MEMORANDUM OF UNDERSTANDING
BETWEEN
VIDESH SANCHAR NIGAM LIMITED
AND
MINISTRY OF COMMUNICATIONS
DEPARTMENT OF TELECOMMUNICATIONS
FOR THE YEAR 2001-2002
PREAMBLE
Whereas the Government will provide necessary and required support and
assistance, VSNL will be accountable for results and achievement of its targets.
This MOU is intended to support VSNL and make the organisation accountable in
achieving its long-term objectives as well as short-term plans by optimal
utilisation of its resources and enhancement in the level of operational
efficiency, productivity and other parameters of corporate performance.
This MOU has the following Sections:
SECTION I MISSION, BROAD GOALS & OBJECTIVES
SECTION II COMMITMENTS OF VSNL FOR THE YEAR 2001-02
SECTION III DELEGATION OF POWERS
SECTION IV ASSISTANCE FROM THE GOVERNMENT
SECTION V FREQUENCY OF MONITORING AND INFORMATION FLOW
* * * * *
SECTION - I
MISSION
TO CREATE
A GLOBAL AND SEAMLESS
NETWORK OF INFORMATION
SUPER HIGHWAYS;
TO CONNECT
PEOPLE AND COMPUTERS
COST EFFECTIVELY
AND EFFICIENTLY;
ANYTIME, ANYWHERE.
BROAD GOALS AND OBJECTIVES
(1) To plan and provide full range of telecommunications services including
Value Added Services like Business Network, High Speed Leased Line
Services etc., from VSNL Gateways in India to all parts of the world to
users at sea, on land and in air.
(2) To develop sound marketing strategy with cost effective solutions.
(3) To seek, promote and foster excellence amongst the work force, improve
productivity, update human and machine capabilities.
(4) To continuously enhance quality of service and to continue to improve
shareholder value.
(5) To actively seek expansion of company's operations through joint
ventures also for entering new areas such as International Value Added
Services, Regional hubbing of traffic and to position India as a major
regional telecommunications operator in order to achieve the Gross
Margin as projected.
(6) To achieve and maintain high degree of customer confidence by continuous
upgradation of technology, service performance and prompt attention to
customers.
SECTION - II
COMMITMENTS OF VSNL FOR THE YEAR 2001-02
In fulfillment of its commitments under MOU, VSNL undertakes to achieve
performance targets as under:-
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CRITERIA VALUE
CRITERIA UNITS WEIGHT
* ** BE (PSE)
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1 2 3 4 5
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HIGH LOW 2000-01 2000-02
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I PHYSICAL
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(1) Telephone Mrts. Million 9% 2994.30 2851.71 2709.12 2573.67 2444.98 2480 2851.71
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(2) Leased Voice/Data Circuits Nos. 3% @4066.00 3800 3610 3430 3258 900 3800
(including high speed
circuits, 64 K and equivalent)
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(3) Internet Bandwidth Mbps 5% @1578.25 1475 1401 1330 1264 - -
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Subscriber Nos. 2% @784738 733400 696730 661894 628799 476000 733400
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(4) Paid minutes per employee Minutes 3% 3207 3055 2902 2757 2619 2664 3055
per day
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(5) Project implementation # Refer Annex 3 8% 1 2 3 4 5 - -
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II FINANCIAL: ##
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(6) Cross Margin (Profit before Rs. Million 26% 24130.75 22512.44 20894.12 19356.73 17896.20 23927 22512.44
Interest, Tax and Depreciation)
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(7) Net Profit after tax)/Capital Percentage 26% 17.38 16.24 15.09 14.00 12.96 23.55 16.24
employed x 100
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(8) Sundry Debtors (traffic) to Percentage 4% 35 40 43 46 49 - -
Cross
revenue
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Profit after tax Rs. million 15059.02 14063.75 13068.49 12122.99 11224.77 16062.70 14063.75
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Capital employed Rs. million 86622.78 68218 86622.78
(at the end of the year)
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III QUANTATIVE:-
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Metro 1% 53.75 51.25 48.69 46.25 43.93 - -
(9) ASR (a) Percentage
Incoming
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Rest of 1% 33.6 32 30.4 28.9 27.45 - -
India
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(b) Outgoing 2% 54.07 51.5 48.9 46.48 44.16 - -
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(10) Network availability Percentage 2% 99.0 98.7 98.4 98.1 97.8 - -
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(11) Consumer satisfaction Percentage 5% 1 2 3 4 5 - -
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(12) Timely submission of draft Date 1% Before Before Before Before Before - -
MOU Dec. 24, Dec. 27, Dec. 29, Dec. 31, Dec. 31,
for 2002-03 2001 2001 2001 2001 2001
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(13) Timely submission Composite Date 1% Before Before Before Before Before - -
______ for MoU 2001-02 on the April May 2, May 4, May 6, May 8,
basis of 30, 2001 2001 2001 2001
provisional data 2001
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(14 Timely signing of MoU for Date 1% Before April 1, April 6, , April 11, Beyond - -
2001-02 April 1, 2001 2001 2001 April 11,
2001 2001
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NOTES.
