VSNL: Can Tata re-invent it?

With bottom lines in red and no concrete strategy in place, Tata group
chairman's call for reinventing VSNL seems to be a foul cry.

"The government is treating VSNL like a stepchild. By not providing a
level-playing field for the competition, VSNL's value is going down. In view
of the competitive environment and decline in revenues in the telecommunications
industry in general, we need to re-invent ourselves," Tata Group Chair-man
Ratan Tata said after the Annual General meeting of VSNL.

The statement by Tata group chairman could be true to some extent but looking
at the annual results of the company, it's clear that the company failed to
cope up with the changing market dynamics. Worse, despite privatization not much
has changed at VSNL in terms of the attitude and the style of operation, which
by and large is suited more for the monopolistic market condition and not the
present day com-petitive environment.

Analysts agree on the fact that the aggression and a concrete roadmap is
missing which is not very encouraging for a company like VSNL, which has been in
forefront in tele-com domain for so long. Exp-erts say that government, which
still holds 26 percent stakes in VSNL, cannot be always blamed for all the ills.

VSNL, which at one point had a complete hold on almost all the telecom
services it was offering seems to have fallen flat with results. The com-pany's
net profit for the finan-cial year ended March 2004 has slumped 57 percent to Rs
377.70 crore as against Rs 780.10 crore last fiscal. Also its net sales dropped
30.3 percent to Rs 3,163.5 crore from Rs 4,538.50 crore.

Various reasons could be given to justify the poor per-formance of the
company that has shocked Tatas who took over VSNL because they belie-ved that it
would become a major source of revenue for them. A huge chunk of VSNL's
revenue came from the ILD segment, which saw a drop in revenues this year too.
ILD's contribution to VSNL's revenues fell from 83 percent to 66 percent
this year. Secondly, companies like Reliance and Bharti managed to make their
presence felt and eat out VSNL's revenue and market share in almost all the
segments it is operating.

Recently BSNL has also announced its ILD offering and that will further hurt
VSNL's ILD revenue. The company would not only lose ILD revenue to BSNL, it
also loses BSNL as a customer.

Till now BSNL has been offering ILD services utilizing VSNL's
infrastructure on commercial terms. It signed the agreement with VSNL in January
this year. The ILD market is bound to gather momentum once BSNL enters the
segment on its own where it will be able to set trend setting tariffs leveraging
its scale, size and reach in the country.

While Reliance and Bharti have been offering bouquet of telecom services
leveraging on their core strengths of mobile services, VSNL didn't change its
mindset and operating with the mix of telecom solutions it has in his portfolio.
It's not that VSNL is facing a bleak future and needs to reinvent itself but
it has to change the way it is currently operating.

Analysts suggest that the company should leverage to the strengths of TCS and
other Tata companies to offer inte-grated solutions to large cor-porate. This
will stem the com-pany's falling share of its international long distance
operation. Meanwhile it is reported that VSNL has decided on a capex of Rs 2,000
crore for FY 2005. The com-pany said this money would be mostly invested in
spreading its network across the country. This fiber network will enable the
company expand its nati-onal long distance operations as well as offer broadband
services. Though not too late in announcing the latest initiatives, the company
should do proper groundwork before going ahead with the new services. On the
face of it, it looks like that the company has still not formulated any concrete
strategy for its new offing and is experimenting with new telecom solutions.

The company will soon roll out retail broadband on a commercial basis in 30
cities during the next two years and is expecting reve-nues in the range of Rs
300-350 crore from broadband services only. The firm will initially offer the
service in Ahmedabad, Hyderabad, Pune and Bangalore. It has already test
marketed the services in Mumbai.

Rahul Gupta

Mumbai (CyberMedia News)