New Delhi, June 18 :    New Delhi, June 18:  Even though they blinked first in the battle of eyeballs with the government, the Tatas claim that the fortunes of Videsh Sanchar Nigam (VSNL), the Rs 8,000 crore telecom giant that till April this year had the monopoly over overseas call traffic, hinges crucially on its investment of Rs 1,200 crore in Tata Teleservices. Here's how the Tata argument runs: VSNL has lost its monopoly over overseas call traffic and soon a couple of private players -read Reliance and Bharti -will be ready to offer the whole suite of services that will undermine VSNL's ability to generate revenues. Neither Reliance nor Bharti is in a position to offer the services as yet -they only have licences for international long distance services. But the Tatas reckon 'in two to three years, the competition will render VSNL out of business.' Does that sound too dire? The Tatas obviously don't think so. Their solution: invest Rs 1,200 crore in Tata Telservices, the group's basic telephony services provider in Andhra Pradesh where it has 170,000 subscribers. TTL has a clutch of licences to provide basic telephony services in other circles including Karnataka, Tamil Nadu, Maharashtra, Gujarat and Delhi. The reasoning is based on the premise that the telcos no longer operate in a sellers' market. With fierce competition, the players will be slashing rates and fine-tuning services. The Tatas seem to suggest that VSNL will not be able to fight the competition on the price front. So, the best way to survive is to create a catchment of customers through TTL whose ever-widening pool of subscribers will use the VSNL network to route their calls. The Tatas' argument is specious at best and deserves closer scrutiny. To start with the numbers on the ground don't stack up at all. VSNL handled 3.1 billion minutes of international telephony traffic during 2001-02 generating revenues of Rs 5734.2 crore (against 2.68 billion minutes generating Rs 6386.8 crore in 2000-01). On the other hand, the number of telephone paid minutes has been rising, revenues have been falling because of the lowering of the settlement rates that VSNL negotiates with other countries. Out of the 3.1 billion units of telephone paid minutes in 2001-02, the basic telephony operators (BSNL, MTNL and the handful of private basic operators including TTL) accounted for 80 per cent, or Rs 4,587 crore of total international traffic revenue. Now let's take a look at the basic telephony business itself. There are 40.2 million fixed line subscribers in the country. BSNL is the biggest player with 35 million subscribers followed by MTNL with 4.5 million. The six private operators - TTL, Hughes Tele, Bharti Telenet, Himachal Futuristic Communications, Shyam Telecom and Reliance -together have about 700,000 subscribers. Bharti is the biggest private player with 175,000 followed by Hughes Tele and TTL with 170,000 each. Most of VSNL's revenues came from the BSNL and MTNL networks as the loss-making private networks have still a long way to go. The Tatas are betting that TTL-in which VSNL is expected to pick up between 20 and 25 per cent if its Rs 1,200 crore goes through -will be able to ratchet up its subscriber base to 7.2 million fixed line subscribers by 2010 who will automatically become VSNL customers. There are no independent studies against which the projections can be benchmarked. But it is safe to say that the others will also be seeking to aggressively build their subscriber pools. The big question: can VSNL survive on a 7.2 million subscriber base? Given the fact that over 40 million fixed-line subscribers use its services now, it seems unlikely that VSNL's fortunes will depend on a pool of just 7.2 million subscribers eight years from now. If it loses BSNL and MTNL subscriber (who may gravitate towards competing networks offering cheaper rates), VSNL will go belly up and the TTL subscriber base will not be able to resuscitate it. VSNL has recorded huge revenues and profits solely on the strength of its monopoly on overseas calls till April this year and the special relationship it has shared with both MTNL and BSNL under a state dispensation. Under a Tata dispensation, VSNL may not be able to leverage that relationship. The Tatas have already been pressing for a review of the settlement rate with both BSNL and MTNL. 'Without a realistic settlement rate being established for the two-year window defined under the shareholders agreement, you will appreciate that the entire profit levels of VSNL could be eroded immediately,' says a background note prepared by the Tatas for the department of telecommunications, justifying the VSNL board's decision to invest in TTL. There's another little detail that could punch holes in the Tata argument. Industry analysts say there is a rule of thumb to determine how much of capital investment is required to create one customer. At a 30 per cent capacity utilisation of the network (the level at which private operators are working), the cost of creating one customer works out to Rs 50,000. Extrapolate that figure to see how far VSNL's Rs 1,200 crore will go and you get a figure of 240,000 customers, a far cry from 7.2 million it hopes to have by 2010. The Tatas will have to come up with bags of money to make up for that shortfall. Of course, the rules of the game may change by then and the math may become redundant. But it's still going to be tough -and in any case it is unlikely that VSNL will be desperately pinning its fortunes on TTL's ability to drum up customers.