The 60 per cent reduction in international leased line prices announced by Videsh Sanchar Nigam (VSNL) will have a negative impact on its bottomline in coming months.
At present, revenue from international bandwidth business accounts for Rs 300 crore to Rs 350 crore (around 5 per cent) of its net sales of Rs 7,297 crore. "The profitability of business will be under pressure unless there is a substantial increase in the volume," a senior VSNL official said.
However, VSNL will try to maintain the profitability by buying bandwidth from several global cable companies at economical rates. "In the past few months, the cost of bandwidth has come down that could compensate a part of the reduction in international bandwidth rates to our local users," the official said.
However, the company official refused to comment on the possible decline in the bottomline. VSNL had reported a net profit of Rs 1,778 crore for the fiscal ended March 31, 2001. The rate cut announced by the company varies from 35 per cent to 60 per cent.
According to analysts, VSNL will face severe competition from domestic and global telecom players that will force the company to cut prices further. Bharti-SingTel, which is setting up an undersea cable project, Network i2i, connecting Singapore, Chennai and Mumbai, will pose competition.
Following yesterday's announcement, VSNL will also have to compete with its bandwidth partner, FLAG, in selling the international bandwidth in India. Hitherto, VSNL was the monopoly player in the country.
Resolving the two-year-old dispute with international cable provider FLAG, the Centre has said the foreign company would be allowed to directly sell bandwidth to internet service providers (ISPs) in the country.
The reduction in VSNL tariff is expected to benefit ISPs, large corporates with overseas operations and call centre operators. Retail internet users are not expected to get any immediate benefits as tariffs for dial-up accounts are already low.
