Date:29/12/2005 URL: http://www.thehindubusinessline.com/2005/12/29/stories/2005122901810400.htm

Back `Value-added services to cushion margin pressure on VSNL data biz'

THE Head of Corporate Strategy at VSNL, Mr Srinivasa Addenpalli, says the pressure in their data business will continue but volumes will compensate.

He adds that a capex of Rs 1,000 crore is seen in both FY-06 and FY-07. Further, he says volume growth is seen in the international orivate leased circuit (IPLC) business and revenue growth will come from value-added services.

The Tyco Global Network (TGN) operational integration is complete and network integration is under way, says Mr Addenpalli.

He adds that the Teleglobe acquisition will be completed by early next year.

Excerpts from CNBC-TV18's exclusive interview

On growth of the data business

I think the data business has shown growth in the past few years, and that is backed by the growth in the IT industry in India, and it will continue for the next couple of years.

What kind of margins are you expecting going forward?

There is pricing pressure because we have led the market into cutting prices, but that also reflects the changing cost structure, as new submarine cables and new bandwidth come into the market.

How will you catch the benefit of that because you must be operating on some legacy system?

The percentage of the legacy system is now very low because we recently built our Singapore cable; we have the TGN acquisition and a lot of capacity as a result of that. Our bandwidth mix itself has changed and pricing pressure is always been an issue, but I think we will be able to cope with it.

IPLC has been your main bread and butter - what kind of growth do you expect in this business for FY06-07?

In terms of volumes, the growth will continue and will also increase due to reduction in prices, because more people and smaller companies are buying IPLCs, although there would be some pressure on the revenues because of price reduction.

What VSNL is doing is that it is introducing a lot of services around the IPLC business and we are expanding our geography beyond India to other markets, as that will help us recover our revenues and probably show some growth in revenues.

So you are confident that revenues would see no decline in FY07?

We are looking in general terms because we are introducing many new services. IPLC is just one product around the total connectivity and bandwidth solutions that corporates want and these new services will make for the pricing correction in IPLC.

Your short-term and medium-term view on the national long distance (NLD) segment?

For the NLD voice business, there is no market because there is no carrier access code (CAC), no calling card available and we have to go via the existing operators. Whether it is traffic from Tata Teleservices or other unaligned carriers, we get their traffic. So until CAC happens, there is no opportunity for VSNL to go out into the market and compete for NLD traffic.

How is the Tyco and Teleglobe integration going on - will Tyco turnaround as predicted?

Tyco or the TGN integration is under way and it is completely integrated with our global operations, the organisations and the networks are integrated and we are working towards improving the performance of TGN as we had projected.

The Teleglobe acquisition is still not completed and we are waiting for some regulatory approvals that will be completed by early next year, but planning for the integration with Teleglobe has started. We will look at integrating all our international operations into one structure.

What kind of capex estimate will we see going forward?

We invested about Rs 1,000 crore in the previous year and our projections for this year are also on similar lines, it is backed by a lot of acquisitions and lot of these capex plans are not in expanding our network internationally so the TGN acquisition, the Teleglobe acquisition form a large part of our capex.

Take us through the integration with the other Tata Telecom businesses. Is that on the cards? Are we going to see anything of that or will it be purely strategic moves on a case-by-case basis?

VSNL is an independent company. We are not integrated in the financial sense with the rest of the Tata Group telecom companies. But we work very closely with them.