Insights into Editorial: A delayed imperative: On BSNL-MTNL merger
Context:
The Rs.56,000 crore merger and revival plan for Bharat Sanchar Nigam Ltd (BSNL) and Mahanagar Telecom Nigam Ltd (MTNL) was approved by the Union cabinet. MTNL operates in Delhi and Mumbai, and BSNL in the rest of India.
India will merge its twin state-run telecom companies in an effort to turn around the money-losing firms, which it considers core assets.
The strategy would also see the government look at ways to exploit the vast land assets of the two companies while paring their manpower by offering incentives to employees to avail an early retirement plan.
About BSNL and MTNL:
BSNL was once a Navratna company. It became sick and saddled with accumulated losses of more than Rs. 90,000 Cr. It has excess workforce with around 1.68 lakh employees. It is simply uncompetitive.
The public sector telecom giant that made telecom services accessible to rural areas by providing affordable mobile connections in commercially non-viable remote areas has been incurring losses for the last several years, prompting the government to consider its sell-off or even complete closure.
MTNL is a state-owned telecommunications service provider in the metro cities of Mumbai and New Delhi in India. It has around 22,000 employees.
Massive Bail-Out Package:
The package includes:
- Raising Rs. 15,000 Cr sovereign bonds to meet the capital requirement of both the companies.
- The turnaround plan would include the allotment of spectrum for fourth-generation or 4G services at 2016 prices to the two companies with the costs borne by the government and issue of sovereign bonds worth Rs.15,000 crore to be serviced by the two companies.
- 4G spectrum allocation worth Rs. 20,140 Cr.
- 29,937 Cr for VRS covering around 50% of their employees.
The Government says, it wants to make them competitive and bring professionalism. In the coming 4-years, monetization of BSNL/MTNL assets worth around Rs. 37,500 Cr will be done.
Attractive VRS scheme for the employees. If the employee is 53 ½ years and above age, such an employee will be offered 125% of their salary, gratuity, pension etc., all computed till the age of retirement. BSNL and MTNL put together have around 1.9 lakh employees.
Only a drastic restructuring with effective VRS stands a chance of revival for BSNL and MTNL.
Allocation of 4G Spectrum services:
The government’s aim is to leverage the spectrum allotment to make BSNL and MTNL compete more effectively in the domestic telecom market where a brutal tariff war and rising debt from purchases of airwaves at hefty prices in previous auctions have hurt players.
India is planning its first auction of fifth-generation or 5G airwaves this year.
Moreover, the country should have a national public sector telecom operator. It is required for strategic reasons and it is also needed because private players will not cover some regions due to commercial reasons.
Five factors that averted crisis, saved BSNL from closure:
Largest Optical Fibre Network in the country
- As the only national telecom operator, BSNL is not only strategically important for the country but it also has the largest optical fibre network (OFC) in the country.
- While BSNL has a 7.5 lakh kilometer long optical fiber network which is spread across the country, India’s largest telecom operator according to the data compiled by Sanchar Nigam Executives Association (SNEA).
Properties at premium location
- According to the sources, BSNL has lands and properties at premium locations across the country with an estimated value of over Rs 3 lakh crore.
- The revival plan approved by the Modi government includes arranging Rs 38,000 crore in the next four years through monetisation of BSNL’s land and properties.
Comparative small loan book
- Despite incurring losses since 2009-10, the BSNL’s loan liabilities were the smallest among the large public and private telecom operators.
- According to the sources in BSNL, the company has a loan liability of just Rs 20,000 crore. Whereas the cumulative loan liabilities of the telecom sector are estimated at around Rs 4.25 lakh crore.
Large tower base and contribution in BharatNet project
- According to the company sources, BSNL has over 66,000 towers across the country.
- BSNL has created a separate company – BSNL Tower Corporation Limited (BTCL) – to monetise its huge investment in the tower infrastructure.
- The company aims to follow the tower sharing model to capitalise the large number of mobile towers it has.
- In addition to this, nearly 90% work of Prime Minister Modi’s flagship scheme –is BharatNet – executed by the BSNL whereas the work executive by two other internet service providers – RailTel and PGCIL accounts for less than 10% of the total work.
BSNL’s improved performance
- The public sector telecom giant improved its performance at a time when the telecom sector, in general, was under stress and several companies such as Aircel, Reliance Infocom, Tata Tele Services were either forced to close the operations or opted for mergers and consolidation like Vodafone and Idea.
- One important factor was the need for the government to have a public sector company in telecom sector for strategic reasons, particularly to manage telecom network in border areas.
- BSNL is also one of the first responders in case of natural calamities as it is called to restore the communication links in the areas hit by natural disasters.
- Unlike private telecom players, BSNL also operates 17,000 loss-making exchanges in rural and other far-flung areas under its universal service obligations.
Conclusion:
A successful revival of BSNL will have far-reaching implications for the industry, this at a time when two of the three surviving private players are faced with not only sliding market share but a government bill of about Rs.75,000 crore following the loss of a legal challenge.
The reach of its network, especially in remote parts, makes BSNL a “strategic asset” that has national security implications given its role in serving the armed forces and responding to natural disasters.
The revival plan, even if years late, is a clear recognition by the government of this indisputable fact.
Justifying the government efforts to revive the two companies, officials said these are strategic assets and have been playing an important role in coping with natural calamities and managing army networks.
