It was a difficult time to meet and talk to N Srinath, director, operations, of VSNL and a representative of the Tata group on the VSNL board. He’d just finished addressing a very crowded press conference in Mumbai, followed by an address to the press in Chennai and Delhi through a video conference facility. Srinath sat down with ET to talk about the recent controversy relating to VSNL’s Rs 1,200 crore investment in Tata Teleservices Ltd (TTL) to acquire 20 per cent to 25 per cent stake in the latter.

The investment proposal attracted adverse comments from telecom minister Pramod Mahajan though it has been supported by the disinvestment ministry. Srinath, talks to K Yatish Rajawat about the controversy generated by VSNL’s decision to invest in TTL and argues why the investment is an essential component of VSNL’s long term plans. Excerpts:

Just to set the record straight, what was the rationale for the investment?
Today we (VSNL) find ourselves in a somewhat unenviable position where 87 per cent of our revenues come from the international long distance (ILD) business, but we have little or no direct contact with our customers. The consumer knows VSNL as an Internet company, not as an ILD service provider. The investment in TTL will enable us to gain access to the end-customer. We feel that the competition will be on price and an integrated services platform, and VSNL can’t hope to compete in this marketplace if it doesn’t have access to the customer.

But why go for such a large investment? Why not a smaller strategic stake?
You must understand that the environment has changed and it is going to be very different two to three years down the line. The integrated telecom services market is currently shared by five groups, each of which has strengths and weaknesses in each service area available in the marketplace. The Tata group will have significant presence in the basic telecom services business. You have to look at not only what TTL has now but what it will acquire in the future along with the new circles it is building up. Therefore, this decision was taken.

Going forward, TTL will emerge as a major player in the basic telecom business and it will offer us the possibility of joint promotion, advertising and so on. We’re also getting an equity stake at par in one of the leading players in the business. Moreover, the stake gets us a representation on the board of the company, which will help us going forward when we roll out our strategy of joint promotion, branding and so on.

Are you then assuming that none of the other players will use VSNL’s ILD services even after the carrier access code (CAC) is approved and implemented?
I’m not ruling it out completely, but do you think that any one of the private operators which has its own ILD license, will promote VSNL’s ILD services? Remember, almost all private sector players — Bharti, Data Access and Reliance — have their own ILD gateways either coming up or ready. Even Bharat Sanchar Nigam Ltd (BSNL), the state-owned incumbent in short distance and domestic long distance calling, is planning one.

In this sort of situation, we need to have some form of control over what traffic we get, which means that we have to have access to the end-consumer. Moreover, even when the CAC comes in, how many subscribers do you think will be willing to dial a 15-digit number for an overseas call?

What was the haste in taking the decision to invest in TTL?
There was no haste. VSNL has been contemplating such an investment for a long time now. Earlier, the company wanted to build its own basic telecom network, but that was shot down by the government. Moreover, the company has a conflict of interest with almost all the other private sector players. So this was a considered decision, not a hasty one.

This decision to invest was considered one year ago, long before VSNL was privatised. All the proposals and possibilities for investments were considered and the best option was decided upon keeping in mind the shareholders’ interests.