Ringing in change is more than a call away at MTNL, BSNL

Written by fe Bureau | New Delhi | Updated: May 15 2014, 06:22am hrs
BSNlBoth companies MTNL, BSNL have been saddled with losses for over three years running. PTI
The BJPs prime ministerial candidate Narendra Modi has said that instead of privatising non-performing PSUs, his priority would be to professionalise them. To buttress his case Modi cites the example of Gujarat where as the chief minister he has been successful in doing so.

However, there are some central PSUs that at a stage where professionalising them may not have much effect. The case of state-owned telecom service providers MTNL and BSNL is an apt example. Though they still have not got a proper bailout package despite a case for it having been made out sporadic efforts at professionalising them by hiring consultants have been going on for the last few years with little to show for it. Meanwhile, the telecom market led by private operators has moved too far ahead for the two PSUs to catch up even if a so-called professional management is put in place.

Both companies have been saddled with losses for over three years running. The listed MTNL posted losses of R5,321.12 crore in FY13 while BSNLs 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.

The less said about the subscriber profile of the two companies the better. Around 40% of BSNLs subscribers are inactive and in the case of MTNL, the figure stands at around 36%. For 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. The Arpu for private companies like Bharti is upwards of Rs 150 whereas for BSNL and MTNL it is around Rs 90-100.

The first bailout for the two was provided by the government recently when it agreed to refund around Rs 11,000 crore Rs 6,724 crore to BSNL and Rs 4,600 crore to MTNL in lieu of their surrendering their broadband wireless spectrum. In fact, financial assistance has always been given to BSNL either in terms of access deficit charge, grant through the universal service obligation fund or reimbursement of licence fee. The two were also given spectrum for 3G and BWA services much ahead of the competition.

What is interesting is that now the two companies have stopped talking about their plans to revive their telecom business and regain lost market share.

The focus has now shifted to somehow reducing expenditure or keeping it under tight control and try to earn revenues from non-core areas like renting and leasing of real estate and towers, and leasing of their CDMA network.

Given that most PSU firms have good real estate, MTNL has charted out a a long-term plan to monetise such assets, projecting the generation of an additional income of Rs 10,000 crore through such measures. The catch is that this is not the fist time it has stated this intention. For more than six years, the two companies have been talking about and making plans for monetising their real estate assets but nothing much has happened till date.

Recently, the two have also been in discussions about tapping their operational synergies to cut costs and maximise revenue and bring about customer satisfaction. However, synergy between the two already exists in terms of roaming. The latest proposal is that the two would not need to pay any interconnection charges to each other. However, in the past too MTNL hardly ever paid this charge to BSNL and the disputes were always put in abeyance by the telecom department. Now merger between the two initially proposed, discussed and abandoned in 2006 by the government on the grounds of non-feasibility now it is being talked about once again. It makes sense but would require several legacy issues to be solved first.

In the case of BSNL, some business restructuring was done around 2009 on the basis of a report by the Boston Consulting Group. Later, a report on its restructuring was also submitted by Sam Pitroda but nothing substantial came of it. Not only is decision making slow in these PSUs, they are also behind business trends prevalent in the sector. So while all the private operators hived off their towers into separate companies long ago and entered into sharing of this passive infrastructure, BSNL woke up to it only towards 2010-11 and though the in-principle decision has been taken, the spinning off and sharing bit is yet to see the light of the day.