Chairman and managing director Narinder Sharma also said in an interview on Monday that he expects MTNL's newly launched cellular business to be profitable by next year.

"For the full year, net profit growth should be around 30 per cent. Fourth-quarter bottomline (growth) may be 25 to 30 percent," Mr Sharma said.

For the October-December quarter, the company, which provides fixed-line telephone service and Internet access in Mumbai New Delhi, posted a net profit of Rs 4.77 billion, up 30.9 per cent from a year earlier.

Similar 30 per cent growth in fourth-quarter earnings would propel MTNL's net profit for the year to around Rs 14.25 billion. That too would be a 30 per cent increase from last year's figure of Rs 10.96 billion.

MTNL, soon to be listed on the New York Stock Exchange, has a subscriber base of around 4.2 million customers. Long viewed as a stodgy, overstaffed and inefficient state-run firm, it has in the past few years tried to get its act together to take on impending competition from the opening up of its business to private companies.

Going mobile
Earlier this week, MTNL embarked on its long-awaited foray into the cellular telephone business by launching mobile service in New Delhi, becoming the first state-run firm to venture into what has been a private sector preserve.

MTNL will begin mobile phone service in Mumbai at the end of the month and is targeting 100,000 customers in each city initially.

Mr Sharma said he expected the cellular business to start paying back by the end of the first year of operation.

"We anticipate a break-even by the second year. End of next (financial) year, we should be profitable...We should break even with 50,000-60,000 subscribers in Delhi and Mumbai," he said.

This is much sooner than most private-sector companies have taken. Several private firms are still in the red after six years of operations.

"You must remember that we have not borrowed any money. So, our finance charges are very low. Debt is zero," Mr Sharma said.

"I am not hiring new people. I am only hiving off people from the existing organisation, so that cost already exists for me. It is a very, very economical operation for me."

State-run MTNL is also helped by the fact that it has not had to pay any licence fees to offer cellular service. The government merely granted it a mandate to be the third cellular operator in the two cities.

MTNL is also entering the cellular market as it has begun to grow rapidly after nearly six years of poor growth. Reflecting falling tariffs and lower handset prices, India's mobile subscriber base grew 94 percent in calendar 2000.

Eyes other forays
Mr Sharma said MTNL also had ambitions to enter the domestic long-distance telephone market, and even the international long-distance telephone market which is due to be opened to private participation in April 2002. The company recently submitted applications for licences to start fixed line or basic services in nine additional circles or zones across India.

"I have a distinct advantage over any new player - my customer base. I have this 4.2 million subscriber base which is growing by 10 per cent. My cellular subscriber base will also grow. For me to go in for a backward integration into long distance or overseas long distance is a very simple," Mr Sharma said.

Being a cash-rich company with zero debt, MTNL has plenty of resources to fund its ambitions, while entering new service fields will enable the company to more efficiently utilise its 63,000 staff, viewed by many as a drag on its finances.

Beefing up Internet
Mr Sharma said MTNL further plans to spruce up its Internet access business, which has just 40,000 customers in Mumbai and New Delhi after two years.That is way behind Videsh Sanchar Nigam Ltd, another state-run company which is India's largest Internet Service Provider with 557,000 subscribers, and even the ISP operations of most private firms.

"That's on a low key, I must admit," Mr Sharma said. He said the MTNL planned to upgrade switches and increase bandwidth over the next four months to improve service.

"After four months, people will find it a level difficult to compete with," Mr Sharma added.