VSNL was taken over by a bout of volatility in early trades on Monday, losing 4.35% to Rs 80.15, but then picking up to make good much of the loss.

The scrip of the overseas telecom service provider recovered to Rs 83 (down 0.95%) by 10:16 IST. Volumes recorded on the counter on BSE amounted to 7,636 shares by that time. In the 30 sessions between 11 December 2002 and 24 January 2003, the scrip of Videsh Sanchar Nigam dropped 24% to Rs 83.80 from Rs 110.50.

Friday evening, VSNL turned out a substantial drop of 77% in net profit to Rs 81.8 crore for the third quarter ended 31 December 2002 compared to Rs 357.2 crore (Rs 3.57 billion) in the corresponding period of the previous year. Net sales slumped 42.3% to Rs 1,003 crore (Rs 10.03 billion) from Rs 1,738.6 crore (Rs 17.38 billion) in DQ 2001.

The results belied expectations what with capitalmarket.com itself projecting net profit in the range of Rs 162.5 crore (Rs 1.62 billion) and Rs 250 crore (Rs 2.5 billion), a drop of 30% to 54.5% and sales of between Rs 900 crore and Rs 973 crore(Rs 9.73 billion), a fall of 44% to 48.3%.

The company was expected to perform poorly, in any case, what with lower tariffs on international calls.

There have been reports that cellular companies (cellcos), which slashed national long-distance rates recently, now plan to make big cuts in international call charges. As per reports, cellcos plan to slash international call rates by 50% to Rs 12 per minute from Rs 24 per minute charged for calls made to the United States, Europe and the Middle East. There has been a steep fall in ILD rates after international long distance services were opened up from 1 April 2002. This, effectively ended VSNL's monopoly in ILD. Presently, VSNL is the largest ILD player with more than 50-70% market share.

There is talk in the market that rates will be slashed further when Reliance Infocomm unveils its services. Sources say RILI is expected to offer rates at Rs 6 per minute.

The impact of falling tariff and intensified competition is clearly visible in VSNL's financial performance .

On 19 November 2002, after months of negotiations, VSNL signed an agreement with BSNL for interconnecting their networks. As per the agreement, VSNL will now pay BSNL the same rates that private operators like Data Access, Bharti Telesonic and Reliance pay to bring in phone calls from outside India and connect to BSNL's network but it will get 30% discount on these rates for a committed traffic of 90 million minutes a month. The agreement is valid retrospectively for the year up to March 2003. Thereafter, both the companies have to negotiate a further year-long interconnect agreement.

VSNL is the preferred international carrier for BSNL till April 2004. Some time ago, VSNL soft launched its national long-distance service in the country from six centres, including Mumbai and Ernakulam. But, analysts say, the company will not benefit in a major way from the move as there are many players already operating in the area of NLD services

VSNL is also a leading Internet service provider. India's internet subscriber base stood at 38 lakh customers on 30 September 2002, with Videsh Sanchar Nigam Ltd and Satyam leading the race amongst Internet service providers, with a subscriber strength of six lakh each.