Blow for VSNL in FLAG case

Bandwidth costs for ITES-BPO firms may drop.

Tatas-owned Videsh Sanchar Nigam Ltd has suffered a major setback in its four-year-old battle with Reliance FLAG, with the International Court of Arbitration granting the latter the right to upgrade and sell international bandwidth directly to end users in India.

The tribunal, by a majority decision, has also retained jurisdiction to determine whether monetary relief is to be awarded to FLAG to "compensate it for VSNL's unlawful refusal to have granted it access to the Mumbai landing station as well as the award of costs". VSNL has been given three months to implement the decision.

The ruling has three key ramifications "" for bandwidth prices, for end-users in the ITES-BPO sector, and ultimately for VSNL.

By autumn this year, international leased line (bandwidth) prices in India will see more competition and fall by 15-30 per cent depending on capacities. There is little scope for further reductions.

In the past, TRAI has already reduced international leased line rates and set a ceiling on them.

"The problem was that there was very little free-play for market forces on the Middle-East and Europe routes. This will change once FLAG enhances its capacity and is able to play a key role in this segment," an independent market analyst said.

Reliance-FLAG sources said they would be able to do this by around October this year.

The overall competitive scenario will change as FLAG is expected to offer major price discounts and provide more choice to users like ITES-BPO firms which maintain a keen eye on bandwidth costs, quality and redundancy of capacities.

For VSNL, the impact is not quantifiable immediately. The company informed the Bombay Stock Exchange that while it had been ordered to grant FLAG access to the Mumbai cable landing station, at this stage "it was not in a position to estimate the financial consequences of this award, if any, and in what time frame these would become applicable, if at all".

No other official comment was available from the company.

The international leased line business is estimated to generate Rs 1000-1200 crore in annual turnover for the company.

"This segment is the fastest growing and a highly profitable segment in the industry and VSNL is a dominant player. It will lose market share," the analyst added.

On its part, Reliance Communications told the stock exchanges that the tribunal, while giving FLAG the right to access VSNL's cable landing station at Mumbai, also allowed it to hike capacity to "any level".

The award is being seen as a major vindication of Communications and IT Minister Dayanidhi Maran's public demand for VSNL offering cheaper bandwidth.

Reliance-FLAG had earlier moved the Office of the United States Trade Representative, Comptel/Ascent (a global telecom association) and domestic bodies like Nasscom and Internet Service Providers' Association of India, alleging that VSNL was blocking bandwidth at its cable landing station and resorting to anti-competitive practices.