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Tata Communications Ltd

HSL Code: VSNLTD   |   BSE Code: 500483  |   NSE Symbol: TATACOMM  |   ISIN: INE151A01013
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VIDESH SANCHAR NIGAM LTD

CHAIRMAN`S STATEMENT 

INTRODUCTION 

It  gives me great pleasure to welcome you all to the 15th  annual  general 
meeting of your company. When we look back at this time from the future,  I 
believe  we  will  view it as one of the most momentous  stages  in  VSNL`s 
history.  The  Indian  telecommunications sector is  witnessing  rapid  new 
changes,  based  on government deregulation and new technologies.  VSNL  is 
actively participating in those changes and will, in fact, be driving  many 
of  them.  We have a number of exciting opportunities, both  to  enter  new 
businesses and to strengthen our offerings in our existing business  lines. 
We  also  have new competitors, both existing and  anticipated,  especially 
since  the  government  has  decided to terminate  our  monopoly  in  basic 
international  telephony in April 2002. Another major development  is  that 
the  government  has decided to divest a 25% stake in VSNL to  a  strategic 
partner,  with  the  right to management. By the end  of  this  year,  your 
company may be under private management. All these developments add up to a 
real  chance  for VSNL to continue to lead  the  Indian  telecommunications 
market not by default, but by design and merit. 

PERFORMANCE REVIEW 

VSNL`s performance in the last year has been excellent, both  operationally 
and  financially. The volume of international telephone traffic carried  by 
the  VSNL  network rose by 19.71%, while specialised  services  recorded  a 
revenue  growth  of  22.74%. However, tariffs and  settlement  rates  -that 
govern  payments  for  international  telephone  services  between  telecom 
providers  of  two different countries - continued  their  downward  trend. 
Therefore,  despite the volume growth, total revenue grew 10.3%,  from  Rs. 
72.22  billion  to Rs. 79.66 billion. Nevertheless, our  profit  after  tax 
showed  an excellent growth of 111.68%, from Rs. 8.41 billion to Rs.  17.79 
billion. 

CONTINUING LEADERSHIP 

VSNL is currently one of the largest and strongest companies in the  Indian 
telecommunications  sector.  It  compares  very  favourably  with   telecom 
companies in the rest of Asia too. Moving forward, we expect to continue to 
lead  the Indian telecom market not because of a monopoly, but  because  we 
are  a strong player with a whole range of competitive advantages. We  have 
excellent technology and infrastructure that represents billions of  rupees 
that  we have invested over the last 15 years. We have a strong brand  name 
that  we are now building further. We have a large existing customer  base. 
We have skilled and experienced employees. We believe that all these assets 
will keep us firmly in the top position. 

VSNL  intends  to  continue  its market  leadership  through  a  three-fold 
strategy.  First,  in  our existing business lines,  we  will  continue  to 
innovate  with  new  products, better  services  and  competitive  pricing. 
Second, to ensure rapid future growth, we are planning a special thrust  on 
some areas, in both existing and new businesses. Third, we will continue to 
invest in infrastructure to support both new and existing businesses. 

Basic services: early termination of monopoly 

In September 2000, the Government of India announced that it will terminate 
VSNL`s monopoly in international telephone services from April 1, 2002, two 
years  ahead of schedule. The government plans to compensate VSNL for  this 
early  termination with a package including an all-India  Internet  Service 
Provider  (ISP)  license, a license to enter domestic long  distance  (DLD) 
services  and  certain  benefits  with regard  to  this  DLD  license.  The 
government has further said that it would review this compensation  package 
if  it  is found insufficient in the course of time. The  government  asked 
VSNL  to  place the compensation package before  an  extraordinary  general 
meeting held in May 2001, at which the package was approved. 

Even  after  the  international  long distance business  is  opened  up  to 
competition, we fully expect to continue to be the market leader, given the 
advantages I have outlined earlier. Additionally, since this business calls 
for high investments, we do not expect a flood of new players. Besides, the 
Indian  telecom market is a developing one and is growing at a rapid  pace. 
More  players could well expand the market rather than fighting for  market 
share.  We have already seen this to be true in many developing  countries. 
Therefore, we expect a healthy growth in our core business of international 
telephony services. This business will continue to be the major contributor 
to our revenues for quite some years to come. 

