Can Vsnl Become A Global Player?

[Chirag 5]

Can VSNL become a global player?

Shobhana Subramanian in Mumbai | April 04, 2005

Rediff.com

Once a monopoly player in international long distance telephony, Videsh Sanchar Nigam is gearing up to be a contender across segments in the telecom space. It is a serious player in the bandwidth game, having acquired Tyco Global Network.

VSNL's focus is fast shifting from voice to value-added data services. It has forayed into the retail broadband arena where subscribers are estimated to touch 20 million by 2010.

More recently, it has made an entry into South Africa through a tie-up with a couple of local firms. The Tata-promoted VSNL believes that the new initiatives should help it reduce its dependence on the ILD segment.

With TGN, VSNL now has access to 60,000 km of network across three continents and capacity on all cables landing in India. This, according to analysts, will give it an edge as it can provide more value-adding services to enterprises than its competitors.

Says Falgun Shah, analyst at Cholamandalam Securities, "The TGN network gives VSNL global reach and will help it step up the international business."

According to Nasscom's estimates, the demand for international bandwidth is tipped to rise six-fold from 15.4 gbps in FY05 to 92.5 gbps in FY09, led by the demand from tech and BPO sectors.

Volumes in the bandwidth business could grow at a CAGR of 50 per cent in the next three years. However, there could be pressure on prices, which have dropped 60 per cent between 2000 and 2004 and could fall by about 20 per cent in the next couple of years.

Analysts, however, believe that VSNL will have the ability to charge competitive rates and, therefore, the $130 million paid for Tyco is reasonable. They feel that the venture could be revenue accretive from FY07.

Besides, VSNL has forayed into the retail broadband arena. Broadband subscribers are expected to number 20 million by 2010, according to Telecom Regulatory Authority of India estimates, and VSNL's share is just about 13 per cent, presenting a big opportunity.

Analysts believe that revenues from the ILD business could fall further, but only slightly with prices having dropped by over 80 per cent since April 2002, when the sector was thrown open to competition.

ILD revenues are estimated to fall from around Rs 2,133 crore in FY04 to Rs 1,500 crore (Rs 15 billion) in FY05, and remain at these levels. Thus, data businesses are likely to be the key revenue earners for the company in the future.

VSNL's South African venture will be through Second National Operator, which will be the second player in the fixed line telecom market. The government-owned Telekom SA is the sole player today and so a monopoly.

According to the management, "South Africa is a large, virgin market for telecom services and an opportunity for VSNL to leverage its expertise."

The project cost is estimated to be Rs 6000-7,000 crore (Rs 60-70 billion) with a debt-equity ratio of 1:1. For its equity stake of 26 per cent, VSNL's contribution would be in the region of Rs 800-Rs 900 crore (Rs 8-9 billion), to be sourced from internal accruals and debt.

The South African market s estimated at $12 billion, with an almost equal split between fixed and mobile. Of the fixed line segment, 80 per cent comprises revenues from the voice segment, while the remaining 20 per cent is accounted for by data. SNO will provide domestic and international voice and data services, including Internet dial-up and broadband. It is likely to get access to a network of 6000 km of optic fibre cable.

There are currently three players in the mobile telephony space -- Vodacom, MTNL and CellC. Though the SNO licence does not allow it to offer fully mobile services, it will be allowed to provide limited mobility (fixed wireless) services. Prices of services are currently between three-thirteen times higher than in India.

The data segment is still small and is going to be the target area for SNO. The focus will be on enterprises in banking, mining and automobile industries.

The Tatas believe that the SNO venture is a strategic fit, similar to the Tyco acquisition, and view the African venture as a long-term investment that could be offloaded at some point after a listing.

The venture is unlikely to provide any dividend inflows in the near term. Even if that does not materialise the management believes that a five million fixed line subscriber base yielding revenues of $6-7 billion four years down the line is an attractive enough proposition.

The project would require around $1.5 billion of capex over three to four years. The entry of a third operator and a fall in tariffs are also not ruled out.

Analysts are recommending the stock because they believe that the changing business model could result in VSNL emerging a leading global telecommunications player.

They feel that the data business would pan out well given the demand for bandwidth. The South African venture, broadband revenues and also the stake in Tata Teleservices will all add value to the stock.

[linuxguy 0]

before venturing into the global market, VSNL should consider empowering the average Indian :'( . We are still on pathetic dialup while the world has already moved to DSL, Cable, Wifi etc..

Edited April 15, 2005 by linuxguy