Flexible Tariffs, New Services To Boost Mtnl Earnings

The department of telecommunications (DoT) is likely to allow Mahanagar Telephone Nigam Ltd (MTNL) adopt a flexible call tariff structure; entry into cellular, paging and Internet services; and restructure the revenue-sharing agreement between them as part of a package to improve the telecom public sector undertaking (PSU)s valuation in its forthcoming disinvestment-cum-initial public offering programme.

Other important elements of the package are: the start of public cardphone services in Mumbai and Delhi, an anticipated tax holiday, navaratna status to MTNL, and an expansion of the five-member board of directors. While boosting the Rs 4,000-crore companys revenues, the steps are also expected to end uncertainty of future cash flows, S Rajagopalan chairman and managing director (CMD) told Business Standard here yesterday.

 

MTNL has been allowed to retain about Rs 2,000-2,500 crore from the issue proceeds, Rajagopalan revealed. Most of this money has been earmarked for consolidation of the telephone networks in Delhi and Mumbai. In the next two years, we will invest in SDH (synchronous digital hierarchy) links between all exchanges, wireless in local loop and fibre in local loop solutions, while developing a reliable network with minimum fault rate, the CMD added. The investments will go towards developing an intelligent network with ISDN (integrated services data network) capability.

The decision to allow MTNL flexibility in call tariffs is designed to help it withstand competition from private sector basic telecom companies. Under the current structure, DoT and MTNL charge higher tariffs as call volumes increase. This has been long-recognised as being a disincentive to high-volume business callers who account for bulk of MTNL revenues.

The flexibility will allow MTNL to structure tariff in a pyramid manner in which rates drop as the number of calls increase. This will encourage bulk usage, not penalise it as now, a Mumbai analyst said. MTNL will, however, not be allowed to charge more than DoT tariffs, Rajagopalan explained.

Under the package, the five-member MTNL board which has two DoT nominees is expected to clear a move to enter into personal communications services (a cheap mobile telephony service), paging and Internet provision in Delhi and Mumbai. These would be in the form of joint ventures, partners for which would be chosen in a very transparent manner, Rajagopalan added.

The department is also expected to restructure the current revenue-sharing agreement with MTNL. Instead of the current flat licence fee, a usage-based revenue-sharing agreement with DoT is being envisaged, on lines of the agreement with Videsh Sanchar Nigam Ltd. MTNL now pays DoT 21.5 per cent of its revenues and Rs 900 per subscriber as licence fees. The fee (which amounted to nearly Rs 2,000 crore last fiscal year) is levied on the telecom PSU for right of connectivity to the rest of countrys telephone network.

The 2,000-and-odd cardphones that the company plans to install in Delhi and Mumbai are projected to cost it some Rs 20 crore but boost service quality and earnings significantly. A navaratna status for MTNL would translate into autonomy of operations and investment decisions which do not need clearance from DoT. A pending proposal, the companys board of directors is to be expanded to seven members.

MTNL plans divestment-cum-IPO of 107 million shares; of which 60 million shares will be a fresh issue. The selection of investment bankers to handle the issue is slated to start on Monday.