In a bid to tap foreign markets, Mahanagar Telephone Nigam Ltd has proposed to form a wholly owned subsidiary called MTNL International.

The new venture will make its first foray into Mauritius with an authorised capital of Rs 100 crore (Rs 1 billion).

The move is in line with the directives given by the communication ministry asking MTNL to invest its reserves in international markets since there was not much scope for expanding services within India.

MTNL has bagged licence for offering International long distance and fixed line phones in Mauritius. The company will invest Rs 250 crore (Rs 2.5 billion) over the next five years.

Senior government officials said that MTNL International may also offload two to three per cent equity to local partners in the international market.

"It is important to have a local partner to assist in day-to-day activities with the local government and agencies. Similar procedures have been followed by MTNL in Malawi where its is jointly rolling out telecom network with TCIL," said government sources.

With Delhi and Mumbai markets hitting saturation point, MTNL is looking to expand its operations. Earlier a proposal was mooted by the communications ministry to allow MTNL to foray into other metro cities like Chennai.

But that would have meant a financial blow to the other telecom PSU, Bharat Sanchar Nigam Ltd, which would have been left with the not-so-profitable non-metro cities.

In services also, MTNL doesn't seem to have much scope.  Already, the long distance services segment is crowded with 3-4 players. In addition, the government has issued ILD licence separately to BSNL.

The government was also considering a proposal to merge MTNL and BSNL in order to leverage each others strength.

MTNL could also benefit from the proposed unification of telecom licences as it would allow the company to have a pan India presence.