VSNL International

18 May 2007

Fernanda Mello Veiga

www.ovum.com
Table of Contents................................................................................................................1
VSNL International..............................................................................................................2
Ovum view........................................................................................................................2
SWOT analysis.................................................................................................................2
Ability to react to market conditions..................................................................................5
Market position .................................................................................................................6
Strategy objectives .........................................................................................................11
Strategy implementation.................................................................................................12
Company structure .........................................................................................................12
Performance analysis.....................................................................................................13

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VSNL International
A major provider of international bandwidth that has built on its
acquisitions of Tyco Global Network and Teleglobe to expand beyond India
to develop a global footprint, addressing both the wholesale and
enterprise markets.

Ovum view
Videsh Sanchar Nigam Limited International (VSNLI) provides telecommunications
connectivity and services for global carriers and enterprise customers, with a
presence in Europe, the US and Asia. With its Indian heritage underpinning a newly
acquired global presence, VSNLI is set to be a major force in global connectivity. It
has quickly reached this position by adding Tyco Global Network (TGN) and
Teleglobe to its infrastructure.

VSNLI is part of the Tata Group, a major Indian industrial holding company, which
also includes Indian domestic operator VSNL, which claims to have India’s largest
enterprise, wholesale and retail broadband services footprint, with a broadband
subscriber base of 125,000 in 43 Indian cities as of 31 March 2006, an increase of
more than 100% year-on-year.

By combining the assets of VSNL with TGN and Teleglobe, VSNLI gets a seat at the
top table of international connectivity players. With an acquired customer base of
international carriers, plus the substantial resources of Tata, and a home base in
the rapidly growing Indian market, VSNLI is well positioned to be a formidable
provider of international connectivity and associated services.

It is monitoring opportunities to extend its coverage area to Russia, Turkey, some

Eastern European countries and the Middle East through partnerships or
acquisitions.

SWOT analysis
Strengths
• Scale. By combining the assets of Teleglobe and TGN, VSNLI has achieved the
traffic volumes necessary to be a credible low-cost provider in the international
wholesale market.
• Geographic footprint. VSNLI’s extensive network includes undersea cable,
terrestrial fibre and satellite capacity – essential for an international wholesale
provider wishing to provide end-to-end connectivity without becoming over-
reliant on partners to fill the geographic gaps.

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• Commanding presence in international wholesale voice market. The

company is now carrying over 16 billion international voice minutes per year, a
position built on its extensive bilateral relationships.
• Tier 1 ISP. VSNLI can obtain enhanced global peering capability and
redundancy as a tier-one ISP. The company has over 345Gbit/s of peering
capacity with other carriers.
• Full portfolio of services. VSNLI can offer a comprehensive suite of voice,
data and mobile services, provided through a variety of network options
including submarine cable, switching gateways, IP points of presence (PoPs)
and earth stations.
• Strength in signalling conversion market. VSNLI is an international
provider of mobile signalling conversion services, based on Teleglobe’s strong
position in this market.
• Access to intellectual property and proprietary (VoIP) technology.
Based on Teleglobe/ITXC’s capability, VoIP enables better control of least-cost
routing, supplementing the traditional voice product portfolio with the VoIP
network and services, and innovative value-added services. This will allow
more flexible services for existing customers and the targeting of new
customer segments.
• Home base in Indian market. VSNLI has direct connections to the fast
growing Indian market via VSNL, which was the first ISP in India and now
offers hosting and co-location services out of its data centres in Mumbai, Delhi,
Chennai and Bangalore. VSNL also provides IP VPN services in over 115
locations in India and has started offering national long-distance services in
some Indian towns. The operator has rolled out its metro Ethernet services in
six major cities in India and another 18 cities globally.
• Reputation. Based on Teleglobe’s long history in international wholesale, and
its existing bilateral relationships, VSNLI can claim established status in the
sector.
• Customer base. VSNLI has acquired a strong presence in the wholesale
market, with a multitude of blue-chip fixed and mobile customers for its voice
and data services.
• Backing of the Tata Group. The Tata Group, which held 45.15% of VSNL as
of 31 March 2006, has activities in business sectors from information systems
and communications to engineering, materials, services, energy, consumer
products and chemicals. It is one of India's largest business conglomerates,
with revenues of $21.9 billion in 2005/2006.

