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VSNL continued to grow negatively with Rs 3,371 crore during FY 2003–04 as against the previous fiscal´s Rs 4,813 crore, registering a 30 percent decline in revenue and 51 percent decline in net profits against the previous year.

International long distance revenues continued to dominate the company´s earnings at around 63 percent. Over the last two years, VSNL witnessed a sharp decline in its long distance tariffs due to the huge fall in accounting as well as settlement rates. Accounting rates have fallen because of significant over-capacity in the international markets, while settlement rates have fallen due to competition in the domestic markets. As a result, overall revenues have suffered despite a strong rise in international call volumes. Over the next 4–5 years, call volumes are expected to witness a growth between 18–20 percent.

VSNL´s total incoming and outgoing call volumes stood close to 2.8 billion minutes during fiscal 2003–04, which is a six percent decline over the previous fiscal. The incoming to outgoing call minutes ratio stood at 2:1 during the financial year (i.e., two incoming international calls for every outgoing international call). This has improved from 4:1 in FY 2002–03, as more outgoing calls are profitable for VSNL.

Nearly 90 percent of VSNL´s outgoing as well as incoming call traffic continued to originate from the BSNL network, but the good news is that VSNL would continue to remain the preferred vendor for BSNL. It is not just VSNL, but also its competition that has suffered heavily due to slim margins in ILD.

The bottomline was further depressed due to a Rs 100 crore VRS expenditure that was incurred during the fiscal. However, VSNL realized Rs 94 crore from the sale of its stake in Inmarsat Ventures. This, to an extent, compensated for the extraordinary VRS expenses.

The opening up of the ILD services sector has led to increasing pressure on VSNL, which has started showing in its financial performance. Therefore, VSNL has taken several initiatives to expand its business in other sectors like DLD (domestic long distance) and broadband services.

In one such initiative, VSNL set up its subsidiary in the US called VSNL America, to provide IP-VPN services (dedicated international leased line service) and has also set up its headquarters in Singapore for its international business. It also tied up with NTT Communication Corp to provide Global IP-VPN services in India. In another such initiative, the company has started ILD voice and data services in the Sri Lankan market. VSNL´s entry into Sri Lanka will help the company tap the 400 million-minute ILD market in the island country.

To further its business in the retail segment, the company has acquired the broadband and Internet business of Dishnet DSL, which will help boost its retail presence. The Rs 270 crore acquisition will give VSNL access to a base of over 600 cyber cafés that are owned or franchised by Dishnet. The latter´s 20 dial-up locations were not among VSNL´s existing 30 locations of operation. The acquired broadband assets have the capacity to service more than 50,000 customers in key cities in the country. VSNL currently has 779,733 Internet services customers. It has also launched retail broadband Internet services by tying up with cable operators.

In an attempt to address the enterprise market, VSNL along with other Tata Group companies, formed a new entity called TIEBU (Tata Indicom Enterprise Business Unit). TIEBU will be a single point of contact that will take care of all the voice and data requirements of corporates.