Effect on Declining Settlement Rates and illegal flow of telephony
traffic through Data circuits has not been taken into account. Normal
variations/escalations in inputs have been taken into account while
working out MoU targets.
** Notes on weightage for different parameters are in Annexure 1. * Explanatory
notes on the above criteria and the criteria values are in Annexure 2. # For
details of projects refer Annexure 3.
## Foreign Exchange Earnings out of traffic revenue (gross) as per BE
2001-02 is estimated to be Rs. 42.611.63 million equal to US$926.34
million. Foreign Exchange Cost out of traffic cost (gross) as per BE
2001-02 is estimated to be Rs.13424.3 million equal to US $291.83
million (at an exchange parity rate of US $1 = Rs.46). Net foreign
exchange earnings works out to Rs.29,187.38 million equivalent to US $
634.51 million.
@ For these performance criteria Level 1 values are 107% of Level 2 values
as discussed in ATF meeting held on 20 February 2001. Data on the above
performance indicators for last 5 years is given in Artnexure 4.
ASSUMPTIONS:
a) The financial parameters are agreed to be kept at the same level as BE
figures, with specific assumption that during the year collection rates
for international telephony shall be reduced as proposed in the
discussion paper issued by TRAI. If that does not happen, level two
figures for financial parameters shall stand reduced proportionately to
be on par with the figure of telephone paid minutes of 285l.7lmillion at
level 2 with 5% variation at other levels
b) In order to achieve the projected level of Financial Parameters, and for
the purpose of maximising the asset utilisation, the Company shall be
allowed equal opportunity to participate in joint ventures to provide
basic long distance and value added services.
SECTION - III
DELEGATION OF POWERS
All the powers to be delegated to MOU signing companies as well as to
`Navaratna' companies as per the notifications issued by the Government from
time to time shall accrue to VSNL.
SECTION - IV
ASSISTANCE FROM THE GOVERNMENT
1. Department of Telecom will provide all possible assistance to VSNL
within the overall policy framework of the Government.
2. The existing revenue sharing formula between VSNL and BSNL will be valid
up to 31.03.2002 as already agreed.
3. Facilities will be provided as may be necessary, to enable VSNL to
provide International Calling Card services and associated
value added services.
SECTION - V
FREQUENCY OF MONITORING AND INFORMATION FLOW
Performance of VSNL will be evaluated by its achievements against the targets
given in this MOU. The quarterly report on the achievements against the above
targets would be sent by VSNL to DPE/DOT within 30 days of the close of the
quarter. VSNL will indicate reasons for shortfall, if any, in achieving the
targets in these reports.
S.K. GUPTA SHYAMAL GHOSH
Chairman & Managing Director Secretary, Department of Telecom &
Videsh Sanchar Nigam Limited Chairman, Telecom Commission
Mumbai. New Delhi.
Dated : 28 March, 2001
Place : New Delhi
ANNEXURE - 1
NOTE ON WEIGHTAGE GIVEN FOR DIFFERENT PARAMETERS.
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1. VSNL's overseas telecommunications functions provide telephony, telex,
telegraphy and other services to Indian customers. However, the
telephony service dominates in the overall business in terms of volume
of revenue earned to the extent of about 90% of the total revenue.
Weightage given to this is 9%. Leased voice/data service which is now
gaining importance is given weightage of 3%.
2. Parameter for Internet is split in two parts, viz. internet bandwidth
and number of Internet customers, with 5% and 2% weightage
respectively.
3. The improvement in productivity of employees is reflected under the
criteria 4. Weightage given is 3% as per discussions at ATF
4. In line with the guidelines issued by the Government, parameters of
gross margin and Net profit to capital employed ratio have been
included. However, weightage given to these parameters are 26% for
criteria 6 and 26% for criteria 7 as per the discussions in ATF.
5. VSNL being a service oriented organisation, the quality of service
provided is reflected under criteria Nos. 9 and 10 which show, up and
running hours of the network and adequacy of network facilities to
satisfy customer demands.
6. Customer satisfaction (criteria 11) is a prime parameter for any
service organisation like VSNL. Customer satisfaction is evaluated
through an assessment by art independent organisation.
7. Criteria 12, 13 & 14 regarding timely submission of MOU etc. have been
added as per DPE's requirement with total weightage of 3%.
