VSNL to buy Indian ISP for Rs 750 million

MUMBAI: Videsh Sanchar Nigam Ltd (VSNL) is strengthening its broadband presence in the Small and Medium Enterprises (SME) segment. The telecommunications giant has agreed to buy out Direct Internet Ltd (DIL) and its wholly owned subsidiary Primus Telecommunications India Ltd (PTIL) for Rs 750 million ($16.7 million).

US-based Primus Telecommunications Group Inc will exit from India, selling its entire 85 per cent stake in DIL. VSNL is also buying out the remaining 15 per cent held by an Indian partner. The deal is expected to be completed in a few weeks, VSNL said in a statement.

PTIL provides fixed broadband wireless internet services to SMEs in several Indian cities. The company has close to 1,000 SME and 10,000 retail customers. Out of a total revenue of around Rs 550 million in FY 2006, nearly 80 per cent came from the SME segment. Retail business accounted for 15 per cent while Voice-over-Internet Protocol (VoIP) contributed to around seven per cent of the company's income.

The retail customers are likely to be rehomed in VSNL while DIL will focus entirely on the SME segment. The company's operations will continue to be run with the old management. "The huge infrastructre of VSNL will allow DIL an opportunity to expand in the SME segment. VSNL has massive bandwidth which will offer DIL's operations greater efficiencies. In the past, we were buying bandwidth on a leased basis and this was consuming 60 per cent of our costs," says DIL and PTIL founder-CEO Tilak Sarkar.

This will be VSNL's first SME-specific acquisition in the internet space. VSNL had earlier acquired DishnetDSL for Rs 2.7 billion and Tata Power broadband for Rs 2.39 billion which gave it broadband subscribers in the retail as well as the SME segments. DIL, on the other hand, has mostly SME subscribers.

"The SME segment is a lowly penetrated but growing market. VSNL sees this as an opportunity to expand its presence in the broadband space," says an analyst.

VSNL has been aggressive in acquisitions over the last one year. While it bought Tyco International's global under-sea fibre optic cable network unit in July 2005, recently it acquired telecoms network service firm Teleglobe International Holdings Ltd.

Nasdaq-listed Primus Telecommunications, an integrated communications services provider offering international and domestic voice, VoIP, internet, wireless, data and hosting services to business and residential retail customers, had reported a net revenue of $1.19 billion in the 2005 fiscal.

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