Weaknesses
• Wholesale/retail conflict. As with any erstwhile wholesale provider
attempting to serve the enterprise market, VSNLI will need to reassure its
wholesale customers that its retail activities are not in direct competition with
theirs.

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• Image. VSNLI is still not incredibly well known as a provider of corporate

communications solutions to global enterprises. The company is increasing its
profile in the marketplace, but there is some way to go before it becomes as
well known as some of its competitors.
• Lack of access networks. Access is key to serving the enterprise market,
and while VSNLI now has an impressive roster of long-distance assets, it is still
under-represented as an access provider. Last mile will prove to be a challenge
in delivering services to its targeted corporate customer base.

Opportunities
• Leverage Tata Group. With Tata Group now being VSNL’s major shareholder,
VSNLI can leverage the group’s strengths in IT and network solutions to drive
its presence in the corporate marketplace.
• Build applications into the network. One way in which VSNLI wants to
move up the value chain is by building applications into the network. Tata
Group ownership will help to achieve this by providing the necessary skills and
resources needed to become a credible network-based IT services provider.
• Growth in mobile services. Teleglobe was one of the leading providers of
signalling services to the mobile sector, and VSNLI is doing its best to
capitalise on this. The central role this plays in mobile operators’ businesses
gives VSNLI the scope to sell other types of mobile-oriented service, and to
take advantage of expected growth in end-user mobile voice and data traffic.
• Leapfrog to VoIP. With the ITXC expertise on board, VSNLI gains a boost in
moving from TDM to VoIP technology, a process that was already moving
apace and is becoming increasingly important in the international wholesale
voice market.
• Reaching new voice market segments. The acquisition of ITXC meant that
Teleglobe, and now VSNLI, can expand its service portfolio to target a wider
market for voice services. VSNLI states that it is the world’s leading wholesale
VoIP carrier, and has the world’s largest VoIP network.

Threats
• Competition for mobile business. With a large number of wholesale
operators focused on winning business and launching new products specifically
for mobile operators, VSNLI should not be complacent about its current
standing in the sector.
• Wholesale voice commoditisation. Voice prices are continuing to fall,
undermining margins and revenues in the sector.
• Slump in bandwidth sales. If data growth in India runs out of steam, this
will undermine VSNLI’s core international bandwidth business, producing
problems for the company in supporting the opex costs of its significant
bandwidth assets.

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• New-style competitors. As VSNLI moves into the market for providing

corporate services, it will face increasing competition from virtual network
operators, systems integrators, and next-generation/greenfield network
operators.

Ability to react to market conditions

VSNLI has come a long way in a relatively short time. VSNL was India's monopoly
international long-distance telecoms provider with the usual monopoly inheritance
of high tariffs and settlement rates, and high dependency on international voice.
The company was privatised in February 2002, with the Indian government
retaining 26% of VSNL's equity, and the Tata Group holding about 45%. The Tata
Group built this stake by paying the government around Rs26 billion ($573.5
million) for a 26% stake in VSNL and buying another 20% in an open offer.

The Tata Group is one of India's largest business conglomerates, with revenues in
2005/2006 of $21.9 billion, the equivalent of about 2.7% of the country's GDP.
Tata employed 202,713 people by 31 March 2006 and includes 29 publicly listed
enterprises, spanning information systems and communications, engineering,
materials, services, energy, consumer products and chemicals.

VSNLI is a 100% subsidiary of VSNL, which comprises over 17 legal entities.

VSNLI’s headquarters are in Singapore.

VSNLI's first major acquisition was the Tyco Global Network (TGN), which it
acquired in October 2004 for $130 million: Tyco had spent around $2.5 billion on
developing its submarine cable network. TGN provides connectivity solutions on
transatlantic, trans-pacific and intra-European routes, and is a multi-terabit
system, enabling VSNLI to offer carriers and enterprises connectivity from speeds
of 64kbit/s to 10Gbit/s. TGN also provides features such as global capacity
portability.

