Privatization Of VSNL Submitted to:- Submitted By:- AwanishAwasthi KirtiKhattar Pallavi Gupta Puneet Mehta TanishaAgarwal UtkarshChauhan Prof. Suneel Gupta
Introduction In 1947, the Overseas Communication Service (OCS) was established in the Department of Telecommunications (DoT). Videsh Sanchar Nigam Ltd (VSNL) was created from the OCS as a government owned corporate in 1986. enable greater freedom to managers to plan, operate, develop and accelerate the international telecommunication services. Compared with 2.69 billion telephone minutes in 2000-1, in 1986-1987 the figure was 0.13 billion minutes The ratio of inbound to outbound calls had been 4:1 in 2001. One important reason for this is the discriminatory pricing by VSNL
Case Facts VSNL- Privatization Minority share’s sale in 1991-92 Strategic sale considered better than minority sale Tata’s holding - 45% Government’s holding - 26% WTO stipulations led to loss of monopoly
The Bidding for acquisition The companies which are interested in participating in bid were required to have a net worth of Rs. 2500 crores . Tata bid Rs 1439 crores, Reliance bid Rs 1347 crores
Tata Tele Services- Controversy VSNL board decided to invest Rs. 1200 crores in TTL Over 3-4 years for 20-26% stake Tata’s Justifications - Extend VSNL’s reach to basic services - Part of Tata group’s overall telecom strategy Communication Minister’s objection -Unethical to use VSNL’s cash reserves - BSNL, MTNL might provide better investment opportunities - TTL might have been overvalued Issue resolved - VSNL board sets up a committee to review the quantum and valuation of the proposed investment.
Strengths Financial condition:-VSNL was a cash rich organisation and it was seen to have a potential to make it’s place in the global market. Popularity:- By doing a strategic sale of the shares by VSNL to Tata group it’s name also became highlighted in the market as the Tata group already existed. Monopoly:- The monopoly was seen in international long distance (ILD) voice until 2002 and internet until 1990 which had ensured it as a profitable enterprise.
Weakness Restriction on services: By the restriction imposed by WTO on its monopoly , internet and on ILD services it showed a decline in the market. Political controversy:- As the Tata's justified to extend VSNL activities to the customer services , it led to controversy in the political circle.
Opportunities Improvement:-It was expected that the services quality, price and efficiency might improve for the consumers . Preference in jobs:-The VSNL gives preference to those persons who had skill and attitude for boosting up the shares price. Investment:-In basic telecom sectors investment was better e.g. BSNL and MTNL.
Threats Competitors:- There were several competitors for the VSNL as BSNL and MTNL. Valuation :- The process of disinvestment in these sectors also had and bad effect on privatization.
Ques. 1- Why did new board decide to invest Rs. 1200 crore in TTL? VSNL needs to have a controlling stake in a basic telephone service provider for its own survival in a highly competitive telecom environment.
is to gain access to customers, has no direct access to end customers and is entirely dependant on cellularand basic access providers to route their international traffic through VSNL VSNL’s status as most favored customer of BSNL and MTNL would come to an end 2 years from now. implementation of Customer Access Code (CAC), the company would be at a serious disadvantage with competition from new players
Ques 2.- Privatization of VSNL helped Indians. Justify. The privatisation of VSNL is seen as leading to public expenditure accountability through a realisation of higher return on the government’s asset formation. It also leads to an appreciation of the remaining shares that are held by the government.
Privatization of VSNL provided higher returnon government’s asset formation. Better quality communications for the citizens. Stratergicsale is good as it leads to lessconfusion among the governments roles as apolicy formulator and a service provider.