNL is in the process of rolling out national long distance telecom services that could bring in additional revenues.

With the Tatas becoming the strategic partner of VSNL, the diversified group could save some funds in implementing its own NLD network.

The Centre has already decided to offer a free NLD licence to VSNL as a compensation to end the monopoly in ILD.

As per the compensation package, VSNL will be exempted from paying a licence fee of 15 per cent of an estimated inter-circle NLD revenue of Rs 9,000 crore for the next five years.

This means that the Tatas would save anywhere between Rs 1,400-1,500 crore, assuming that the group will have a 25 per cent market share in the NLD business.

Analysts claim that VSNL would face competition from Bharti and Reliance in the Rs 8,000 crore ILD market following the opening up of the sector to multiple firms.

Secondly, the government has taken out around Rs 4,000 crore from VSNL by way of special dividends. At present, the company has some Rs 2,300 crore by way of reserves.

The Centre is also in the process of hiving off the real estate properties of VSNL as a separate company. However, infrastructure facilities and existing Internet user base of VSNL will benefit the Tatas.

The Tatas also should target another state-run Mahanagar Telephone Nigam Ltd, the basic telecom operator in Mumbai and New Delhi, for acquisition in order to become a fully integrated telecom firm, analysts said.