In February 2006, VSNLI acquired Teleglobe, one of the leading wholesale

providers of international telecommunications services, including mobile, IP and
voice services. As a result of this acquisition, VSNLI extended its global reach to
over 240 countries and territories, with more than 275 points of presence (PoPs) in
25 countries and access to 30 geo-stationary satellites through five dedicated earth
stations located in North America and Europe and 11 international voice gateways.

At the time of the acquisition, Teleglobe was a tier-one ISP with 1,400 wholesale
customers, and carried 14.5 billion minutes of traffic in 2005. At that time, it
estimated that it carried about 10% of all international IP traffic, measured in
gross revenues. Teleglobe had re-invented itself after emerging from Chapter 11 in
2003, and had become a streamlined, focused operator, with a radically
restructured cost base. Teleglobe had made a strategic decision to focus on
wholesale customers, to whom it offered a portfolio of voice, data and innovative
value-added services designed specifically for the carrier-to-carrier business. With
its extensive network and strong position in specific niches, including international

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voice, Internet, data and services for mobile operators, Teleglobe was in the
process of building scale and volume in its chosen markets. Teleglobe had also
developed its VoIP presence with the acquisition of VoIP carrier ITXC in 2004.

With the diverse asset bases of Teleglobe and TGN under the VSNLI umbrella, the
company will need to demonstrate not just that it can drive the economic benefits
from this formidable scale but combine this with the flexibility that customers are
increasingly demanding from their communications providers.

Market position
VSNLI has moved spectacularly quickly from the back of the pack to being one of
the top providers of global connectivity. Achieving this for the wholesale market is
relatively straightforward; making it work for global enterprises is a challenge of a
different order of magnitude.

VSNLI faces strong competition within different services and regions.

• Wholesale voice products

fixed voice: its main competitors are AT&T, Sprint and iBasis (in North
America); BT and France Telecom (in Europe) and local carriers in Asia.

mobile voice: its main competitors are all of the other wholesalers that are
focusing on the mobile market, such as France Telecom, KPN and Belgacom.
• IP products: its main competitors are AT&T, Cable & Wireless, Cogent, Global
Crossing, Savvis and Sprint.
• Capacity: its main regional competitors include France Telecom, Flag and
Telecom Italia Sparkle.

Geographic reach
VSNLI is based in Singapore with 52 subsidiaries in 21 countries.

VSNL, Teleglobe and TGN now bring together the following geographic assets:
• VSNLI: a global presence with operations in the US, Europe & Asia
• Teleglobe: 100Gbit/s connectivity in nearly 80 cable systems, with reach to
240 countries/territories, and 250 direct and bilateral relationships
• TGN: 60,000 kilometres of global sub-sea connectivity spanning three
continents, with bandwidth at all STM/OC levels.

Backbone

VSNLI has operations in the US, Europe and Asia, all linked via a global IP
backbone with transit capacity of 586Gbit/s at the end of December 2006, which
traverses through over 195 countries, in six continents. In October 2006, it
completed the 10Gbit/s upgrade of its IP backbone in the US, Canada and Europe.
In addition, its transatlantic capacity has been increased to 1Tbit (+ 50%) in order

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to support the incremental traffic between Europe and the US. At the same time,
VSNLI announced that it will be expanding its IP network in Asia, Africa, the Middle
East and Eastern Europe in the next three years.

Sub sea cable systems

The company has ownership in 70 sub sea cable systems (160,000 kilometres),
and over 415 direct and bilateral relationships with voice carriers. VSNL
International's Global Network spans four continents and comprises major
ownership in 206,356km of terrestrial network fibre and sub sea cables, including
Transatlantic, Pacific, Pan-Asia, South Asia, UK-Germany, Western Europe and
other networks. VSNLI also owns stakes in SeaMeWe-3, SeaMeWe-4, SAFE, TIC
(100% owned) and has capacity ownership in the FLAG and I2I cable networks.

