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TELECOM
VSNL@highambitions.com

Shaken up by the acceleration of telecom reforms, the leviathan is preparing for the future with a clutch of value-added initiatives.

By Brian Carvalho

Meet Adesh Kumar Tyagi, the 32-year-old founder-Chairman of Systems America, a $20-million e-business company based in Okhla, New Delhi. Close to 80 per cent of Tyagi's revenues are generated in the US. India accounts for just two per cent. It's not as if Tyagi isn't keen on the much-hyped Indian e-biz market. It's just that Systems America's B2B e-commerce applications don't find much use locally. One major reason: the bandwidth crunch. So Tyagi has little choice but to look down the value-chain, and forge alliances with call centres to provide low-end services.

Last fortnight, however, Tyagi was heaping praise on Prime Minister Atal Bihari Vajpayee, who had announced a major initiative to increase the bandwidth on offer in the country. The pm had clarified that Internet Service Providers (ISPs) were free to set up their own landing stations, and procure the needed bandwidth from international carriers like flag, Se-Me-We3, and safe. Gushes Tyagi: ''That's the best bit of news I have heard in a long time.''

It's not the best of news, though, for the state-owned Videsh Sanchar Nigam Ltd. (VSNL), which will now lose its monopoly on the re-sale of bandwidth (from August 15, 2000). In fact, that's not the only concern for the monolith: The company could also lose its monopoly over mainstay business of international telephony in just two years, as against the original D-day of 2004. Says Rahul Banka, 23, Research Analyst, KR Choksey: ''There's no doubt that VSNL is under threat.''

"What, me worry?", could well sum up the response of Amitabh Kumar, the 57-year-old Director (Operations) of VSNL. Says he: ''We are in a strategic position. We don't expect things to change, as we have a number of new initiatives on hand.'' Kumar will also tell you that VSNL is today a Net exchange for over 200 ISPs, that it controls 24 gateways, that it is the only Net backbone in India, and that of the 118 licences that have been bagged by private players for setting up gateways, only two are operating today. Emphasises Kumar: ''Of the total 330 MB (that has been approved), only 4 MB is operational now. For the next two years, we will not lose our strategic edge.''

The Road Ahead

WAT happens after two years? That's a question that must be keeping Kumar and VSNL Chairman & Managing Director S.K. Gupta up at night pretty regularly these days. Indeed, the monolith is abuzz with activity targeted at consolidating its leadership position in the ISP business, and widening its presence in value-added services by creating infrastructure for e-commerce. The cost of these initiatives? Rs 1,000 crore in the current year.

By March 2001, VSNL's revenues from value-added services (Net, leased lines, and uplinking) are expected to nearly double, from Rs 602.5 crore to Rs 1,250 crore. In contrast, revenues from telephony (Rs 6352.9 crore) accounted for close to 90 per cent of the company's turnover in 1999-2000. What should be worrying VSNL is the fact that revenues from basic services grew by a mere 2.04 per cent between 1998-99 and 1999-2000. Getting this to grow at the 15 per cent the company projects growth at over the next two years will be tough. Not surprisingly, VSNL's emphasis is on value-added services, which it expects to account for half its turnover in the next two years (it accounts for less than 10 per cent today).

Let's begin with the ISP business, where at the last count there were 206 players. Kumar isn't fazed and expects only five to six national ISPs to survive. ''An ISP needs at least 4-5 lakh subscribers to make revenues. Few can command such figures,'' he says, adding that VSNL would be have 2.5 million subscribers on its rolls by March, 2001.

Ironically, VSNL is hampered because it doesn't have a category 'A' licence. Points out D.K. Nimal, 48, CEO, BSES Telecom: ''Despite having all the infrastructure and resources, VSNL can't cater to demand as it operates only in six cities.'' Kumar hopes to change that soon by getting an all-India licence ''in a couple of months''. What's more, VSNL is even willing to tie up with broadband operators in places where it doesn't have a network and provide VSNL-branded services. But that's only after optic-fibre cable networks are put in place.

The question on every surfer's lips, though, is when VSNL will stop charging for access. Soon enough, assures Kumar: ''The VSNL service should be free by next year, by when we expect to rope in 2.5 million subscribers.'' Revenues will then accrue from a 'premium' service, which will offer a ''guaranteed connection, at a much higher speed''. Subscribers to this high-end service are to be charged on an hourly basis.

More Than An ISP

VSNL can't rely on those revenues alone. Also bringing home the bacon will be e-commerce activities such as telehousing, which will enable Net companies run virtual services via high-bit line connections to servers hosted by the VSNL at its gateways. Currently, VSNL provides such facilities in 10 cities to roughly 250 companies. The plan is to provide these services to 1,000 players over the next couple of years. VSNL's other e-commerce initiatives include payment gateways, settlement systems, and secured access mechanisms for WAP certification.

To achieve all this, VSNL will need to acquire high-speed international links, for which it has worked out a tie-up with bandwidth carrier Se-Me-We3. This will enable the company to more than double its existing bandwidth capacity-to 450 mbps.

Thanks to its deal with India info.com, VSNL can also claim to have its own portal as the Indiainfo homepage is the default page for every VSNL subscriber (although subscribers can change this). That apart, the deal also assures VSNL revenues-Rs 40 crore in the first year, Rs 60 crore in the second, and Rs 100 crore in the third-from Indiainfo, and a 30 per cent stake in the portal.

The VSNL top brass also sees great potential in its telephony business. Today, there are only 26 million lines in the country. This is expected to increase to 80 million by 2007, and 150 million by 2010. Not only that, Kumar expects tariff on outgoing calls to plunge, from Rs 60 per minute to Rs 20-22 per minute (for a call to the US). Claims he: ''Once rates come down, volumes will increase and so will our revenues.''

You'd probably be more convinced about VSNL's blueprint to defend its turf if the government moved faster on the disinvestment front, and brought its stake to below 51 per cent. Explains Banka: ''VSNL's people at the top have the vision. The assets it has built up over the years give it a head-start over others. However, the one major hindrance is government control.'' Concedes Kumar: ''Going below 50 per cent will result in faster decision-making, and that's imperative in an age in which technology is changing so fast.'' Is Arun Shourie listening?

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