By L Subramanyan
Some time ago, I had argued in these very columns, questioning the logic of the BSNL-MTNL merger and suggested that instead trying to revive the two ailing government monoliths, it was better to shut them down and sell off the assets. The math also justified the arguments.
However, recent developments in the telecom sector, coupled with the government’s decision to go-ahead with the merger, present a new scenario– reimagining BSNL in a new avatar.
The telecom sector has undergone some dramatic changes, starting with the Hon. Supreme Court refusing any sort of relief in the AGR issue. Consequently, two of the three major players– Airtel and Vodafone suddenly find themselves in a very precarious situation, with huge payouts to the government now a certainty.
While Airtel will, in all probability come out of this situation with a rejig of the ownership (meaning that Singtel will now run Airtel and not the Bharti family), the Voda story is going to get more and more complex. The Indian shareholder in Voda (Aditya Birla Group) has said on several occasions that injecting any more money into the company is going to be a huge challenge.
A similar statement was made by Vodafone’s CEO Nick Read on Twitter, “If you’re not a going concern, you’re moving into a liquidation scenario – can’t get any clearer than that.” Notwithstanding Birla’s meeting with Finance Ministry honchos, the fact is that neither the ministry nor the PMO has any say in the matter, since the Hon. Supreme Court has taken a very tough stand. Voda will totter unless the promoters pump in the required amount of money: some Rs 58,000 crore.
This is where the government of India can reimagine BSNL. Notwithstanding its current market position, the fact still remains that the BSNL-MTNL duo has valuable assets. They have roughly 17 lakh kilometers of cable, real estate, and a non-trivial subscriber base. Given the telecom sector’s prospects and the amount of investor interest that Rel-Jio has generated, it may not be an impossible task for the GoI to seek Expressions of Interest and divest 26-49% stake in the entity, which has a revenue rate of just under Rs 21,000 crore (US $2.8 B) and an estimated asset base of Rs 38,000 crore (US $ 5 B), as per government estimates. These numbers, backed by government patronage, will be attractive to several telecom majors in the world.
If the government money managers can drive a US $ 5-6 Billion pre-money valuation, a new investor will need to pump in US 5 B to get 49%, a sum that will be hugely adequate for BSNL to modernize, roll out 4G, and start preparing for 5G, while at the same time moving aggressively in the market. In the first phase, it should try and acquire Vodafone subscribers and make a big push into the government and public sector markets for data communication. This will allow the company to take on Airtel when the balance sheet becomes stronger and the foreign partner is ready to start the dogfight for #2.
If the GoI is serious in turning BSNL around and making it a world-class telecom company, it has to look at a model similar to the one deployed in Maruti Suzuki, which was once a government-owned company, had a strategic investor in Suzuki, competed in the Indian auto market, gained leadership and eventually become (and remains) a Suzuki company where the GoI has a minority.
The telecom sector, in the long run, will be run by the simple 1-2 principle. Either you are No 1 or No. 2– or you don’t matter. This is an opportunity for BSNL to try and fight for the No. 2 spot (Jio is a clear # 1, IMHO) and become the next best thing.
If you don’t want to shut it down, then give it a chance to fly again. Stranger things have happened…