VSNLI has announced that it is working on the construction of a new multi-terabit

submarine system to link Singapore, Hong Kong and Japan, this is estimated to be
a 12–14 month project.

City rings

VSNLI owns and operates six city rings in New York, Miami, Los Angeles, London,
Paris and Frankfurt. It also owns a regional ring (Vancouver to Vancouver Island).

Business hubs

The company’s key global business hubs include Chicago, New York, Dallas,
London, Amsterdam, Frankfurt, Paris, Madrid, Mumbai, Singapore, Hong Kong,
Montreal, Toronto, Miami, Los Angeles, Palo Alto, Barcelona, Warsaw and Santa
Clara.

MPLS PoPs and datacentres

VSNLI’s MPLS Global PoPs are present in 18 countries through 169 MPLS PoPs. In
September 2006, VSNLI launched its MPLS PoP in Sydney, Australia. It also has
194 data centres worldwide:
• 36 data centres in North America
• 30 in Europe
• 115 in India
• nine in Asia (outside India)
• four in the rest of the world.

Possible future developments

The company aims to increase its coverage in certain strategic regions, such as
Russia, Turkey, some European countries and the Middle East. It will also extend
its coverage via partnerships, particularly to extend its IP VPN coverage.

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Service reach
VSNLI’s portfolio of services is shown in Figure 1. The company is developing
several products – mobile, broadband and VoIP – to be launched in 2008. It is also
developing a portfolio of white-label services.

Figure 1 VSNLI’s position in the wholesale service structure

Content & content management
Distribution
Hosted IT services Application hosting
Web hosting
Data centres
Packaged voice services
Voice Switched voice minutes
Voice-over-IP
Ethernet
SDH/Sonet
Operations support systems

MANs
Dark fibre
Ducts
Dial-up Internet access
Co-location

xDSL
Ethernet
Access
Local leased circuits
Broadband fixed wireless
Local fibre
Mobile data
Managed IP services
Managed data Ethernet
services
Long-distance leased circuits
Frame relay/ATM
IP transit
Transport SDH/Sonet
Wavelengths
Dark fibre
Infrastructure
Ducts

Source: Ovum

Voice

VSNLI’s voice offering combines VSNLI’s voice termination, international toll-free,

audiotext, US collect call services and ISDN with Teleglobe’s network, which
combines traditional voice and VoIP with clear channel 64kbit/s data service to
over 120 countries. The main voice services offered by VSNLI are:
• Teleglobe VTS – high-quality international call completion (quality-focused
wholesale and retail carriers)
• Teleglobe VTS Economy – high-value international call completion (for
wholesale carriers and sophisticated routers)

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• Teleglobe VTS Prime – highest quality international call completion with

assured caller line identification (CLI) delivery (primarily for mobile operators)
• Teleglobe VTS Priority – premium, turnkey solution for worldwide voice
termination requirements.

Customers can choose a variety of access mechanisms to deliver these services:

• TDM telephony interfaces by connecting to one of 31 voice service PoPs in ten
different countries
• TDM telephony interfaces on the customer premises using Teleglobe-owned
and managed SNARC TDM-to-VoIP carrier gateway service
• IP interfaces from the customer IP network using Teleglobe carrier-grade
VoIPLink service. In December 2006, VSNLI announced that it has closed a
VoIPLink deal with Yahoo! which includes voice peering and termination
services.

Other voice services include toll-free services, ISDN, prepaid calling card solution,
call collect services and switched transit. In January 2007, VSNLI enhanced its
private label prepaid calling card solution with traffic termination to over 240
countries. It targets carriers that don’t want to invest in upfront costs and those
looking at emerging markets.

Data and IP

VSNLI’s data and IP services include:

• global IP transit services using IPv6 and IPv4 internet connectivity in six
continents
• international and local transit with speeds from Ethernet to 10 Gig-E and
64kbit/s to 10Gbit/s (OC-192c)
• bandwidth capacity
• global MPLS IP VPN
• dedicated global Ethernet with 24 global Ethernet PoPs
• international private line services
• DVB/IP satellite services
• co-location
• managed node service
• broadcast services.