Internet services 

At  the  same time, to drive our future growth, we are planning  a  special 
thrust  on  some areas, in both existing and new businesses.  The  Internet 
business  is one. Since November 1998, the ISP business has  become  highly 
competitive:  437 new private ISPs have been licensed and approximately  98 
are already in operation. Despite that, VSNL is the leader in this business 
with a market share of about 50% in the major cities where we operate.  Our 
subscriber base grew 72.19% during the year to 630,970 in March 2001.  This 
demonstrates  our  ability to perform in a competitive environment  and  to 
attract, retain and delight our customers. 

Until  last year, we were somewhat restricted in this business  because  we 
were allowed to operate in only six cities. However, the government has now 
granted  us  an all-India ISP license, which will allow us  to  expand  our 
leadership rapidly. We have already increased our presence to 17 cities and 
hope  to  reach a total of 22 cities by March 2002. To  support  the  rapid 
future  growth that we anticipate in this business, VSNL has  expanded  its 
Internet  bandwidth from 167.1 Mbps in March 2000 to 804.128 Mbps in  March 
2001. We plan to increase this to 1344 Mbps by December 2001.  

We  believe that we will differentiate ourselves in this market because  of 
the  quality  of  our  offerings, supported  by  excellent  technology  and 
infrastructure.  We have introduced a large number of innovations for  both 
our  retail and corporate clients. For corporate customers,  we  introduced 
Virtual  Private  Networks, VMAIL and an  enterprise  communication  system 
called  ALICE. For our retail customers, we have expanded our  distribution 
channels  substantially  and  reduced rates for Internet  access.  We  also 
allowed  online  registration  for Internet accounts,  online  credit  card 
payments,  global  access to accounts, a package  to  prevent  unauthorised 
access  to accounts and many other initiatives. I would like to  point  out 
that  these  world-class innovations were developed entirely  in-house.  We 
will continue to innovate with new products and services to offer the  best 
value to all customers. 

TV up-linking 

In  addition  to  Internet services, we are expanding  many  of  our  other 
existing business lines. For example, since October 1998, VSNL has provided 
TV  up-linking  facilities to a dozen regional channels. Since  the  Indian 
government  liberalised  its up-linking policy last year  by  allowing  all 
satellite  channels to up-link from India, VSNL plans to take advantage  of 
liberalisation to grow this business. 

NEW BUSINESSES 

We are also examining opportunities in brand new businesses. When  choosing 
a  new  business,  we look for a synergistic area that  will  allow  us  to 
leverage our existing infrastructure and expertise, as well as for a  high-
potential market with room for growth. Thus, all new businesses should help 
us maintain our leadership. Accordingly, we have zoomed in on domestic long 
distance  services  and direct-to-home services as  well  as  international 
telecom  opportunities, for a special thrust. Let me discuss each of  these 
briefly.  

Domestic long distance 

The  Indian  government  recently  opened  up  the  domestic  long-distance 
business to competition. As part of the compensation package for the  early 
termination of VSNL`s international telephony monopoly, the government  has 
agreed to give VSNL a DLD licence. We will also receive financial  benefits 
such  as a five-year reimbursement for license, entry and  revenue  sharing 
fees and exemptions from a performance bank guarantee. 

By  extending backwards from our international long-distance business  into 
the  DLD  business,  we will reap a number  of  synergistic  benefits.  For 
example,  we  will  be able to retain a better share  of  revenues  on  the 
domestic  leg of international calls and will have lower reliance  on  BSNL 
for domestic connectivity. We plan to position ourselves as a wholesale DLD 
service provider with a national network and retain the DLD segment of  all 
international traffic. 

