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FLAG Hits Out at VSNL Monopoly

India’s incumbent international operator, Videsh Sanchar Nigam Ltd. (VSNL) (NYSE: VSL), is no longer government owned, but it’s still acting in an anti-competitive manner, according to Patrick Gallagher, CEO of global submarine network operator FLAG Telecom Group Ltd.

Gallagher says VSNL has retained its monopoly control over the landing points for submarine cables and is abusing this privilege in its dealing with other international operators. One of those is Flag, which was recently acquired by emerging Indian telecom powerhouse Reliance Infocomm Ltd. (see Monster Metro Ethernet Project Unveiled and Reliance FLAGs Up Expansion Plan).

"Bandwidth demand is exceeding supply in and out of India, because the availability of bandwidth is being artificially restricted by VSNL," says the Flag chief. He says the Indian operator is deliberately restricting the capacity available at the landing station on the west coast of India at Mumbai (Bombay, as was) in an effort to keep prices high and restrict competition.

"There isn't proper and grownup business behavior going on," fumes Gallagher.

A Flag spokeswoman won't say what price it is having to pay VSNL for the capacity it is selling on to its carrier customers, only that "it is significantly higher than any other price we have to pay around the world."

To compound Flag's misery, its main competitor at that Mumbai landing point, the only one on India's west coast, is Sea-Me-We 3 (Southeast Asia-Middle East-Western Europe 3), a submarine cable owned by a consortium of nearly 100 carriers, including VSNL. Flag claims its capacity is being restricted in order to help drive customers to its rival.

Flag says it has had to turn down capacity requests from more than 20 carriers because of the imposed bottleneck, including some that also have capacity through the Sea-Me-We 3 cable but would like an alternative backup route into the country.

Flag does have some access to the Indian market, but says that of the 15 STM1 (155 Mbit/s) connections it has been allocated by VSNL, only eight have been activated by the Indian operator. Six of the seven unlit connections are to Reliance Infocomm, Flag’s new owner.

Now Gallagher hopes Reliance can help unplug that capacity bottleneck, noting that it’s part of India's biggest private company, Reliance Industries Ltd., which has annual revenues of nearly $17 billion and a market capitalization of about $24 billion. In other words, it’s got a lot of political clout and can argue strongly that VSNL’s behavior is hurting Indian business interests.

VSNL says only that it is "in talks" with Flag, but that any further questions regarding its business need to be submitted by email. (Light Reading has sent VSNL a link to this article and invited it to respond, preferably on the message board.)

But will Flag's reliance on Reliance be enough to pop India's capacity cork? It hasn't so far. Flag says it meets with the Indian regulator and government officials frequently but that nothing has yet happened.

And, of course, it's not only Flag and Reliance that are frustrated by the restricted access to India’s booming telecom market. Telecom industry associations Competitive Telecommunications Association (CompTel) and European Competitive Telecommunications Association (ECTA) are both lobbying on behalf of their members for VSNL's practices to be halted.

Last November, Comptel laid out the position of its 400 members in no uncertain terms in a letter sent to the Indian government and India's ambassador to the U.S. Comptel's chief legal officer Carol Ann Bischoff wrote:

    India’s competitiveness as a global power in IT and e-commerce has increased the demand for telecommunications services in and out of India. The future growth of India’s call center, back office processing and software development industries depends on the abundance of international and domestic bandwidth at internationally-competitive prices.

    Although there is much unused capacity in several of the cable systems landing in India, the commercial practices of VSNL have created an artificial shortage of capacity, which prevents competitive operators from meeting the full bandwidth demands of their customers and keeps bandwidth prices for the capacity that is available at much higher levels than the prices for the similar capacity on routes where the market is more competitive. For example, the cost of a 45 Mb/155 Mb link from India to the United States is nearly 2 or 3 times more expensive than the cost of an equal circuit from Singapore to the United States and 8 to 10 times more expensive than for a link between China and the United States.

    Such pricing disparities leads to higher prices for the customers of the Alliance’s Members, which has forced those customers to consider offshore locations other than India for their IT-related activities.
Bischoff also questioned whether VSNL's "restrictions on access" are consistent with India's international trade commitments under World Trade Organization agreements.

