Interview / Amitabh Kumar

'Telephony will be the major revenue earner for next 2 years'

Amitabh Kumar, operations director, Videsh Sanchar Nigam Ltd, maintains that telephony will continue to be the major revenue earner for the the state-run international telephony company for some time to come. However, the latest quarterly result of the company, underlines a divergent trend - the revenue contribution of telephony has come down to 77 per cent from the earlier 95 per cent, mainly due to falling tariffs.

The company hit a flat zone on its growth curve, with profits and sales growing by less than half a percentage point during the latest quarter, and would soon be looking at improving its margins.

In an interview with Ganesh Ramamoorthy of NetScribes, Amitabh Kumar holds forth on his projections.

VSNL has posted a very flat growth in the latest quarter. What exactly went wrong?

The results don't necessarily tell the true picture until you analyse them. They appear to be flat only on the face of it. In reality, there has been a strong growth.

First, the settlement rate has fallen from 54 cents to about 42.5 cents. This is quite a steep decline and happened only in September. The impact of this could be seen in 25 per cent traffic growth during the month.

Second, the growth in telephony traffic over the last year has been satisfactory at about 19 per cent. The traffic grew about 25 per cent in September. This gives a very strong picture for VSNL's telephony business, as the global growth rate for this is only around 6 per cent.

So far as the Internet is concerned, the number of subscribers has doubled over the last year and has crossed the 500,000 mark. The leased line subscriber base has also more than doubled to about 3,000 (for 64 kbps lines) in the latest quarter.

So, these results don't exactly tell you the growth story.

What affected the profits? Was it the tariff reduction for value-added services and Net access?

The tariff cut has not really affected profits. In fact, both leased line and Internet access tariff are down by half over the same quarter last year. But the volumes have doubled.

For Internet access, revenues have grown to Rs 571 million from Rs 441 million in the year-ago period. Similarly, leased line revenues grew to Rs 848 million over Rs 755 million.

For a total telephony traffic of 663 million minutes for the quarter, the revenues work to Rs 5.98 billion at an average retention rate of Rs 9 per minute. Value-added services accounted for Rs 1.77 billion in the quarter, which is 29.6 per cent of total telephony revenues.

The flat results don't show all these things. Revenues have grown despite the 50 per cent reduction in tariffs.

In terms of future business, what are the major focus areas. What role does the cellular foray play?

Cellular is a little far away. It's also too early to comment because the government has not even announced the norms for the fourth operator. Moreover, we have to study the market and decide what to do once the guidelines are announced. What is on the immediate horizon is the all-India Internet access service, for which the licence will come through anytime.

The other area is the domestic long distance (DLD) telephony licence, which too will come through in the next ten days. What people are not realising today is that DLD gives an immediate advantage to VSNL because of vertical integration.

Any domestic operator can connect to any basic operator. So, if we get the DLD license we can connect to any operator in India and have to pay only Re 1 per call to the basic operator as against a call handling charge of Rs 9. So even without any additional business, to be able to deliver international calls to basic operators in India is a big advantage for VSNL.

Value-added services will be a major area for VSNL in the future, but actual revenues and profits will be largely coming from telephony. That's because the projected growth in telephony is much stronger compared to the other services.

How much of VSNL's existing infrastructure comes into play in DLD?

It is here where our 12 existing gateways will come into the picture. We have gateways in every major city - Madras, Bombay, Calcutta, Delhi, Bangalore, Pune, Cochin, Ernakulam, Jallandhar, Kanpur, etc - apart from 23-odd earth stations.

So where exactly do the revenues come from in DLD?

It's not actually a question of revenues. It's about margins. We can carry all the global traffic into India at the same revenue sharing of Rs 9 per minute with even one gateway in Bombay alone.

But with 12 gateways and the all-India access licence, the advantage that we have been waiting for many years has come today. As soon as we get the DLD licence, we can give the calls directly to the respective local operator. For example, Gulf calls can be delivered directly to the local operator at Ernakulam.

Today we get only Rs 9 per minute. But as we become a major DLD player, there are possibilities for this charge to go up. And because we have to pay only for the local call delivered, there is enough scope for higher margins, depending on the accounting rates. The margins will be higher even if the accounting rates decline.

How much have you accounted for the next two tariff cuts proposed by TRAI?

Tariff cuts are actually beneficial. It is already resulting in higher traffic volumes in the country. And increased volumes in outgoing as well as incoming call traffic will translate into higher revenues for VSNL, because the per minute revenue is very critical. It is the first time in the Indian market that such large-scale reduction in tariff is happening and this will have a good effect on VSNL.

What are your plans regarding the Internet business. It is was supposed to be spun off into a separate company…

The plan is on, but it will take some more time to materialise. I cannot give a timeframe for that now.

What is the status of your bandwidth capacity addition plans? You were to add 750 mbps by November-end.

We have already added three lines adding up to of 465 mbps. They will be commissioned in the next 7-10 days. We already have 340 mbps. Another 200 mbps will be added by the end of the next month. This will take VSNL's total bandwidth capacity to 1,005 mbps.

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