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Telecom experts assessing impact of MTNL cut in charges

Sandeep Dikshit

At stake is the very survival of MTNL, they opine

NEW DELHI: When Mahanagar Telephone Nigam Limited (MTNL) announced a drastic cut in charges for calls on fixed phones between Mumbai and Delhi earlier this week, did it take a decision whose ramifications would be felt beyond the two metros? Leading telecom experts and members of the boards of directors of major phone companies are huddled in parleys to assess the impact of the MTNL slashing the point-to-point STD rates from Rs. 5.70 for three minutes to Rs. 1.20 for calls between the two metros.

Apart from the other phone companies coming under pressure to match the reduced rates, at stake is the very survival of MTNL, they opine. MTNL's profits during the last financial year totalled about Rs. 600 crores and it would have to increase the Delhi-Mumbai call traffic volume five times to retain its previous earnings. If the intention was to retain its fixed line customers, analysts expect Bharti -- which has a major presence in the two metros but in the mobile business -- to match the reduction. This would render MTNL's move futile.

But senior MTNL officials point out that there are other plans on the anvil such as a bouquet of value-added services and the boom in demand for broadband connections. "We are planning to have 10 lakh broadband subscribers alone by the year-end," they say. The officials point out that the popularity of fixed phones was going down and a drastic measure was required to retain customers. Besides, in a competitive market, it was necessary to provide a good deal to customers.

"If we don't do that, someone else will. Ultimately it is the customer who is the deciding factor and those who do not offer attractive packages will be edged out of the market. We did what we think is the best ," they add. However, MTNL's opponents point out that similar demands for cuts may be voiced for other lucrative destinations as well. This could impact the surplus of companies leading to either a cutback on expanding the network or borrowing from the market. In the latter case, the cost of the money would be more which would impact the ability of companies to lower phone rates in the future.

"There was no need for such a sharp cut. They could have done good business even with a lower reduction," an analyst added.

In a couple of weeks from now it will be known whether MTNL has been a precursor to another price war or has taken a risk that could affect its fortunes along with those of other companies.

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