Computers Today, May 16-31, 1999, Telecomment

May 16-31, 1999 TELECOM

TELECOMMENT
Don't Ruin Shareholders

As competition draws near, the share value of MTNL and VSNL will be eroded.

Embracing Emptiness
Teach Concepts, Not Syntax

T H Chowdary

When the Videsh Sanchar Nigam Ltd (VSNL) went in for the first GDR in 1996, the price realised was about $13.93. Now it's fallen to $9.25. How is it that while the share prices of IT and telecom companies are going up, that of VSNL (and MTNL also) is declining?

Monopolists in a Squeeze

The reasons are plain. They stand to lose their monopoly position. However much is the obfuscation, obstruction and opposition by the incumbents and their loving old mother, DOT, there would be loss of markets as well as market share. For example, the ISP policy ensures total bypass of DOT, MTNL, VSNL, from local access to international connectivity. Whatever be the prohibitions of DOT with regard to voice over the Internet (IP telephony), all the Net customers would use IP telephony. We expect about a million (5 percent of telephones as of 1998) Net users by 2000. These precisely are also the ones who regularly make international (ISD) calls. India's ISD revenues are about a third of all telecom revenues. Also, 5 percent are also the domestic long-distance (DLD) callers. That would be additional diversion of DOT/MTNL revenues.

Secondly, as per our obligations under the World Trade Organisation, DLD and ISD would be opened to competition sooner than what DOT wishes to monopolise. Do our PSUs know how to compete, how to gain customers and retain them? They can, if they are properly prepared and led. British Telecom is an example of a former government department transforming itself into an unbeatable competitor because it was privatised: government's bureaucrats did not sit on its board to do back-seat driving. In the 15 years since corporatisation, privatisation and competition, it has lost no more than 10 percent of the British market and is gaining foreign markets.

Threats Looming Large

Our MTNL and VSNL are corporations only in form and name. Both are totally controlled by the DOT's officials and a minister who knows more of politics than business and markets. The profits of VSNL/MTNL are entirely owing to prices which are in the nature of taxes, increased and adjusted to generate the revenues desired. And not due to cost-cutting. In the US, thanks to fierce competition, domestic long distance calls are priced at 10 cents (Rs 4.30) per minute, coast to coast (4,500 km), day and night, by fixed/wired or cellular mobile telephones. They are also available for 5 cents (Rs 2.15) per minute if you choose Internet telephony. Competitors to VSNL/MTNL (and DOT) would offer calls at such prices. Will the telecom PSUs be still able to "generate" revenues and profits? With such threats looming, it would be miraculous if the shareholders wealth would remain undestroyed.

Which is why I have been advocating for some time now that MTNL and VSNL should not disinvest in favour of an amorphous mass of shareholders, but should find a foreign telephone operator of proven performance as a strategic partner. They should sell a block of shares at the highest realisable price and invite it to manage and transform the companies into fighting, customer-oriented entities. If this step had been taken 3-4 years ago, by now MTNL/VSNL would have been able to beat back any competition and also forge foreign partnership.

I foresee that as the day of reckoning, i.e., competition draws near, the share value of MTNL and VSNL will be eroded and the shareholders' wealth would be destroyed. Of course, as Government servants, the managers of the MTNL and VSNL will lose nothing. It is only the shareholders and the country that will be the losers.

Wisdom dictates that the losses can be cut by unloading a part of the Government shareholding in favour of a strategic partner. TELEMEX of Mexico, BELGACOM of Belgium and many others have done that. Let's learn the lessons fast.

The writer is ex-chairman of Videsh Sanchar Nigam Ltd

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