Will A BSNL-MTNL Merger Spur Revival?

by Sohini Bagchi    May 27, 2014

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One of the first telecom initiatives the new BJP government proposes to undertake is merge the three telecom public sector undertakings — BSNL, MTNL and ITI, which has been a long pending decision dotted with oppositions and roadblocks. A Business Line report informed that the Department of Telecom (DoT) said that a note has been drafted for the consideration of the government to this effect.

The DoT had earlier told the Parliamentary Standing Committee on Information Technology that it makes sense to merge the PSUs made sense. All the three PSUs have been making losses in the face of tough competition from private players. But due to opposition from workers’ unions and other glitches such as MTNL being listed, the proposal was put on hold.

This is now again of the Telecom Ministry’s plans to revive the two telecom companies. The Board for Reconstruction of Public Sector Enterprises (BRPSE) had also recommended that MTNL could be brought under BSNL, said the report.

“Instead of privatizing non-performing PSUs, the priority would be to professionalize them,” Narendra Modi had said in an interview to Financial Express, citing the example of Gujarat which followed this rule.

Read: Telecom Sector Pins Hope On New Govt

However, there have been sporadic efforts at professionalizing state-owned telecom service providers MTNL and BSNL over the past several years by hiring consultants with little effect. Meanwhile, the telecom market led by private operators surged ahead, while both BSNL and MTNL have been saddled with losses in recent years.

The listed MTNL posted losses of R5,321.12 crore in FY13 while BSNL’s loss stood at R8,198 crore. Both have a bloated workforce, which is a legacy issue for them. The employee cost for MTNL as a percentage of revenue is 103% while for BSNL it stands at 49%. This is when the industry average is around 5%. Compared to, say, Bharti Airtel, which has a total employee base of 18,975 with a subscriber base of around 200 million, BSNL has over 2.5 lakh employees and 94 million users, and MTNL 39,245 for managing 3.37 million customers, according to a data compiled by FE.

What’s more, around 40% of BSNL’s subscribers and 36% of MTNL subscribers were inactive, whereas private sector mobile operators like Bharti, Vodafone and Idea Cellular, the share of active subscribers is over 90%. The two PSUs rank poorly even on the average revenue per user front (Arpu) which is around Rs 90-100 compared to private counterparts which stands at Rs 120-150.

Gain from merger

Some in the industry believe, a merger of the two loss making units at the initial stage would help strengthen the professionalism effort. In fact, Nripendra Misra who retired as Trai chairman in March 2009 and has been appointed principal secretary to Prime Minister Narendra Modi, earlier suggested the merger of BSNL and MTNL, but was stumped by their opposition. His move to end BSNL’s monopoly over its optic fibre cable was also not approved by Dayanidhi Maran in the UPA-I government, according to sources.

In January this year, former minister of communications and information technology, Kapil Sibal, announced the merging state-owned operators. In May, the DoT had reinitiated the move to merge the two and had sent a note to the Empowered Group of Ministers (EGoM) headed by Finance Minister P Chidambaram. However, it is yet to take a call on the issue. In its note to the EGoM, the DoT had said a merger would help the telcos to compete with the private operators in a better way and they would be in a better position to tap the enterprise segment. The merger into a national telecom service company may be considered for strategic and operational synergies, the DoT had said.

Read: Telecom Growth to Slow Down In 2014

BSNL’s Director Anupam Shrivastava had said that the strong synergy between the two organizations would help the combined entity to not only improve performance on the business front but also change the perception of BSNL’s network.

“The perception of our services is affected because of MTNL’s service in Delhi and Mumbai. The joining of BSNL and MTNL will help in the sense that MTNL’s network can be improved without much investment since we have improved our network across the country,” he said in an interview.

However, the merger may be challenging due to the resistance of the union, MTNL’s debt is piling and workers fear it should not come in such a way to spoil the overall structure, which is a valid concern. If the new government can support this concern, the merger would make a lot of sense.