VSNLI’s IPLCs extend to 95 countries via 130 carrier agreements. The company
also provides a global Ethernet over MPLS service as well as Ethernet over Sonet.
In June 2006, VSNLI launched its Dedicated Global Ethernet service for large
enterprises and carriers, which connects major routes throughout Asia, Europe,
North America and India. The service uses a SDH/Sonet platform to deliver high
reliability and low jitter.

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Another key development in the IP area is a Middle East IP exchange (ME-IEX) in

Saudi Arabia, in partnership with Saudi Telecom Company, to serve Middle Eastern
and Arabian Gulf ISPs and carriers. The new ME-IEX carries traffic for customers
from Qatar, Bahrain, Kuwait and Yemen, and supports peering arrangements
between ISPs.

Mobile

The company is prominent in providing international services to mobile network

operators, with more than 400 GSM customers worldwide in 125 countries. Mobile
operators are supported by the company’s global signalling network, enhanced
roaming services, managed mobile content services, and global voice termination.
Services such as VTS Prime deliver mobile call completion with guaranteed caller
line identification transport to more than 35 countries, and new services are
constantly being developed.

VSNLI’s mobile signalling services provide international roaming services to mobile

operators for voice and text messaging between North America and the rest of the
world. Teleglobe’s signalling services include inter-standard message conversion
(CDMA, TDMA and GSM), SS7 ITU/ANSI conversion, and IP message conversion to
C7 networks.

In January 2005 Teleglobe announced a hosted application service that enables

GSM operators to actively select the visited network for their roaming subscribers.
This service was developed through partnership with software developer XIUS.
Digicel Group, a mobile provider in the Caribbean, is now using the service on a
trial basis.

In May 2005 Teleglobe began offering inter-standard messaging and hosted

roaming application services to mobile operators, based on Accuris software.
Teleglobe has exclusive worldwide rights to market and sell Accuris services to
mobile operators on an application service provider basis.

Teleglobe has also agreed rights to market and sell Wmode’s ClearMode mobile
content distribution solution worldwide. This will enable Teleglobe’s mobile carrier
customers, particularly MVNOs, to roll out high-margin mobile content-based
services without them having to invest in complex in-house systems.

Next-generation applications in the pipeline include applications offered as a hosted

service offering, IP multimedia subsystem (IMS), international prepaid gateway
and CAMEL gateway.

In February 2006, VSNLI announced the launch of push to talk over cellular
services through a partnership with software vendor Mobile Tornado.

In February 2007, VSNLI announced that it is now providing content service

through its mobile content delivery platform to Cable & Wireless Panama (CWP)
mobile customers. Under the agreement, CWP will provide its mobile subscribers
with a range of data capabilities, including graphics, games, video, information
services, ringtones and full track music.

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In April 2007, VSNLI partnered with Microsoft to launch a global white-label

ReadyAccess messaging solution to mobile network operators (MNOs). This
solution enables MNOs to offer end-to-end business messaging and push email
connectivity. At the same time, VSNLI announced a ReadyAccess agreement with
Thai mobile operator AIS.

Customer base
VSNL International has over 415 bilateral and direct relationships with leading
international voice telecommunications providers. There are approximately 1,600
wholesale customers including fixed and mobile operators and ISPs. Teleglobe
carved out a particular niche in the mobile space and VSNLI now provides over 600
GSM operators with signalling services. In addition, VSNLI offers wholesale
services to 648 fixed operators and 425 ISPs.

VSNLI also has over 650 enterprise customers, and it is this customer segment
that it intends to grow, by deploying a flexible and scalable commercial
engagement model to global carriers and enterprises.

The business model underpinning this includes Global Account Managers, a

simplified contract process, one-stop shop for India and non-India services, multi-
currency and multi-location billing and competitive service-level agreements on
end-to-end services.

VSNLI cites the following business drivers:

• change in customers’ product needs, with data and voice moving from
traditional platforms to IP-based networks
• movement from private line networks towards IP-VPNs for data
• shift from TDM towards VoIP for voice
• increasing sophistication of customer buying of connectivity, with additional
requirements in terms of diversity, flexibility and reliability.

