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Mr Ratan Tata, Chairman, VSNL, and Mr S.K. Gupta, Managing Director, at the company's AGM in Mumbai on Tuesday.

MUMBAI, Aug. 20

THE first clear indication of what the Tatas intend to do with VSNL emerged today, with the Chairman of the company, Mr Ratan Tata, hinting at the possibility of an eventual merger of VSNL and Tata Teleservices, the basic telephony company in the Tata fold.

"In fact, one day the two may merge into one company. That is our eventual desire," said Mr Tata, replying to a shareholder query at the company's annual general meeting here today.

Mr Tata made a reference to this not once, but twice. Earlier, referring to the issue of VSNL's controversial decision to invest Rs 1,200 crore in Tata Teleservices (TTSL), he emphasised that the decision was an in-principle one, the investment to be made over a four-year period. He added: "At a later time, we may look at putting these (two companies) together."

The board of directors of VSNL, newly led by the Tata group, had in May decided to invest Rs 1,200 crore out of VSNL's reserves over a four-year period in Tata Telservices; the Ministry of Telecommunications had objected, accusing the Tatas of asset-stripping. Ultimately, a committee was set up to look into the matter.

However, it also emerged that the committee report, which was to have been submitted by mid-August this year, is now going to be delayed by two months. "The members have been unable to meet. This report will be out in October," said Mr Tata, again replying to a shareholder query.

Mr Tata made frequent strong references to the decision to invest in TTSL, saying that VSNL with a preponderant reliance on international telephony in a market of falling tariffs could not survive unless it allied itself with another company with a clear retail base.

VSNL is a strategic investment, said Mr Tata. "We want to integrate this seamlessly with our other telecom activities. We acquired VSNL to round off our bag of services."

He said the Tatas were using the creeping acquisition route to increase their stake in VSNL.

Mr Tata also made a reference to VSNL's plan to become "more aggressive in the market place".

Both on the issue of interconnect agreements with BSNL and MTNL as well as on the issue of compensation for early loss of monopoly for VSNL in international telephony (its monopoly was supposed to end in April 2004, but happened in April 2002), the Tatas do appear to be taking a strong stance. (VSNL feels both BSNL and MTNL have been demanding a larger revenue share than VSNL thinks it fair.) "We are in discussion with the Government on interconnect and hope it will be resolved. If it is not we will go to the regulator or even go to the courts. The management has been pursuing it vigorously," said Mr Tata.

He also made it clear that the company was dissatisfied with the Government's proposed compensation for the early end to VSNL's monopoly.

Of VSNL's planned investment of Rs 1,300 crore in its national long-distance service, Rs 500 crore will be invested in the current year. The capex plans for the year amount to Rs 600 crore. Apart from the Rs 500 crore for setting up NLD operations, VSNL would be investing Rs 10 crore to set up call centre facilities.

WorldCom has paid $85 million of its dues to VSNL; as of today, its dues to VSNL stand at $43 million.

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