I am very pleased to announce ... VSNL today have decided to reduce the annual rental of international bandwidth by 35-40%

Pramod Mahajan Telecoms and IT Minister

The move comes as Videsh Sanchar Nigam (VSNL) released third quarter results below analyst expectations and settled a dispute that will allow a competitor into the market.

The government, which is the majority owner of VSNL, also announced it planned to sell a 25% stake by the end-March, reducing its holding by almost a half.

VSNL is currently India's sole international broadband supplier and the countries largest ISP.

Telecom bandwidth is vital for data transfer between companies, customers and subsidiaries.

Bills slashed

India's telecom and IT sectors have long complained the lack of bandwidth is affecting their global competitiveness.

Flag Telecom has been granted access to India

"I am very pleased to announce ... VSNL today have decided to reduce the annual rental of international bandwidth ...by 35-40%," Indian Telecommunications and IT Minister Pramod Mahajan announced.

"I am confident that this will result in greater usage of bandwidth by Indian industry and provide a boost to India's IT sector," he said.

The cut is still to be approved by the national telecom regulator.

Dispute ended

Mr Mahajan also announced a dispute between US-based international bandwidth provider Flag Telecom and VSNL, which virtually froze the capacity available in the country, had been resolved.

The deal means private operators can buy bandwidth directly from Flag from 1 April, while still paying a small fee given to VSNL.

The minister expects bandwidth capacity to double as a result.

Poor result

Ahead of its privatisation, VSNL reported net profit for the quarter from October to December dropped 10.7% from a year earlier.

Net profit fell to 3.57bn rupees ($73.5m), from 4bn rupees in 2000, below the 3.78bn rupees average forecast by a Reuters poll.

The company said revenues from its international business, which accounts for nearly 90% of its revenues, fell to 15.18bn rupees from 16.93bn.

Revenues from its internet service provider (ISP) also fell 29% to 599m rupees despite its online subscriber base growing 18.5% over the year to 660,566 users.

VSNL's shares jumped 4.2% to 143.8 rupees on the Bombay Stock Exchange.