As VSNLI acknowledges, managed services are growing faster than pure

connectivity, but the growth and profit expectations in this sector are attracting
non-traditional competitors, including other telcos, network operators, systems
integrators and equipment vendors.

Strategy objectives
VSNLI’s mission is

‘to provide global connectivity and managed communications solutions, with

unequalled flexibility and scalability, ensuring reduced total cost of ownership.’

VSNLl sees itself as a next-generation service provider moving from India-centric

to global managed services. Following the acquisitions of TGN and Teleglobe, the
company wants to ensure that there is a smooth integration, with the goals of:

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• enabling VSNLI to provide end-to-end solutions to both carriers and enterprises

• achieving global scale in its wholesale voice business
• developing new avenues for growth, using the Tata group’s strengths in IT and
network solutions.

Strategy implementation
VSNLI plans to implement its strategy by:
• expanding the range and value of network services by leveraging TGN,
Teleglobe and VSNL assets and partners in key business markets
• deploying managed services on and around the network
• bundling managed services with bandwidth to increase margins and revenues
• building on its expertise in voice, data and video
• developing a comprehensive wholesale and enterprise portfolio
• rolling out the latest technology, including Gigabit Ethernet, MPLS and VoIP
• capitalising on its ‘India-enabled’ position, notably:

service delivery and operations from India using a large talent pool with a
lower cost base

leveraging expertise serving Fortune 500 client base in India

using VSNL’s extensive India coverage and capabilities.

Pricing policy

VSNLI prefers not to compete exclusively on price; instead it emphasises its

service reach, wide portfolio of services and SLAs. In the wholesale voice market
VSNLI believes that price erosion has slowed, except in countries where telecoms
has recently been deregulated where there is still downward pressure on prices as
a result of increased competition. In VSNLI’s experience, demand is increasing for
capacity in certain Asian markets. As a result, where there is insufficient capacity
to meet demand, prices are actually starting to rise a little. The only region where
IP prices are still declining is Europe, according to VSNLI.

Company structure
On 19 March 1986, VSNL was incorporated as a limited liability company 100%
owed by the Indian government. In 1992 and 1999, the Indian government
divested part of its equity to banks, funds and financial institutions. In February
2002, Panatone Finvest Limited – part of the Tata Group – bought 25% of VSNL’s
voting shares and, in June 2002, it bought another 25% stake.

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As of 31 March 2006, the Tata Group – Panatone Finvest Limited, Tata Power
Company and Tata Sons – holds 45.15% of VSNL, while the Indian government
owns 26.12%.

The Tata Group has activities in business sectors from information systems and
communications to engineering, materials, services, energy, consumer products
and chemicals. It is one of India's largest business conglomerates, with revenues
in 2005/2006 of $21.9 billion.

VSNLI is a 100% subsidiary of VSNL (see Figure 2).

Figure 2 VSNL International organisational structure

Tata Group

VSNL
Over 90 companies
Narasimhan Srinath
Srinath
in 7 business sectors
MD and CEO

Enterprise
Enterprise&&
Wholesale
WholesaleVoice
Voice Other
OtherServices
Services
Carrier
CarrierData
Data

VSNL International
Vinod Kumar
MD

Source: VSNL

Performance analysis
Financial performance
VSNLI does not provide separate financial data. VSNL has reported its unaudited
financial results for its overall business for the year ending 31 March 2006, and for
the nine month results ended 31 December 2006. These results include revenues
from VSNLI, and recognise the operations of Tyco Global Network from 1 July 2005
and Teleglobe from 14 February 2006. However, neither are shown separately, so
it is impossible to draw comparisons with previous performance.

