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September 23, 1997


Backdoor business

VSNL's Rs 600 million plan to remain in the ISP game.

Last week’s cabinet decision to privatise the Internet services business will strip the Videsh Sanchar Nigam Limited of its monopoly. However, the government monolith has been working on the problem and is expediting the process to set up a fully owned subsidiary which will provide a range of value-added services.

The company will have an arm’s-length relationship with VSNL. It will also pay regular tariff for all the services it may acquire from VSNL just as any other private ISP would.

The will be in place by the end of this year and is likely to have an initial equity base of Rs 600 million. None of the equity will be paid up by VSNL as cash. Instead, assets worth roughly Rs 600 million will be transferred to the subsidiary at their full value. The VSNL staff will be on deputation to the subsidiary for an initial period, at the end of which they will be allowed to become permanent employees of the company, if they so wish. The company will also be free to hire additional staff.

VSNL has also commissioned SBI Caps to prepare a preliminary report to present projections on profitability of the proposed company as well as to suggest a structure for the company. In a move to pre-empt complaints from private ISPs and email service providers, VSNL has also said that dealings with its subsidiary will be purely on commercial terms.

Rates for leased lines required by the subsidiary will be charged on a par with other users. Assets built up by VSNL to operate services such as email, data services, video conferencing and Internet will be transferred to the new company. However, international services including the managing of the gateway Internet Access Service will be done by VSNL.

Although according to the draft Internet policy, VSNL is to withdraw from providing Internet services, its subsidiary is certain to enter the market.

VSNL is further augmenting its offerings in the international data services area by tying up with Sprint and IBM. Users in India will be able to access Sprint Net and IBM Global Network through VSNL.

Global Managed Data Services, already offered by VSNL are 'concert packet switched services' along with British Telecom, Universal Connect along with TMI (a subsidiary of Telecom Italia) and a third service along with Cable & Wireless. Each of these services operate as independent global data networks, which can be accessed in India through VSNL, either via leased lines or dial-up connections.

Another project under consideration at VSNL is the operation of direct-to-home or DTH services. The company has decided to keep out of the software aspect of the business while focussing on providing uplinking and satellite services. Company representatives recently deposed before the Joint Parliamentary Committee on broadcasting in favour of permitting uplinking from India.

VSNL already has in place the infrastructure for uplinking through its eight earth stations, while it will also be able to arrange transponders, being a member of Intelsat. Its facilities are already being used by certain channels to uplink to Honk Kong, from where they are re-transmitted for viewership. This is being done for a number of news-based programmes a short while before actual broadcast, though most of the software is physically transmitted to Singapore or Hong Kong as tapes carried by couriers.

VSNL Chairman and Managing Director B K Singal is of the opinion that the VSNL must remain a service provider, particularly when the merger of the Internet and telecommunication is a world-wide phenomenon. If most major international carriers like AT&T, MCI, Sprint, KDD and Teleglobe can provide telecommunication and Internet services simultaneously, why should not VSNL, Singal asks. In fact, from the mid-1990s there have been a rash of mergers and incorporations in telecommunication and information sector at the global level.

According to a 1995 survey of Broadview Associates, merger and acquisition transactions in the information technology industry have jumped by 57 per cent with the total transaction value touching $134 million. This was aimed at placing the mega-corporation in a commanding position when commercialisation of Internet became a serious business.

Once the subsidiary is set up, the VSNL can diversify and concentrate on providing efficient infrastructure for high bandwidth to ISPs on one hand and integrating with the global backbone on the other. The VSNL's connectivity with Sea-Me-We2, FLAG, and Sea-Me-We3 would be a strength.

Besides, the present operational network of 14 earth station would soon be expanded to 25 earth stations. Singal believes that opening of the Internet market will definitely increase the availability of Internet services, particularly in smaller towns and cities which remain unserved till today.

Though in the beginning there may be a proliferation of private ISPs but in the long run very few with financial muscle would service in the market. "The new policy offers VSNL an opportunity to prove that we are better than the best," Singal said.

About VSNL’s own financial muscle, Singal said that the company has adequate resources for financing Internet expansion. The VSNL had recorded Rs 5.04 billion profit after tax for the 1996-97. In addition, the VSNL has already raised $526.6 million through the global depository receipt issue.

Though the federal government is yet to decide the nitty-gritty of the new policy, some of the private ISPs have already begun to acquire the hardware for the purpose.

Once the government gives the green signal, several ISPs will start functioning from day one. With the private operators raring to go, there would be a drastic cut in the cost of Internet services, sources in the industry say.

The standard TCP-IP account, which is at present available at Rs 15,000, would not cost over Rs 9,000 to Rs 11,000.

VSNL may completely withdraw from Internet services business

- Compiled from the Indian media

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