Telephone calls between the national capital and Mumbai will cost only 40 paisa a minute from next month with the state-owned Mahanagar Telephone Nigam Ltd (MTNL) launching its own long distance service Tuesday.

Currently, the tariff between the two metros on the fixed MTNL line is Rs.1.90 per minute. The new rate has been the result of a tie-up with Videsh Sanchar Nigam Ltd (VSNL), a long distance carrier owned by the Tata group, MTNL officials said.

"I hope competition will lead to further lowering of bandwidth cost prices and make our IT and BPO (business process outsourcing) sectors more competitive," Communications Minister Dayanidhi Maran said making the announcement.

"MTNL had been paying huge carriage charges for its calls routed outside Delhi and Mumbai. Now the lowest rates offered by VSNL have helped us to bring down the call rates," said MTNL's chairman and managing director R.S.P. Sinha.

"It is expected that there will be significant savings because of this new initiative," said Sinha. "The customers will be the ultimate beneficiary and the market will have more competition."

He said the company's next aim was to enter the international long distance service area - with plans being worked out with another state-run firm, Bharat Sanchar Nigam Ltd - for a submarine optical fibre cable project.

This project will connect India with Singapore and Europe.

MTNL officials said the new project would also reduce the bandwidth rates and, in turn, help the business process outsourcing industry to be more competitive and create more jobs.

The company is also in the process of procuring two million additional lines for its mobile telephone service for Mumbai and Delhi.

MTNL has a subscriber base of six million for its phone service, and 250,000 for its broadband service launched in January last year.