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August 25, 1999


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Phillips Tarifica paints poor future for VSNL

Email this story to a friend. The Videsh Sanchar Nigam Limited could lose about 38 million minutes of outgoing international traffic by 2001 to Internet applications, according to an international telecommunications consultancy company.

This works out to 6 per cent of its outgoing traffic, said the London based Phillips Tarifica Limited in a case study titled 'Impact of changing international telecom environment on India.'

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It said carriers in Europe are able to compensate the revenue loss in international call markets due to the Internet by a revenue gain in local calls market generated by Web browsing.

However, VSNL does not have presence in the local calls market and as such has to depend on subscription charges from Internet subscribers to compensate this revenue loss.

But the overall traffic will increase as the benefits of lower settlement rates are passed on to customers in the developed world.

However, tariffs are expected to remain higher in India, the study aid, resulting in a greater imbalance of traffic.

Imbalance on the US-India route will further escalate due to the call-back effect. The scenario could produce an estimated combined international traffic volume of about 3.5 billion minutes by 2002.

Phillips Tarifica said carriers in developed countries are expected to pass on the benefits of reduction in settlement rates to their customers more than the carriers in developing countries.

As such the incoming traffic will continue to far outweigh the outgoing.

Incoming traffic from the United States could reach as high as 1500 million minutes by the 2002, it said.

Refile and call-back could reach well over 500 million minutes by 2002, said Phillips Tarifica. However, not all traffic is likely to be handled by US carriers alone.

''We estimate that under this scenario refile and call-back market share of India bound traffic for European carriers could be up to 180 million minutes by 2002.... And once foreign carriers enter the Indian market in 2004, they may put their own facilities to terminate the incoming traffic.''

In that case, it said, only the Department of Telecommunications domestic network will fetch some revenue.

The VSNL's infrastructure could be altogether bypassed at that stage. It must be emphasised that increasing call turnaround trend does not favour India and must be dealt with appropriate measures.

Phillips Tarifica said the VSNL as an independent entity has been assigned to deal with international traffic that is expected to be the highest growth area in terms of volume in coming years in the telecom services market.

Any move that risks its independence will result in the VSNL losing the flexibility in responding to global telecom trends.

''And in the process it could fail to perform as is required, given the pace at which the international telecom environment is changing.''

Phillips Tarifica is member of the Phillips group that is a subsidiary of the $340 million Phillips Publishing International based in the United States.

It undertakes an extensive programme of research on key developments in world telecom markets.

It also offers a repertoire of tariff related products covering fixed and mobile services in Europe, West Asia, Africa, Indian subcontinent, Asia-Pacific and Latin America.

Cellular industry

The British consultancy also said that the Indian cellular industry is regaining its position as a sound investment despite poor forecasts.

The recent introduction of a revenue sharing scheme is likely to offer many benefits to cellular operators and to the health of Indian telecom sector as a whole, it said in a study released in New Delhi during a two-day briefing session.

''It will certainly improve valuations, increasing their attractiveness to potential investors and thus lead to further network expansion,'' said Andrew Tolputt, manager for mobile and convergence division of Phillips Tarifica. He authored the study.

Consensus is that valuations of highly lucrative Delhi and Bombay metro operators are likely to increase by a factor of four or five whereas those operating services in circles may benefit from as much as ten-fold increase in their valuation.

He said the introduction of revenue sharing would also serve to reduce tariffs. The Telecom Regulatory Authority of India has indicated that if any operator appears to be making inordinate profits as a result of the scheme, then it will act to ensure that consumers benefit through the further reduction of tariffs.

''This will in turn lead to an increase in subscriber figures which is important for building strength within the mobile sector,'' Tolputt said. Also, revenue sharing will ensure that the government receives regular payments and will bring an end to the legal wrangles that have recently plagued the Department of Telecommunications.

The briefing session on 'New challenges for telecommunications in India' is the first in a series organised by Philips Tarifica.

Speaking on the occasion Arun Seth, managing director for India and SAARC region of British Telecom Worldwide Limited, said there is a definite change in right direction of structure and market dynamics. He said there is a changing political mindset towards infrastructure sectors.

Seth said the Indian telecom industry has the opportunity to skip legacy systems when new technologies are converging. But new technologies also set in unpredictability for which a new policy would be required every three years or so.

He also appreciated that the National Telecom Policy 1999 takes care of convergence issues and the Internet policy is operational.

Alistair Scott, vice-president and Asian telecom analyst for Merrill Lynch, said the new telecom policy of 1999 addresses several top-line issues but execution risks still remain.

He said telecom reforms have been through a bruising process and the industry faces competition for capital from other infrastructure sectors.

Scott said the legal hurdles are not healthy for external direct equity investors. The TRAI requires clarifying of powers while the DoT maintains the dual role of policy maker and operator.

India has a teledensity of 2 per cent and 2.7 million people are awaiting phone connections.

Amitabh Kumar, acting chairman and managing director of VNSL, said revenue sharing appears to be the right approach. But there is need to restructure long-distance tariffs at par with those globally.


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