VSNL chairman Ratan Tata today painted a very dismal picture of the company’s future, warning shareholders that the international long distance (ILD) business would be "gone" next year when BSNL and MTNL start their ILD operations.

"A major source of income will be gone. We need a new line of business or other lines of businesses," said Mr Tata while answering shareholders queries at the annual general meeting here today. A plan for new businesses will be known by the end of this year, he said. "Last year, we were just trying to keep our head above water. I will be able to better describe our roadmap at the time of the next financials."

At present, VSNL has a 66% market share of the ILD business since BSNL/MTNL have to route all international calls through VSNL till March ‘04. "But this will be challenged, unless we find a way to move forward," Mr Tata said. BSNL is expected to start its own ILD operations after April next year. "The impact of that needs to be fully digested," he added.

Mr Tata spoke about the "instantaneous change of circumstances" after July last year, when new rates and revenue-share agreements were thrust upon the company. He asked shareholders — who complained that the company was ‘sliding’ — to consider the change in environment as they monitor VSNL’s performance. He said one-two year period was too short and a company should be judged over a longer period, especially the new businesses.

N Srinath, director (operations), seemed more optimistic as he felt that some sort of customer access mechanism will be in place before BSNL/MTNL get into ILD. Regarding new businesses, Mr Srinath said the company had already taken several initiatives such as corporate data services like IP VPN, MPLS, targeting new geographies from the ILD standpoint. But he admitted that these were not enough to substitute the ILD business. "The corporate data business has increased, but even there the tariffs are falling."

Tatas have engaged Boston Consulting Group to help them in several areas like controlling costs, profit enhancement programmes and specific initiatives like bandwidth. The bandwidth business is one of the new areas that VSNL will be focusing on. The company has a 37% share of the internet market and a 50% share of the corporate data market.

VSNL has planned a capex of Rs 1,200 crore for the current year, of which Rs 200 crore will be utilised to establish bandwidth capability and Rs 245 crore for establishing the NLD network. Speaking at the AGM today, Mr Tata said that a sum of Rs 600 crore will be used for the undersea cable capacity, Rs 205 crore will be invested in Tata Tele, 
Rs 36 crore in voice circuits and Rs 150 crore would be used for other capex.

Responding to queries, Mr Tata said they were waiting for government clearances before they could use the line that ‘VSNL is a Tata enterprise’. Regarding the balance holding of the government, he said there had been some discussions from the government’s side on the subject.

While speaking to shareholders, Mr Tata said they had written to the government asking for a review of the quantum of compensation for early withdrawal of monopoly. He also said they were in discussions with the government for sale/lease of the ILD infrastructure to avoid duplication, after which the Tatas will outsource their ILD operations. "These applications have neither been accepted or rejected."

He also said that the grey market operations in the ILD arena were resulting in revenue loss of around Rs 500 crore.

Regarding the turbulence in the telecom sector, Mr Tata said that the schemes and discounts will disappear and the quality of services will matter eventually. "Right now, it looks terrible like vanaspati being sold between players, but soon it will get hi-tech."

Speaking about the need for consistency and rationalisation in the telecom policy, Mr Tata said that vested interests were guiding the turbulence in the industry as people do not want new players in the field. He spoke of the need to allow full roaming, "though not on an unfair basis to them (cellular operators) and ensuring a level playing field".