Flag's CEO believes India's economic growth will help rectify the situation. "I'm confident the situation will be resolved," says Gallagher. "If it doesn't, India's economy will be in a lot of trouble," he predicts.

— Ray Sea-Me-Le Maistre, International Editor, Boardwatch

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nbetini 12/5/2012 | 2:40:55 AM
re: FLAG Hits Out at VSNL Monopoly Being an invester in VSNL, I do realize VSNL is not following fair game in the telecom market.

And I know its now owned by the great Industrial power house in India for which I have always great regards as it drives the best moral practices in Indian industry. Hope VSNL will act soon for the benefit of all.



nbetini 12/5/2012 | 2:40:54 AM
re: FLAG Hits Out at VSNL Monopoly Being an invester in VSNL, I do realize VSNL is not following fair game in the telecom market.

And I know its now owned by the great Industrial power house in India for which I have always great regards as it drives the best moral practices in Indian industry. Hope VSNL will act soon for the benefit of all.

Narasimha Betini



rjs 12/5/2012 | 2:40:52 AM
re: FLAG Hits Out at VSNL Monopoly This explains why the international rates to
India, especially Bombay are so much higher than
any other major metropolitan cities in the world.

With the demand so high, and the fact that they
do have the capacity, one would think that the
prices would come down due to economies of scale.

But hey, how can you fight against a Monopoly!


I do hope the TATAs do what is right. This is just plain wrong for India.


-rjs
brahmos 12/5/2012 | 2:40:50 AM
re: FLAG Hits Out at VSNL Monopoly VSNL needs to be taught a lesson, just like MTNL
went from being a barking dog to a pussy now
after entry of Bharti, Hutch, reliance et al.
absphinx 12/5/2012 | 2:40:49 AM
re: FLAG Hits Out at VSNL Monopoly Doesn't make a difference if VSNL holds monopoly or not, since once they give into Reliance i.e. the landing rights etc....Reliance will have monopoly, since they own transport connecting around 25 major cities and don't have to go thru MTNL....if FLAG also goes thru Reliance then they will have a bigger monopoly for the Asia region....

the bigger question is how monopoly is handled in india?


more over the reasons for
sigint 12/5/2012 | 2:40:40 AM
re: FLAG Hits Out at VSNL Monopoly the bigger question is how monopoly is handled in india?
________________________________________________
There's a law called MRTP (Monopolies and Restrictive Trade Practices Act) which has penal provisions for monopolistic practices. This act has been labelled "retrograde" and a legacy of the license-permit raj, when India used to be a controlled economy. However, it has survived the purge of such laws, precisely becuase of the VSNL like acts.

Curiously enough, this law must have been applied umpteen times against the Reliance group, a group known for having turned monopolistic practices into a fine art. Them cribbing about VSNL is ironic, akin a Kettle calling the Pot black .....
materialgirl 12/5/2012 | 2:40:29 AM
re: FLAG Hits Out at VSNL Monopoly This goes to show how a cost advantage may not translate into profitable business. While we are far from perfect, the U.S. concept of competition and rule of law stops much of this behavior (with the exception of MSFT). This governor drives our competitive advantage.
atmguy 12/5/2012 | 2:40:28 AM
re: FLAG Hits Out at VSNL Monopoly >>There's a law called MRTP

Any law is useful only if it is enforced. How hard does Indian Govt try to enforce such laws?
technonerd 12/5/2012 | 2:40:28 AM
re: FLAG Hits Out at VSNL Monopoly While we are far from perfect, the U.S. concept of competition and rule of law stops much of this behavior
Are you practicing your lines for a stand-up comedy routine?
sigint 12/5/2012 | 2:39:57 AM
re: FLAG Hits Out at VSNL Monopoly atmguy, quoting sigint:
>>There's a law called MRTP
atmguy:
Any law is useful only if it is enforced. How hard does Indian Govt try to enforce such laws?
_________________________________________________
Well, there have been plenty of prosecutions under MRTP. But like in the US (the closest equivalent would be anti-trust litigation), things aren't always easy to establish with a variety of vested interests invovled.

However, there have been a few notable convictions - but punishments meted out have been mostly of the slap on wrist variety.

I guess no society does a great job of punishing corporate offenders.
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