Direct-to-home 

The  government has also permitted Direct-to-Home (DTH) TV services  in  Ku 
band  in India. This will allow TV signals to be distributed via  satellite 
directly  to a viewer`s home. We see this area as the diversification  into 
broadcasting  and at the same time utilising VSNL synergies in existing  TV 
uplinking, operation & maintenance of Ku band earth stations and management 
of  residential  internet customers. Once we receive a positive  report  on 
financial viability, we propose to initiate required actions to provide the 
combined DTH and interactive services on a neutral up-linking platform. 

International telecom initiatives 

Your  company intends to become a global player by extending its  expertise 
internationally.  We  are  exploring opportunities in  basic  and  cellular 
telephony  in  select overseas markets. We have already  signed  one  joint 
venture  agreement  with MTNL, Telecommunications  Consultants  India  Ltd. 
(TCIL) and Nepal 5 

Ventures  Private  Limited,  to  offer basic services  in  Nepal  based  on 
wireless-in-local-  loop  technology.  This  joint  venture,  named  United 
Telecom Limited is also allowed to operate national and international  long 
distance  telephone  services. This year, the company will  install  a  WLL 
network  for  55,000  subscribers in Nepal`s top 10 cities  which  will  be 
expanded to 5 lakh subscribers in 10 years time frame. 

INVESTING IN INFRASTRUCTURE 

To  support all these initiatives in basic telephony, value added  services 
and new business areas, we will continue to invest in infrastructure.  VSNL 
expects to spend approximately Rs. 20 billion during the current  financial 
year  out  of  the capital outlay of Rs. 59.12 billion for  the  five  year 
period ending March, 2002. Briefly, our plans include increasing the number 
of international circuits; increasing bandwidth; continuing our investments 
in  satellite  transmission  capacity  and  undersea  fibre  optic  cables; 
creating  high capacity cyber ports for hosting and connectivity  services; 
and  building  a  low-cost, fully-integrated  digital  network  across  the 
country  with  asynchronous transfer mode (ATM) switches, to  allow  better 
transmission of voice and broadband data traffic. 

CAPITAL MARKET DEVELOPMENTS 

When  your company`s American depository receipts began trading on the  New 
York  Stock  Exchange on August 15, 2000, we made history by  becoming  the 
first  Indian  public sector unit (PSU) to list on any US  stock  exchange. 
VSNL  had  already completed the largest PSU GDR programme  in  1997,  with 
37.80  million  GDRs. As I have already mentioned, the government  has  now 
decided to sell divest 25% stake in VSNL to a strategic investor. 

FUTURE OUTLOOK 

The  Indian  telecom industry is benefiting from swift  de-regulation,  new 
business  opportunities  and  high growth rates  in  almost  every  service 
segment.  We expect that the penetration of all types of  telecom  services 
will  improve 6 substantially and that the demand for value added  services 
will rise fast. The new telecom policy expects 125 million new lines to  be 
added  by the year 2010. According to all estimates, Internet usage and  e-
commerce  will multiply rapidly. Additionally, exciting  new  opportunities 
will  arise  in  various areas, including  3G  services,  wireless,  mobile 
satellite services and broadcast services. I believe that VSNL will benefit 
enormously from these developments and is in an ideal position to seize new 
opportunities as they arise. 

CONCLUSION 

In conclusion, I want to personally thank every member of the VSNL team for 
his  or her contribution and commitment. They are the real key  to  keeping 
VSNL in its position as India`s premier telecommunications company. I would 
also  like  to thank the members of our board for their  energy  and  their 
strategic support. As directors, S/ S. Subodh Bhargava, Ashok Wadhwa, N. R. 
Narayana  Murthy,  H.  P. Wagle, B. R. Khurana, Smt. S. A  Tirmizi,  C.  V. 
Rajan, and Smt. Sadhana Dikshit have generously contributed both their time 
and their perspectives to VSNL and the company has benefited  tremendously. 
I would also wish to record my gratitude for the help, guidance and support 
extended  to VSNL by the Telecom Commission and its chairman,  Mr.  Shyamal 
Ghosh, in particular. 



S. K. Gupta 
Chairman and Managing Director
 
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