GailTel, the telecom arm of state-owned Gas Authority of India announced on Thursday an investment of Rs 750 crore (Rs 7.5 billion) over thr next five years to expand its telecom infrastructure, combining it with its proposed city gas pipeline distribution network.

"Our city gas pipeline distribution network along with the telecom network would enable us to further penetrate the market and help us achieve the last-mile connectivity," GAIL CMD Prashanto Banerjee told reporters in New Delhi.

On the recommendations of leading consultants Mckinsey and Company, GailTel would build optical fibre cable network along the gas pipeline at a marginal cost, he said, adding that investment during the current financial year will be around Rs 60 crore (Rs 600 million).

GailTel, which offers bandwidth to various telecom players including Hutch, Tata Teleservices, Data Access, Bharti and VSNL, will lay 3000 km of OFC in the southern region and another 10-km network in the cities of Delhi, Mumbai, Pune, Hyderabad, Bangalore and Chennai, connecting 100 cities and towns across the country.

Last month GAIL had suffered a massive loss when one of its key customer, VSNL, had terminated its contract for hiring OFC broadband link along GAIL's pipeline between Delhi and Mumbai; the gas company incurred a loss of Rs 17.76 crore (Rs 177.6 million).

Banerjee, however, said that GAIL has already made up the loss by adding new businesses during the first quarter of the current financial year.

Already GailTel has bagged businesses worth Rs 8 crore and is in advanced stage of discussions with service providers including TV channels and cable networks, Banerjee said.

"Major market segments in bandwidth business are growing. The volume is projected to grow at the rate of more than 30 per cent across the segments -- cellular, ISP as well as corporate," he said.

The company could consider becoming a front-end telecom player once its infrastructure business stabilises.

"So far we have confined ourselves to carriers' carrier role. But the industry is growing, the demand is there, the licensing facilities are easing up. I believe that may be in the next two to three years, we can review our business strategy and move further ahead and may become front-end telecom player," GAIL CMD said.

This would mean that GAIL could enter the telecom business directly, graduating from its status as a carriers' carrier.

Telecom currently contributes a very small part to the company's turnover.

With 8000 km of OFC network connecting 73 cities, GailTel is currently exploring the possibilities of tying up with broadband providers for lease contract.

In 2003-04, its bandwidth sales grew by 75 per cent to Rs 20.5 crore (Rs 205 million).