The Third Force

The Tatas had appointed Boston Consulting Group (BCG) to draw up a detailed investment plan for its foray into the telecommunication business. The business major also plans to announce an open offer to buy a further 20% stake in VSNL soon. Once the formalities regarding the shareholders’ agreement are over, the Tatas and Mittals will be the two major private integrated telecom players in the country, while Reliance has a long way to go. 

India’s largest ISP



There are several implications of the acquisition. Here are some: Tatas gain control over the nearly $1.5 billion-a-year overseas calls market, more than 660,000 Internet customers and a license to enter the $2.8 billion domestic long-distance market.

Tatanova, the Tata’s ISP venture launched in mid-2001 was rather late in entering the market and failed to make an impact. Bringing VSNL’s operation under its own brand name would help Tatanova surpass Sify. It will also have access to the telecom giants’ 1 GBPS of international bandwidth that comes to India, 37 earth stations and switching capacities in nine cities. Not to mention the huge data center in Mumbai, which VSNL operates. 

The Tatas already have a significant cellular footprint by virtue of being part of the BPL-Birla-AT&T-Tata (BPL-Batata) combine. The combine is present in Andhra Pradesh, Maharashtra, Mumbai, Gujarat, Kerala, New Delhi, Madhya Pradesh, and Tamil Nadu. The company also has a presence in five basic telephony circles–Andhra Pradesh, Delhi, Tamil Nadu, Gujarat and Karnataka. 

Why is it good for VSNL?



The deal would prove fruitful to VSNL and enable the management to make quicker decisions. With assets worth over Rs 4,000 crore and huge cash reserves of over Rs 5,000 crore, VSNL, post-acquisition by Tatas, will be able to enter newer areas. Notwithstanding an impending decline in revenues from international telephony, VSNL still remains a formidable force even after 2002 with its huge cable capacity.

The cash reserves could also be used in a more productive manner. The company will also get flexibility of operations and the marketing acumen that was missing so far as it was under government control.

In the under-sea front, competition is emerging from other under-sea cable companies such as Bharti-SingTel, Dishnet (both slated to start by year-end 2002), Fibre Link Around the Globe (FLAG), and Teleglobe’s SAFE that may change the scenario in 2003. But as of now, VSNL is the only company with a submarine gateway in India. 

The long-term challenge for VSNL would be to emerge as an integrated communication services provider. With the Tatas’ backing it, VSNL might just achieve that goal.

Amit Sarkar  in New Delhi