Top10 Vendors: 7 - MTNL: Mounting Troubles

Mahanagar Telephone Nigam may be the first prominent player to
lose its glory in the wake of competition from leading telecom players in India.

The state-run MTNL lost ground during the last fiscal despite
the entire industry showing robust growth -both, in subscribers and revenue
terms. Clocking an 11.5% dip, total income from services decreased to Rs 4,923
crore during FY '07. The company did Rs 5,561 crore in revenues the previous
year.

However, there is a silver lining for MTNL. And, that is by way
of its mobile business. MTNL recorded a 40.9% increase in income from mobile
services to Rs 807.2 crore, up from Rs 572.6 crore. Revenues from the fixed line
segment however nose-dived to Rs 4,116.1 crore from Rs 4,988.3 crore.

Though there is a decline in total revenue, MTNL saw a growth of
41.5% in cellular customer base in FY '07 as the company added 805,659
customers. The number of cellular mobile connections grew to 2,746,814 as on
March 31, 2007, up from 1,941,155 in FY '06. Similarly, MTNL saw a growth rate
of 121% in broadband customer base. Broadband customers during the last fiscal
stood at 469,446 as compared to 211,935 in the previous fiscal. Riding on the
customer additions, MTNL achieved an increase in the net profit by 10.8% at Rs
643.1 crore during the year, up from Rs 580.3 crore.

MTNL has introduced a host of schemes and initiatives that
became popular with customers. Main initiatives included expansion of broadband
network, expansion of GSM network, launch of IPTV services, Jeevan Saathi for
mobile customers who are government employees, One India plan to provide Rs 1
per STD call, GPRS on mobile, 1 Landline & One Garuda, (1+1) in PSTN among
others.

MTNL recognizes the importance of corporate customers. A general
manager level officer-GM (Corp Sales)-has been designated for interaction
with the corporates and meets their special requirements. MTNL has signed MoUs
with many big corporate like ONGC, NTPC, Indian Airlines (Indian) and several
public sectors banks.

MTNL has been exploring avenues to increase its footprint so far
as to increase revenue and profitability. MTNL is already operating in Nepal
through its joint venture with TCIL, VSNL and a local Nepali company. It has
nearly 81,000 customers in Nepal as of now. MTNL is operating in Mauritius
through its 100% subsidiary called MTML. MTML has already launched CDMA-based
local and mobile services and ILD services in the country. MTNL has nearly
18,446 customers in Mauritius.

What were the focus areas in
FY '07, and what are your investment and expansion plans for the future?

In line with the emerging trends, MTNL has focused on several fronts. They
include expansion of the GSM Network; 8,05,000 GSM cellular connections
were given in FY '07. Then you have broadband services; MTNL's
broadband services have been immensely popular. We are further expanding
the broadband capacity by eight lakh lines in FY '08. We are also
commissioning the convergent billing solution to improve customer
services.

We launched IPTV services in both
Delhi and Mumbai. This is expected to be a great value add to the landline
customers and will provide additional revenue to MTNL as well. We will be
improving the IPTV services.

MTNL is planning to spend nearly Rs
2,309 crore for expansion of various networks and services. Our capex plan
will involve Rs 1,542 crore for switching (i/c, GSM, B/B, L/L, TAX, TDM),
Rs 267 crore for IT related services and Rs 500 crore for acquisition and
new services.

What were the key challenges
faced during FY '07?

The key challenges during the fiscal year have been to stop the churn of
landline connections. Also, it was important to improve quality of service
in order to be able to meet with the TRAI requirements. We had to keep up
with customer aspirations in the face of intense competition. We have been
largely successful in reducing the churn of landline by the launch of
broadband service. It is expected that IPTV will further reduce landline
churn, and improve our bottom line

What is your
marketing/branding strategy?

Our branding strategy focuses on conveying and consolidating MTNL's
image as provider of cutting edge services. Transparency and affordability
are key.

What are your plans on 3G
and WiMax?

MTNL has already placed an order for supplying 7,50,000 lines of GSM
equipment (2G) each in Delhi and Mumbai. Equipment has been received and
is under installation.

MTNL is awaiting allotment of
spectrum for its 3G Network. It is expected that MTNL shall launch 3G
services in FY '08. We are conducting trials for WiMax network and plans
are afoot to provide WiMax during the current fiscal.

The big question is whether MTNL's woes are likely to
continue. In other words, is it just the tip of the iceberg? Considering the
revenue growth in the fourth quarter of FY '07, one can assume so. MTNL's
income from services during the fourth quarter of the fiscal was Rs 1,199.9
crore as compared to Rs 1445.2 crore during the corresponding quarter of the
previous year.

The company certainly has its hopes pinned on its proposed
ventures on 3G, IPTV, and other initiatives. If these can find favor with
existing and new customers it is bound to help grow both top line and the bottom
line.