Marriage on the Rocks?

The marriage being tampered with was solemnized by the Union

telecommunications minister, Pramod Mahajan, between Videsh Sanchar Nigam Ltd (VSNL)

to "the most eligible bachelor in the country," Ratan Tata, chairman,

Tata Group of Companies. The father of the bride has been introducing

impediments into the married life of his ‘daughter’ regarding the sharing of

revenue from international calls between VSNL and Bharat Sanchar Nigam Ltd (BSNL).

The bedrock



VSNL’s interconnection agreement with BSNL expired on April 1, 2002. Since
then VSNL has been trying to reach a new agreement, but found no meeting ground

with BSNL. Negotiations remained deadlocked before BSNL announced that it might

shift its outgoing traffic to the other private international long distance

operators (Bharti Telesonic and Data Access). As long as VSNL was the only ILD

operator, BSNL had no choice. However, once Bharti and Data Access started ILD

operations and offered a higher revenue share, BSNL had the option of going by

commercial considerations.

VSNL, however, countered that BSNL was committed to routing all the calls

through its network for two years after its disinvestment. The interconnect

rates offered by Bharti and Data Access were possible because of their smaller

networks. VSNL also made the point that it has a much better infrastructure and

the quality of its service was superior, and so it could not afford to lower its

revenue sharing rates.

The practice of allowing the government to retain a foothold in companies

being sold off, underlines a major shortcoming of Indian privatization. The

government’s residual stake allows ministers to interfere with corporate

decision making and destroy value for the new owners.

The interconnection



VSNL’s reluctance to sign a fresh interconnect agreement with BSNL and
Mahanagar Telecom Nigam Ltd (MTNL) is resulting in huge revenue losses for the

two PSUs. VSNL and the two PSUs have already stopped sharing revenues for both

outgoing and incoming calls. VSNL is keeping revenues for incoming calls, while

BSNL and MTNL do the same for outgoing calls. The arrangement between VSNL and

BSNL/MTNL was that VSNL would bill the foreign carriers for incoming calls and

would share the revenue with BSNL/MTNL as per the formula agreed by them in the

interconnect agreement. Similarly, BSNL/MTNL would bill the domestic subscribers

for making ISD calls and share the revenue with VSNL. The behemoth, VSNL,

reduced its tariff by upto 40% from April 1, 2002. This means that the revenues

BSNL/MTNL collect for outgoing calls reduces to Rs 1,136 crore for the year

2002-03. VSNL has not yet signed the new interconnect agreements with them as

the two PSUs want VSNL to sign the interconnect agreement on similar terms and

conditions they offered to Bharti and Data Access. VSNL, feels that it would be

ruined if it accepts BSNL’s offer.

Prior to its privatization, VSNL was getting 50% revenue for incoming calls

and roughly 38% revenue for the outgoing calls. Now, it wants BSNL and MTNL to

retain the same revenue share for carrying ISD calls. However, BSNL and MTNL

have signed very attractive terms for interconnection with Bharti and Data

Access. BSNL and MTNL have offered similar interconnection terms to VSNL. They

argue that the market dynamics have changed after the opening up of the sector

and the entry of private players. VSNL’s rivals, Bharti and DataAccess, are

willing to hand over bigger slices of revenue to BSNL and MTNL, the two

companies that originate and terminate the bulk of all calls. If VSNL is to

compete with them, it has to match their terms. Price competition is an

essential part of deregulation. If rivals can squeeze profits out of lower

tariffs, VSNL should learn to play the same game. But all that will become

possible only when the government exits completely from the company!

Dhanya Krishnakumar In New Delhi