ANNEXURE - 2
EXPLANATORY NOTES ON CRITERIA AND CRITERIA VALUES
1. TELEPHONE PAID MINUTES
2851.71 million telephone paid minutes has been taken at level 2,
presuming 15% growth over 2000-01 level 2 figure of 2480 telephone paid
minutes of telephone traffic. 5% variation is presumed for each level
from 1 to 5.
2. LEASED VOICE/DATA CIRCUITS
The number of Voice/data circuits (including high speed circuits, 64k
and equivalent) at the end of the year 2001-02 is expected to be 3800
circuits and is shown at level 2. A variation of 7% is shown for Level
I and 5% progressively at other levels as per
discussions in ATF held on 20 February 2001.
3. INTERNET SUBSCRIBERS
(a) A number of 733,400 is taken to be the number of Internet
subscribers as of 31 March, 2002 as level 2 figure, variation
of 5% is taken for the other levels. Variation of 7% is taken
on Level I and 5%. for all other levels as per discussions in
ATF held on 20 February 2001.
(b) As discussed in ATF last year, Bandwidth parameter is
continued. Bandwidth of 1475 is taken at level 2. Variation of
7% is taken on Level I and 5% for all other levels as per
discussions in ATF held on 20 February 2001.
4. PAID MINUTES PER EMPLOYEE PER DAY
The term "paid minutes" is defined as the sum of
a) Total telephone paid Minutes;
b) Total telex paid Minutes (for each level from high to low in
million paid minutes 7.4, 7.05, 6.70, 6.36 and 6.04);
c) Total GPSS connect time (for each level from high to low in
million paid minutes 3.15, 3.0, 2.85, 2.70 and 2.57)
300 days are reckoned in a year. The volume of paid minutes at each
level is divided by estimated number of employees i.e. 3123 (Average of
estimated number of employees as on 31.3.2001 - 3075 and estimated
number of employees as on 31.3.2002 -- 3170. Resulting figures of per
employee per day are shown at respective levels.
5. PROJECT IMPLEMENTATION
Important projects whose implementation has got direct bearing on the
performance of the Company are identified (Annexure 3). As directed by
DPE afler ATF meeting, month of completion at levels 1 to 5 are
indicated. If the date of completion of a particular project stage
falls between months mentioned at any two levels, score will be
calculated based on the month mentioned against the nearest level,
total score culminating in to a consolidated score between 1 to 5. Each
project will carry equal weightage.
6. GROSS MARGIN
Gross margin is taken as the excess of Traffic Revenue, Revenue from
Intelsat/Inmarsat and other income over direct expenses. It is profit
before interest, tax and depreciation. BE 2001-02 figure of Rs.22512.44
million appears at level 2 with due variation at other levels.
7. NET PROFIT TO CAPITAL EMPLOYED
Net profit is profit after tax. The capital employed of Rs.86622.78
million is estimated as at end of the year and is worked out as fixed
assets including capital work in progress plus investment in Intelsat
and Inmarsat and net current assets. The commercial investments and
return on the same have been excluded. Indicated figure is ratio of
profit after tax to capital employed.
8. SUNDRY DEBTORS (TRAFFIC) TO GROSS REVENUE IN PERCENTAGE
-------------------------------------------------------
In international telecommunication business, as per CCITT arrangements,
the traffic figures in paid minutes/paid words for different services
are exchanged between different administrations on a monthly basis.
After reaching an agreement on the quantum of the traffic volume for
each service, the accounts are settled by applying the agreed Total
Accounting Rate (TAR) between India and corresponding foreign
administrations on a quarterly basis. Thus, theoretically, only nine
months of traffic data would be exchanged before the close of the year.
However, the acceptance of the traffic figures and effecting of the
payment will take further time, say about another 3 months. Thus,
theoretically; collection of a maximum of only 50% of yearly net
revenue could be achieved in a year from foreign administrations. The
quantum of settlement relates not only between VSNL and foreign
administrations but also between VSNL and DTS, for the account towards
domestic portion of the traffic. As the percentages of sundry traffic
debtors is worked out to gross revenue and after assuming that revenue
from DTS has been realised/adjusted, around 40% of Gross revenue will
remain outstanding in a year. This figure, which is a BE figure, has
been shown at level 2 with due variation at other levels.
9. CALL COMPLETION PERFORMANCE - ASR (INCOMING & OUTGOING)
------------------------------------------------------
The parameter indicates call clearance in both inward and outward
direction of international exchanges. The Answer to Seizure Ratio (ASR)
of calls through the exchanges in both the directions are calculated
based on sample day readings taken once in a month in both directions
from/to the top ten countries. The annual ASR in percentage in both
directions is calculated based on the average of samples of twelve
months separately for incoming and outgoing traffic.
