We Are Diversifying Our Revenue Streams
Videsh Sanchar Nigam (VSNL) operates the international telephone network, linking 10,903 Indian cities/towns to 236 overseas destinations. It handles over one billion international call minutes per annum. It currently operates through seven main gateways at Mumbai, Calcutta, Chennai, Ernakulam, Gandhinagar, Jalandhar and New Delhi. It provides an array of value-added specialised services like leased lines, data communication service, managed data network services, satellite mobile communication, video conferencing, television uplinking and relay, Internet access, et al.
By 2004, VSNL would lose monopoly in most of its businesses. To stay ahead in the race, it has drawn a Rs 7,200 crore investment blueprint in the Ninth Plan. VSNL recorded a total income of Rs 7,24.10 and a net profit of Rs 799.20 crore. Amitabh Kumar, director (operations) spoke to Rakesh on how VSNL is gearing up to meet future challenges.
Q: How has non-telephony revenues growth been last fiscal?
A: Non-telephony revenues have grown to Rs 603 crore last fiscal year and now constitute approximately 8.67 per cent of our gross revenues of Rs 7,272 crore. In terms of our net revenues, (which at Rs 10 per minute for 2,239 million minutes handled last year amounting to approximately Rs 2,240 crore), value-added services amount to around 34 per cent of the telephony revenues. We have seen a significant growth in these revenues despite reduction in Internet tariffs.
We are doing our best to serve the Internet Service Providers (ISPs) and the corporate customers and we anticipate strong growth in these areas. For instance, we were serving just a couple of ISPs at this time last year, while today we serve over 200 links. The number of corporate leased lines for Internet has risen by nearly 100 per cent to over 700. It is a very large business of over 900 lines built up by VSNL within a year. We expect the growth to be maintained for the next year.
Q: Has the tariff reduction generated volumes?
A: Reduction in tariff for telephony was effected last May. Now, we have seen a growth of around 8.5 per cent in our outgoing traffic. Further tariff reduction will lead to further growth in outgoing traffic, as our calling rates still remain high.
VSNL's traffic last year for telephony was 1,935 million minutes comprising 473 million minutes of outgoing traffic and 1,770 million minutes of incoming traffic. This year we handled 2,372 million minutes of traffic exhibiting a growth of 15.1 per cent.
The traffic from India is highly tariff sensitive so the tariffs should be further reduced for the outgoing traffic to pick up. This is also the reason you see such a large incoming to outgoing ratio (nearly three), which reflects the lower calling rates prevailing abroad together with higher buying power.
Q: What is the status of the on-going projects undertaken by VSNL to make up for the loss of business once it loses its monopoly?
A: VSNL is engaged in diversifying its revenue streams. We have already diversified into Internet and related activities. In the future, we plan to compete for domestic long distance and infrastructure services within the country including Internet backbone and satellite-delivered Internet. We are also implementing an ATM backbone in the country. We are at an advanced stage of rolling out a number of earth stations at Bhubaneshwar, Guwahati, Hyderabad, Dehradun and Trivandrum. They will act as value-added gateways and teleports for leased lines and Internet connectivity as well as video uplinking. With the strong growth in media and Internet-related fields, the revenues from these sources should remain strong.
Q: How do you expect the revenue and profit to grow this year?
A: Our current growth rate averages 15 per cent in volume terms for telephony traffic. The actual growth rate projections can be made more accurately after the TRAI's proposed tariff reduction in the current year is known. VSNL is largely volume driven and hence our net telephony revenues are closely linked to the volume carried.
Q: How is the Internet business doing at the moment? Weren't there plans to hive it off as a separate subsidiary?
A: The Internet business is a growing sector both for retail as well as corporate and ISP connectivity. VSNL today has over 3.5 lakh customers out of India's market size of around 6.5 lakh. This despite the fact that we have a license to operate in only six cities where the competition is very intense. We are working on the modalities of creating the subsidiary for Internet services. The subsidiary will be essentially focused on customer support and management of large scale retail operations. We expect better customer attention and customised solutions like managed web farms, WAP (wireless application protocol) gateways, ASP (Application Solution Provider) and content hosting services to be offered by the new entity.
Q: Will Internet rate wars continue and how well is VSNL prepared for this?
A: We expect the Internet scene to be intensely competitive despite large growth. The pressure on retail pricing is but natural in these cases. There are also a couple of free ISP services in India. However, free and paid ISP services co-exist in many countries. Customers also value quality of access in addition to the cost. In any event, the main cost is that of access which is Rs 25 per hour. Hence you are worse-off with a slow but free Internet connection.
Q: What is the rationale behind investing in Indiainfo.com?
A: The Indiainfo deal is targeted at providing the VSNL customers a powerful portal for all purposes such as entertainment, business and e-commerce. VSNL stands to gain from indiainfo's strength in running a wide content-based portal and from the free equity offer that is part of the deal.
VSNL had given all the major content providers who were interested in a tie-up, an opportunity to present their proposals. After a careful evaluation, we selected indiainfo.com for this exclusive tie-up.