16 December, 2004

Hatching big plans -The Hindu Business Line
Two Indian telecom players have invested in global telecom networks at considerable cost. Will their measure pay off, or is it a case of counting the chicks before they hatch? Reliance Infocomm acquired FLAG telecom network almost a year ago and VSNL recently signed an agreement to buy Tyco Global Network.

At a time when promoters in the developed western countries are moving out of this business, finding it too commoditised and miserly of margins to be sustained, Indian companies are moving in. Financially, international capacity is extremely cheap, for the next five years, there will be excess capacity. What are these companies planning to do that many international promoters cannot do, are not prepared to do, or failed to do (both Tyco and FLAG had run up losses)? Both these companies are betting on large demand for bandwidth from the information technology and BPO sectors in India.

Each says it bought assets worth a couple of billion dollars for just a couple of hundred million dollars. VSNL paid $130 million on its purchase of Tyco. Tyco spent $2.5 billion to put up its network. Currently of course, international bandwidth prices in India are said to be five times as much as those in the developed markets of the world. Part of the reason is that there is less demand, so the pricing is naturally higher to preserve margins.

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