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VSNL Profit Plunges

Light Reading
News Analysis
Light Reading
1/28/2008

International data connectivity provider Videsh Sanchar Nigam Ltd. (VSNL) (NYSE: VSL) saw net income dive 93.3 percent during its third quarter as an ongoing decline in its profit margin accelerated.

For the quarter ended Dec. 31, the Mumbai, India-based operator reported almost flat revenues on a year-on-year basis: Net sales slipped from INR10.66 billion (US$270.79 million) in the quarter a year ago to INR10.41 billion ($264.36 million).

But net income plummeted from INR1.42 billion ($36.07 million) in the quarter ended December 2006, to INR95.20 million ($2.42 million) in December 2007.

VSNL's profit margin has been falling in the face of declining voice margins internationally and increased domestic competition for long-distance services. The operator’s net profit margin was 13.32 percent in the third quarter of fiscal 2007, 10.33 percent in the first quarter of fiscal 2008, 6.48 percent by the second quarter, and just 0.91 percent last quarter.

The company's share price closed 5.21 percent lower Monday at INR526 ($13.36) on the Bombay Stock Exchange, having fallen as low as INR498.25 ($12.66) earlier in the day.

Part of the industrial conglomerate Tata Group, VSNL said in October it was teaming up with sister company Tata Consultancy Services Ltd. to offer networking services and IT applications to its corporate customers in a bid to boost revenues by 15 percent annually.

By offering additional services and applications with its connections, the operator claims an advantage over competitors like BT Group plc (NYSE: BT; London: BTA), AT&T Inc. (NYSE: T), and Verizon Communications Inc. (NYSE: VZ).

At home, the former long-distance monopoly is looking to beef up its broadband offering and has rolled out WiMax services for both retail and corporate customers.

VSNL is in the midst of rebranding as Tata Communications Ltd., bringing it a step closer to its parent company's goal of merging the carrier with domestic mobile and fixed-line operator Tata Teleservices Ltd.

— Nicole Willing, Reporter, Light Reading

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