VSNL to gain from Tata broadband arm via @tatacompanies

Continuing its buying spree, VSNL has now picked up the broadband subsidiary of Tata Power - Tata Power Broadband Company (TPBC) - for a sum of Rs 239 crore. The acquisition fits in neatly with the company's gameplan to build a broadband business catering to both corporate and retail customers across the country. Through this unit, VSNL now gets a readymade fibre-network across Mumbai and Pune.

Under Tata Power, this unit has been largely a "carrier of carriers" and has been offering services to carriers, telecom service providers like Sify and bulk users of internet protocol (IP) bandwidth. VSNL, however, will be looking to leverage this network to grow its enterprise or corporate business. In other words, it will take advantage of the last mile connectivity that TBPC has across the two cities to reach out to both companies and homes. Which is why buying an extensive network in cities such as Mumbai and Pune, where it can access more corporates, makes sense.

In FY04, its first full year of commercial operations, TBPC earned a total revenue of Rs 31.1 crore and also reported a profit. In FY05, when it became a subsidiary of Tata Power, turnover was Rs 46.60 crore, while the net profit was Rs 10.71 crore. That means VSNL has paid around five times sales. While that may seem a trifle expensive, it must be remembered that rolling out high-technology optic fibre networks of the kind that the unit has is both expensive and time-consuming.

Analysts estimated that it would take at least three years to roll out such a network. The unit, in any case, makes money. One can, therefore, assume that under VSNL, whose core business, unlike Tata Power's, is telcommunications, its profitability will only improve. What's more, VSNL also gets ready access to a new customer base.