Videsh Sanchar Nigam (VSNL), the Tata group telecom company, has decided to shift focus from international long-distance (ILD) services to new businesses.

This follows VSNL’s assessment that with Bharat Sanchar Nigam Ltd (BSNL) and Mahanagar Telephone Nigam Ltd (MTNL) no longer routing their international long-distance traffic through VSNL’s pipelines, the residual business will not be able to support current growth. Hence the search for new businesses.

The company had appointed the Boston Consulting Group as advisers for diversification, VSNL Chairman Ratan Tata said at the company's annual general meeting today. But he refused to spell out the new business VSNL was looking at.

"The exclusivity ended in terms of our main business, that is, international long-distance. With diminishing tariffs, the ratio of revenue sharing is moving more towards BSNL and MTNL, and shareholders should now bear with us. We have to build another business as the international long-distance business will be gone by next year," Tata said.

He added that the company’s main source of revenue from the international long-distance business would no longer come from BSNL/MTNL "as they will become our competitors in this business".

"We did know that monopoly would go in 2004, with increasing competition leading to new private players in the international long-distance business. But what we did not know was the effect it would have with diminishing tariffs and new settlement rates and new revenue share thrust upon us. Last year, we literally spent all our time on how to keep our head above water following instantaneous changes post July 2002," Tata said, explaining the situation that VSNL now finds itself in.

At the time of disinvestment, the government assured VSNL that it would be the favoured carrier for BSNL's and MTNL's international long-distance traffic for two years after the transfer of management control. VSNL was privatised in February 2002.

After the meeting, N Srinath, VSNL director (operations), said the Boston Consulting Group had been advising the company from September 2002 on new business models.

"It is an ongoing process. BCG has advised us on new business ventures, cost-reduction initiatives and profit-enhancing programmes," he added.

VSNL's new business ventures include Internet protocol virtual private networks (IP-VPN), microprotocol label switching (MPLS) services and corporate data services.

Answering a shareholder's query on the government selling its residual stake of 26 per cent to the Tata group, Tata said, "There were discussions from the government side as they are willing to sell the residual 26 per cent stake. Discussions are on the terms of the sale."