10. NETWORK AVAILABILITY
Network performance is judged as availability of trunks excluding
outages due to DTS link failures at the international Gateway Exchanges
to put through telephone calls to foreign destinations. The
availability figures based on the level achievable corresponding to
down time of 5 Hours, 7 Hours, 9 Hours, 11 Hours and 13 hours in a
month are indicated respectively at levels 1, 2, 3, 4 and 5. The
parameter will be evaluated by judging the performance at all the four
gateway exchanges for the top ten countries.
11. CUSTOMER SATISFACTION
Customer satisfaction will be evaluated through an assessment to be
carried out by an independent agency of national standing.
12 to Criteria for timely submission of MOU, Performance evaluation for MOU, and
14 timely signing of MOU have been added as required by DPE.
ANNEXURE -3
PROJECTS WHOSE PROGRESS OF IMPLEMENTATION DURING THE YEAR 2001-02
WOULD BE VITAL FOR VSNL PERFORMANCE.
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No Name of the Project Level 1 Level 2 Level 3 Level 4 Level 5
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1. Establishment of ATM Gateway Nodes - Commencement ugust 2001 ctober 2001 anuary 2002 March 2002 May 2002
of installation at two locations
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2. Standard B Earth Station at Hyderabad Gateway - Commissioning Sept. 2001 Nov. 2001 Feb. 2002 April 2002 June 2002
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3. Standard F3 Earth Station at Patna - Commissioning June 2001 Sept. 2001 Dec. 2001 March 2002 May 2002
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4. SAFE Cable Project - Commissioning Dec. 2001 March 2002 June 2002 August 2002 Oct. 2002
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5. Standard E3 Earth Station at Greater Kailash, N.Delhi Feb. 2002 March 2002 April 2002 May 2002 June 2002
- Award of Contract
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6. Gandhinagar Gateway Earth Station - Land acquisition for Gateway May 2001 July 2001 Sept. 2001 Nov. 2001 Dec. 2001
Earth Station
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7. INMS -Award of Contract Dec. 2001 Feb. 2002 April 2002 June 2002 July 2002
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8. VoIP -Award of Contract Oct. 2001 Dec. 2001 Feb. 2002 April 2002 May 2002
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9. F3 Earth Station Hub at Gurgaon -Commencement of installation Dec. 2001 Feb. 2002 June 2002 August 2002 Oct. 2002
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10. Launch of Internet Services in non-metro Gateways Dec. 2001 March 2002 June 2002 Sept. 2002 Dec. 2002
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ANNEXURE - 4
PERFORMANCE INDICATORS PAST TRENDS
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PHYSICAL UNITS 94-95 95-96 96-97 97-98 98-99 1999-2000
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TELEPHONE MINUTES 942 1147.56 138493 1684.51 1935.01 2245.83
MILLION
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LEASED VOICE DATA CIRCUIT NUMBERS 233 299 446 638 661 659
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INTERNET BANDWIDTH MBPS - 4.408 15.640 27.640 79.152 167
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INTERNET CUSTOMERS - 5160 29116 87000 213045 366432
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PAID MINUTE/PER MINUTES 1166 1403 1652 19.85 2231 2518.46
EMPLOYEE PER DAY
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REVENUE RUPEES 36068.095 44730.71 52853.05 S 64361.33 71735.68 72305.08
S
MILLION
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PROJECT IMPLEMENTATION % 63.33 102.85 90 1..81 2.16 4
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CAPITAL EMPLOYED RUPEES 11697.24 14293.03 20371.72 28317.56 39949.10 52149
MILLION
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GROSS MARGIN (PROFIT RS. MILLION 5347.21 7717.91 9097.97 14951.33 19942.86 20852
BEFORE INTEREST, TAX AND
DEPRECIATION)
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NET PROFIT/CAPITAL % 25.55 24.78 34.18 33.17 16.11##
28.60
EMPLOYED .
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TOTAL O/S TO GROSS REVENUE % 29.45 30 28.95 28.5 29.76 36.88
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INCO Metro 30.48 47.17 48.56 50.47 52.43 54.48
MING
%
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Rest of 26.71 31.56 31.86 32.16 33.49
India
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ASR OUTGOING 51.22 53.41 52.78 53.03 53.27 51.42
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NET F.H. .EARNTNIGS R.S. MILLION 9016.2 15311.79 18939 23977.65 47376.23 48171.18
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@ Capital employed figure excludes an amount of Rs.11.909.88
million representing monies raised by way of Euro equity issue
for the reason that these funds were raised only on 27 Mach
1997.
## On account of the unforeseen development of writing down
investment in ICO by Rs. 5127 million the net profit which
otherwise would have been Rs. 13530 million is taken as
Rs. 8403 million only. But fur ICO investment write down,
the ROCE would have been 25.95%.