International leased line tariff — The core of VSNL's row with the regulator

Mumbai--Private telecom companies such as VSNL is having a bull fight with Telecom Regulatory Authority of India (India)over the international lease line tariff matter.

At the core of Videsh Sanchar Nigam Ltd's (VSNL) ongoing dispute with the telecom regulator (TRAI) over the tariff that the company levies on its customers for dedicated international telecom connectivity lies that part of telecom capacity the company owns in consortium with international telecom players.

Its tariff for usage of telecom throughput on the consortium property is anywhere between Rs 2 lakh and Rs 5 lakh more than the regulator- mandated tariff of Rs 13 lakh a year for a unit of 2 MBPS line (capacity equivalent to transporting 2 million electronic bits of data/voice output per second). VSNL's charges on its fully owned line (Tata Indicom cable) are lower than the ceiling tariff, by Rs 2 lakh.

While it is comfortably placed in conforming to the regulator-imposed tariff `ceiling' on the capacity it owns exclusively, it has a problem with regard to the tariff charged by it on the capacity owned in consortium with others. Even the other competitors such as Bharti Tele-Ventures and Reliance Infocomm - - are within the ceiling imposed by the regulator. Bharti and Reliance Infocomm both own their own undersea cables on which they sell capacity. It is clear that when companies have their own cable, they are flexible on tariffs.

According to VSNL sources, the company has no control over costs for these consortia-owned cables, which are determined unanimously by the consortium partners. On one cable, there are 13 international signatories. VSNL has to mark up its selling costs accordingly to be viable, these sources added.

But the big qustions which is hammering the company is over the profitability of VSNL's leased-line business if the regulator's order stands the test of judicial scrutiny. Some analysts feel its profit margins will merely reduce, but others feel the bottomline could actually bulge the other way. VSNL isn't helping its cause. Its segmental reporting is not indicative of the true share of different segments of its business, say analysts. A vast array of services have been clubbed under "telephony and related services".

Since international voice telephonyhas become a commodity business with margins under pressure, leased channelsmust be contributing significantly to profits, feel analysts. And leased channels accounted for 21 per cent of the company's revenues in 2004-2005.