VSNL’s CFO said in June 2006 that he expected the company to post consolidated
revenues of $2.1 billion in the financial year ending 31 March 2007, including the
TGN and Teleglobe acquisitions. He said that, of the total revenue, $1.1 billion

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would be from the voice business, $650 million from the data business and the
balance from other telecom network services

VSNL reported total revenues of $850 million (Rs37.81 billion at a conversion rate
of Rs1 = $0.02249) from telecoms for the year ended 31 March 2006, which only
included seven months of TGN revenues and less than two months of Teleglobe’s
revenue. This total was divided between the following three business segments (as
shown in Figure 3):
• wholesale voice: $486 million (includes national and international voice
services), an increase of 15% year-on-year
• enterprise and carrier data: $284 million (includes data transmission
services such as frame relay and ATM, together with national and international
private lines), an increase of 13% year-on-year
• others: $80 million (includes TV uplinking, transponder leasing services, retail
Internet access, satellite services, telex and telegraph), an increase of 15%
year-on-year.

Figure 3 VSNL 2005/2006 telecoms revenue by business segment

Others
9%

Enterprise
and data
carrier
33%
Wholesale
voice
58%

Source: VSNL

EBITDA margin – for all business, not only telecoms – stood at 23.16% by the end
of the financial year. Net profit for all business (not just telecoms) stood at $107.8
million in the period, an increase of 36.6% year-on-year.

VSNL’s gross margin per segment comprised:

• wholesale voice: profit of $103.5 million, leading to a gross margin of 21%
• enterprise and carrier data: $230.7 million profit, with a gross margin of
81%
• others: profit of $19.4 million, with a gross margin of 24%.

The wholesale voice segment has a lower gross margin than enterprise and carrier
data due to lower margins on voice services.

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Wholesale voice traffic reached 6.7 billion minutes in FY 2006, a sharp increase of
57.5% year-on-year (as shown in Figure 4). VSNL has managed to increase its
international traffic a lot faster than its domestic traffic. Its domestic traffic
therefore represented 56% of its total wholesale traffic by March 2006, a decrease
of 9 percentage points. Ovum believes that VSNL is focusing on increasing its
market participation outside India, while it is trying to maintain its leading
wholesale position in the Indian market.

VSNL’s IP traffic has increased by 104% year-on-year to 203.7Gbit/s in FY 2006,

mainly due to a significant increase in IP services demand resulting from India’s
continuing economic growth.

Figure 4 VSNL’s wholesale traffic

2003-2004 2004-2005 2005-2006 Change

Total voice traffic (millions of 2,967 4,282 6,746 58%

minutes)

- Domestic voice traffic n/a 2,794 3,800 36%

- International voice traffic n/a 1,488 2,946 98%

% of domestic traffic n/a 65% 56% -9 p.p.

IP traffic 51.5Gbit/s 99.7Gbit/s 203.7Gbit/s 104%

Source: VSNL

VSNLI had more than 1,086 employees at the end of 2006 – up from 673
employees at the end of 2004.

Nine-month results ending 31 December 2006

VSNL reported total revenues of $670.6 million (Rs1 = $0.02249) from telecoms
business for the nine months ended 31 December 2006, up 4.8% year-on-year.
Profit before taxes reached $118.8 million for the nine months ended 31 December
2006, down 6% year-on-year. In addition, net profit stood at $76.4 million, down
8.4% year-on-year. The results by business segment were as follows:
• wholesale voice: $372.5 million (includes national and international voice
services), an increase of 1.3% year-on-year, with net profits of $65.7 million
and gross margin of 18%
• enterprise and carrier data: $224.2 million (includes data transmission
services such as frame relay and ATM, together with national and international
private lines), an increase of 4% year-on-year, with net profits of $183.9
million and gross margin of 82%
• others: $73.9 million (includes Internet access, satellite services, telex and
telegraph), an increase of 31% year-on-year, resulting in a profit of $26.5
million, a gross margin of 36%.

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 VSNL INTERNATIONAL
15

The fact that revenues from the ‘Other’ segment are increasing as a percentage of
VSNL’s total telecoms revenues demonstrates that the company’s strategy of
broadening its service portfolio is bearing fruit.

Figure 5 VSNL nine-month 2005/2006 telecoms revenue by business

segment

Others
11%

Enterprise and
data carrier
Wholesale voice
33%
56%

Source: VSNL

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