No turning back

BS OPINION

And lest any hearts begin bleeding over the decline in VSNL's profits ever since the government decided to cut short its monopoly over international traffic by two years (instead of ending on April 1, 2004, the monopoly was ended on April 1, 2002), this decision was taken long before the Tatas submitted their bid for VSNL.

Even the compensation to be paid to VSNL for this (a national long-distance licence with no entry fees and an Internet service provider licence) had been frozen months before the bid was made. At the time of the bid it was evident that, once competition was allowed, tariffs would crash, so this too is not something the Tatas were unaware of.

And the fact is that an international long distance (ILD) network doesn't cost too much: Bharti has spent Rs 100 crore to build its network, and Data Access around Rs 300 crore.

It could be argued that by the time the Tatas took control of VSNL, it was too late to avoid a drop in revenues as international call rates had crashed.

And if the Tatas are now going to be sued by minority shareholders of VSNL for cutting short its monopoly over international traffic, the damages should be paid by the government which changed the policies. But the real reason why VSNL's fortunes have gone for a toss is not just to do with BSNL's outgoing calls.

While the Tatas still get all these calls, what's happened over the past year is that over half of the incoming calls from abroad (which used to be routed through VSNL networks earlier) are going to carriers like Bharti and Data Access.

Also, incoming calls are four to five times the outgoing ones from the BSNL network. Even if the government wants, it cannot control foreign carriers and force them to channel all their traffic onto VSNL.

That said, there are a couple of points that need to be viewed dispassionately. The Tatas' argument is that BSNL should not be allowed to get into the ILD business as, once it does, it will ensure all BSNL's outgoing traffic will go only on BSNL's ILD networks.

Since BSNL controls most of the country's land lines, the possibility of restricting competition is a real issue, and needs to be kept in mind. Second, in its attempt to provide below-cost telephony, the government has introduced an 'access deficit charge' of Rs 5 per minute on all incoming calls from abroad.

With call charges abroad falling to as low as 12 cents a minute, this high 'access charge' has resulted in diversion of traffic to the grey market, and is another reason for the fall in VSNL's fortunes. Lowering the 'access charge' is something the government should consider.