Siemens May Pull Out Of Telecom Ventures

The foray of the otherwise successful Siemens into the telecom sector has not been positive. In fact, the chairman of Siemens India, F A Mehta, recently said, Most unfortunately, the telecommunication policy which we perceived as a gold mine has turned out to be a mine field. First, the orders that we expected did not materialise to the full extent, and when they did materialise, the were not paid for in a manner we expected.

Siemens had to, therefore, rely heavily on borrowings and this at a time when the interest rates rose to the highest level in the countrys history.

The problems of the telecom policy, combined with the high rates of interest, made a severe dent in the potential profitability of Siemens.

Mehta said that but for the magnificent performance of the core lines and divisions of Siemens, the adverse effects of the telecom sector would have been totally indigestible.

Two ventures of Siemens that are under a cloud include the Calcutta-based division to manufacture EWSD digital switching systems and the Aurangabad-based fibre optic cable production facility.

Says Rene Jotten, international division, Siemens, Unless there are orders coming, we will have to divest out interest in these ventures. Siemens has invested DM 60 million in the Aurangabad plant.

According to company officials, the Calcutta-based plant, which employs 700 people, is lying idle. The problems for the plant began when the department of telecommunications did not give adequate orders to Siemens, and instead placed orders with other manufacturers.

With the basic telecom liberalisation going into a tailspin, Siemens has no orders from private operators for its fibre optic cables.

Officials feel that the plant will have to be closed down. Siemens is not the only company facing problems from DoT.

Usha Beltron Ltd (UBL), which supplies jelly filled telecommunication cables (JFTC) to DoT also has a problem. UBL, which has a market share of eight per cent, supplies 90 per cent of its production to DoT and MTNL.

The performance of UBL and other JFTC manufacturers suffered due to the deferred payment credit (DPC) sales adopted by DoT.

This was a new policy initiated by DoT in 1994-95 for procuring a part of its cable requirement, wherein the payment on sales will be made in quarterly installments spread over five to seven years.

At present, the yield on DPC sales is lower as compared with the cost of financing the DPC sales and hence the suppliers to DoT incur losses up to three per cent on financing these sales.