BANGALORE, India-State-owned Mahanagar Telephone Nigam Ltd. (MTNL) last year announced its plans to give private cellular operators in New Delhi and Mumbai a run for their money by launching a low-tariff mobile telephone service to cater to the salaried middle-class and students.
Ever since MTNL announced these intentions, the private operators have accused it of intending to indulge in anticompetitive business practices while rolling out its cellular network.
The accusations acquired a new-found momentum after MTNL announced it would offer the service at 5 cents a minute, just a fraction of the average 25 cents per minute at which the private cellular operators have been hawking their service. The companies protested that there is no way MTNL can do that unless it uses the profits from basic wireline operations to subsidize cellular.
But MTNL actively is pursuing its cellular plans and hopes to start the service by March 1999.
MTNL history
MTNL was incorporated on Feb. 28, 1986, with a view to establish and maintain telecommunications services within two major metropolitan areas of India: the political capital New Delhi and the commercial capital Mumbai (Bombay). The company since has provided 12 years of telecommunications services with new innovations and better performances each progressive year. MTNL has been able to achieve 15 percent to 20 percent growth per year.
Says S. Rajagoplan, chairman and managing director of MTNL: “MTNL has achieved remarkable success in the last 12 years. I am proud of the fact that it has been able to grow from a figure of 0.9 million to 3.6 million lines. I am proud that 90 percent of its network is now digital, that its revenue has crossed $1.15 billion from less than $150 million initially. I am proud that almost all new technologies that have been tried in India have been at MTNL. I am proud that this company has been paying dividends to its shareholders and making its stockholders happy. I am proud that almost all the development of capital expenditure has been met out of internal resources.”
As part of its objective to position itself as the telecom company of the future, MTNL is harnessing technology, trained personnel and financial resources to expand its network, provide state-of-art services and build up a customer service support system.
Today the company provides a host of services like integrated services digital network (ISDN), data communications, INET, voice mail and radio paging. MTNL’s facilities include electronic lock, call alert, call transfer/call forwarding, abbreviated dialing, hot line and automatic wake-up/reminder call.
MTNL’s net profit grew by 15 percent to $268.75 million in 1997-98. Net profit margins were at 23.44 percent compared with 23.14 percent in 1996-97. It posted a total turnover of $1.16 billion for the year ended March 31, 1998. MTNL also repaid a lot of corporate loans, helping it reduce interest burden.
During the past year, MTNL increased its equity capital to $157.5 million from $150 million in 1996-97, primarily due to a GDR issue representing 70 million shares at an offer price of $11.96 per GDR.
Since 1991, there have been three domestic and one GDR disinvestment. Against all odds, the GDR issue posted a success story; it sailed through, was oversubscribed three times and mopped up a phenomenal $358 million.
Apart from MTNL’s past performance, other factors like focus, transparency and authenticity became important criteria behind the GDR success story. Through the GDR, the government’s stake in MTNL was reduced from 67 percent to 56.4 percent. MTNL’s GDR traded at a premium of 60 percent in international markets and is one of the most successful GDR issues that has come out of India.
However, MTNL has yet to solve its personnel problems. A mix-up between MTNL and the Department of Telecommunications remains. MTNL employees are on deemed deputation from DoT and literally have been “leased out” for the past 12 years. This deemed deputation status remains to be solved.
MTNL also must change its corporate environment as well.
“We are trying to change this company from (a) government monopoly to a company driven by professionals,” said Rajagoplan. “We understand that our very survival is going to depend upon how well and how productively we deal with our customers. This, however, calls for a complete restructuring of the mindset of our employees.”
A consultant has been appointed to advise MTNL on restructuring.
Network buildout
MTNL is planning for a huge network capacity-both in terms of subscriber numbers and traffic density.
The sheer size of the proposed network dwarfs the existing cellular networks. MTNL says it will have 100,000 subscribers each in the two cities in the first year of operation, a figure that it says will rise to a million each by the fifth year of operation. To put this in perspective, the four cellular operators in Delhi and Mumbai have a capacity of just 150,000 each as they enter their fourth year of operations.
To handle such a high traffic level and support subscribers, MTNL has proposed to set up 150 base stations to cover Delhi-about one-fourth more than the number of base stations that each of the private operators (Bharti Cellular and EssarCellphone) have in the city.
Explains a senior executive with an international telecom vendor: “The whole system is structured to support a huge amount of subscribers and traffic. At such a high number and (traffic) density, the per-minute cost of the service becomes low.”
The logic is simple; once MTNL sets a target of a substantial subscriber base and high usage, it has to price the service low enough to achieve the target.
In addition, MTNL has received low price quotes from vendors in response to its tender. Seven cellular equipment vendors-L.M. Ericsson, Motorola Inc., Nokia Oy, Alcatel, Siemens A.G., Tata-Lucent Technologies and Northern Telecom Ltd.-quoted among the lowest prices in the world for the system MTNL wants to buy.
As India gears up to enter the next millennium, MTNL is making sure its financial capital is well-connected to communicate with a rapidly shrinking world, and that every resident of Mumbai will be provided with access to the latest telecommunications services.
With a host of other new value-added services, MTNL plans to provide in 1998 intelligent network services, Internet services and smart-card telephones. The presence of Rajagopalan at the helm can only promote its chances of becoming a Fortune 500 company by the turn of the century.
