VSNL plans $250m cable to Europe

MUMBAI: Videsh Sanchar Nigam Ltd (VSNL) will lay an undersea telecommunications cable system connecting India with several cities in Europe at an investment of $250 million in partnership with two other firms.

The TGN Eurasia cable system, which will be built in partnership with private-equity venture Seacom and Telecom Egypt, will directly link Mumbai to Paris, London and Madrid via Egypt.

The cable system will give VSNL 1.28 terabit of new capacity on this route during 2009.

It will also have future options for additional connectivity in the Gulf region as well as multiple locations in Europe.

Vinod Kumar, president, Global data solutions, VSNL, said: “The cable system will serve the increasing demand for bandwidth in the region and offer more options for route diversity and redundancy. It is a major step towards the company’s vision to offer seamless global connectivity at affordable prices.”

As of today, there is only one terabit system connecting India to Europe - the SMW4 consortium cable. There are some other new systems expected on the route like the IMEWE consortium system (of which VSNL is a part). This region is expected to witness a surge in bandwidth demand driven by the need for connectivity in the Asia-Europe-US region. Analysts said this would lead to healthy competition on this route.

VSNL would, however, have a competitive edge vis-à-vis its competitors given its strong global network, enabling onward connectivity beyond Europe.

VSNL’s Eurasia system will be supported by cost-effective\/fibre-based connectivity to all the major cities in Europe, and onward to New York and Washington DC.

A company spokesperson told DNA Money that VSNL will fund this project through a mix of internal accruals and debt and is a co-build partnership for creating the infrastructure and there would be no revenue sharing.

When asked about VSNL’s projected target to break even in the project, the spokesperson said: “There has been a strong demand for bandwidth in India, the Middle East and African regions. Submarine cables are usually long-term projects and VSNL is confident about the viability of the TGN Eurasia project.”

VSNL will also spend $200 million on an intra-Asia submarine cable system to be built by Tyco Telecommunications that would link Singapore, Hong Kong and Japan with an additional connection to the Philippines and Vietnam.

VSNL maintains a global transmission network of over 206,356 route kilometres comprising both terrestrial and submarine cable assets and TGN Eurasia cable system will help cater to the surging demand in bandwidth from Africa to both the developed and emerging markets.

Formerly owned by the government and now in the Tata fold, VSNL has been renamed Tata Communications Ltd. It has plans to enter into 20 new countries in Europe, Africa and Asia over the next one year. The company will be spending almost half of its $500 million capex on its international business.

It is also planning to launch wireless broadband service on the WiMAX platform in next year. The company is also mulling a new brand identity, similar to that of Tata Indicom for its WiMAX services. VSNL presently provides broadband services on the Tata Indicom platform only.

Analysts Devyani Javeri and Arit Chaudhury of Edelweiss Research said in a note to clients on November 2, that VSNL’s topline to grow at a rapid pace, given traction in wholesale voice volumes leveraged by acquisitions of Tyco Global Network and Teleglobe International coupled with steady growth in enterprise services segment.

The report further said that competitive pricing pressures and absence of a captive telecom subscriber base versus rival domestic operators is a key risk to VSNL’s standalone topline and profitability.

r_mithun@dnaindia.net