At a time when private telcos are already reeling under deep crisis, the Narendra Modi government is set to ‘revive’ the ailing telecom PSUs – Bharat Sanchar Nigam Ltd (BSNL) and Mahanagar Telephone Nigam Ltd (MTNL). As part of its Rs. 70,000-crore revival package, the government intends to sovereign bonds, monetize assets and offer voluntary retirement scheme (VRS) for employees.
From a macro perspective, the BSNL-MTNL merger sounds logical and sends a positive message to the market. The plan reflects the government’s effort to recoup the loss-making PSUs, and seems to have boosted the morale of thousands of employee. But on a second thought, the rescue plan runs the very risk of becoming another wasteful exercise, at a time when the economy is already in the midst of a slowdown. More importantly, is a merger of the two entities or even a revival plan matter at this stage?
To Merge or Not to Merge?
‘What does the government gain from this merger?’ is the question that comes to mind. “Practically nothing,” says an analyst who has followed the Indian telecom sector for close to two decades. He believes that a merger should result in gaining a competitive edge in terms of technology, cost optimization, market share and product innovation. In the case of BSNL-MTNL, however, there are dim possibilities of such occurrences.
The main problem is that the BSNL and MTNL have been operating in isolation for a long time, with a complete disregard for competition. The government did lose sight of the fact that the PSUs – BSNL and MTNL — are functioning in a competitive market and not a monopoly and hence did not prepare themselves on a level playing ground with the private players.
Since the telecom sector opened up for private sector participation in 1995, BSNL and MTNL’s role started to diminish. From 2006 to 2012, telecom equipments were not procured and expansion of the company was restricted. Again, in 2013 when it was allowed to place tenders for procuring the equipment, the company got tangled in the “procedural wrangling” of the bureaucracy.
According to TRAI, as of March 2019, the combined customer share of BSNL-MTNL in the mobile market is a little over 10%. With Reliance Jio’s entry into the picture, BSNL’s customer share among rural mobile subscribers stood as low as 7%, which debunks the myth that BSNL serves the underserved rural market. In contrast, Vodafone’s market share stood at 33%, while Airtel was at 28% even in their struggling days.
Only in fixedline services, BSNL’s market share is still dominant at 66.4%. But the segment serves just 2% of the sector’s customers, and has almost lost its relevance. Brokerage firm Kotak Institutional Equities estimates BSNL’s accumulated losses to be over Rs 90,000 crore.
The culture vulture
Experts believe that governance reform at telcos is a key aspect of the rescue plan. Changing the work culture and infusing these companies’ processes with transparency and accountability will require a lot of determination and would be an extremely daunting task.
While some contested that BSNL is suffering losses because of its huge workforce that is not the real issue. Way back in 2004-05, BSNL earned a net profit of Rs. 10,000 crore and the company was having one lakh employees.
The two companies together employ a total of around 200,000 people, a number that the government is hoping to trim through VRS for employees over the age of 50. A report published in the Hindu BusinessLine says BSNL could offer VRS to 80,000 people. In comparison, Bharti Airtel employs about 17,000 people and Vodafone employs about 12,500 people. The fact that the government has decided to spend so much of tax payers’ money on a service that is no longer of interest to a common man.
While the government is highly optimistic that 4G spectrum will make the companies competitive, experts point out this alone does not guarantee customers because users respond to quality service and easy access. An ex-BSNL customer narrates how he was forced to quit the company’s service, after repeated poor service and behavior. Even terminating the service seemed to be a problem as the customer started running from pillar to post, even for closure. Monthly bills were not sent on time, their offices were under-staffed, technology backdated and the work culture, needless to say, customer-unfriendly. In the midst of fierce competition from the private players, survival is linked to quality customer service and customer experience.
BSNL and MTNL are not an exception to the regular PSU norms though. At present most PSUs in customer facing industries (with the exception of public sector banks) struggle to provide that experience to the ever-demanding customers. Hence, poor customer service could be one of the biggest reasons for subscribers to look elsewhere.
A revival option for BSNL-MTNL could be to completely switch from its current avatar. While the government’s disinvestment plan is ruled out, another option could be to shut down just the consumer-facing businesses and continue to operate the enterprise business, such as, offering optical fiber, towers and offering network services to private sector players.
Route to Privatization
Incidentally, a Times of India report had quoted Union Minister Prasad as saying that the government is confident that the two companies will be operationally profitable over the next years, and may become fully profitable by the year 2023. We never know if he was hinting at a possible privatization of the public telecom companies which is in the pipeline. There are possibilities that the PSU telcos will be ‘revived’ and then soon be up for grab for private players.
This revival plan also takes us back to the case of Air India-Indian Airlines, another state-run company with enviable infrastructure that suffered its fate not owing to lack of funds but poor governance. And that may be the fate of BSNL and MTNL in the coming years.
While the government may intent to save the state-run telcos, it has yet to learn from its past mistakes in managing consumer-facing businesses. At this point, the question is what are the real strategic assets of BSNLMTNL merger? And how can Modi government unlock and extract the right value for such assets. The answer is still blowin’ in the wind!