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VSNL-DoT merger mooted

The VSNL is the state owned overseas telecommunications monopoly and the DoT owns and operates most of the country's telecommunications network.

T O D A Y

• The gate-crasher • IIT's School of IT • TN's IT task force • VSNL-DoT merger • Exim Bank's IT deal • GIS meet coming up

If the proposal is gone ahead with, the merger could create a telecom behemoth with a turnover of between Rs 230 billion and Rs 250 billion.

The merger idea comes from the Telecom Commission itself. The Telecom Commission is a nine-member apex body overseeing telecom policy in the country. Its chairperson, by the virtue of the designation, is also the secretary of DoT.

"The background of the proposal is that top DoT officials fear that when it gets corporatised, it will be a non-starter if the international (telephony) carrier business remains out of its purview," a newspaper report has quoted sources as saying.

Traditionally, international telephony has been the principle source of income of most telecom administration businesses.

VSNL has a turnover of some Rs 60 billion, which it expects to increase significantly if the new tariff proposals suggested by the Telecom Regulatory Authority of India become law.

Sources allege that the proposal to merge VSNL into the Rs 170-billion DoT is behind the delays in clearing the former's telecom regional hub project, which is to be a joint venture with a foreign carrier. British Telecom is the lone bidder for the hub.

The ministry of communications has been considering the corporatisation of DoT for some years now. The corporatisation proposal was given a formal shape early last year. The exercise is likely to cost the government some Rs 12 billion.

Among the issues yet to be sorted out by DoT are the equity capital of the proposed corporation, valuation of assets (estimated at some Rs 400 billion) and the licence fees to be paid by the corporation to the government.

When the Mahanagar Telephone Nigam Limited, the basic telecom services provider in Delhi and Bombay, was spun off from DoT as a separate corporation, a 22 per cent of revenues licence fee was levied on it.

Earlier this month, Sushma Swaraj, minister for communications and information and broadcasting, said she expected the corporatisation proposal to gather momentum since DoT was holding discussions with staff unions, which are distrustful of the move.

However, the proposal to merge VSNL into DoT comes along with several imponderables. "What will be terms of the merger?

"Computing the swap ratio between the two is not going to be easy," a government source pointed out.

The proposal is also likely to be opposed among various quarters of the government besides VSNL itself. The government is preparing to divest itself of some 5 million shares (about 5.4 per cent of the equity capital of the company) on the global depository receipts market. The issue is also likely to have a domestic tranche.

The merger proposal may also be received with trepidation by VSNL stockholders. The company has 100-150 institutional investors who have been watching the changes in the Indian telecom market carefully.

For instance, the price of the VSNL scrip has dropped from Rs 1,000 level to sub-Rs 850 in the 18 months since its last GDR issue.

Further, VSNL insiders point out that the international carrier is among the more successful of Indian state-owned undertakings and has a work culture divergent from that of DoT.

- Compiled from the Indian media

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