Shrinking profitability in a booming market

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Until two months ago, state-run BSNL was the country’s largest telecom operator—a coveted position it has since lost to Bharti Airtel. But that’s just a symptom of more deep-seated troubles. In a two-part report, FE examines the malaise that besets the public sector behemoth and explores possible options for its revival.

Communications & IT minister A Raja should be a worried man. Somewhat ironic at a time when India has emerged the fastest-growing telecom market in the world, adding around 8 million subscribers a month, and operators are posting healthy growth in profits. Yet, in the midst of this, the telecom company directly under Raja’s ministry— Bharat Sanchar Nigam Ltd (BSNL)—is losing marketshare, profits and revenue.

In a tacit admission that all isn’t well at the public sector telco, Raja on Tuesday expressed concern over BSNL’s dwindling marketshare in the mobile telecom segment while addressing a meeting of the company’s circle heads. He asked officials to work out a strategy to restore BSNL’s market position.

BSNL could certainly use a good strategy. Three years ago, the company posted a net profit of almost Rs 9,000 crore on a turnover of Rs 40,000 crore—something none of its peers has ever matched. But profits last fiscal (yet to be announced officially) plunged to an estimated Rs 3,900 crore. The way things are going, say officials, profits in the current fiscal are likely to dip to a meagre Rs 500 crore.

Compare this performance with that of its private sector rivals: last year, the country’s largest telecom operator, Bharti Airtel, posted a net profit growth of 53% at Rs 6,400 crore; Reliance Communications notched up growth of 70% at Rs 5,401 crore. If declining tariffs and ever-falling average realisation per user (Arpu) is given as reasons for BSNL’s slippage, surely the same should have applied to Bharti and RComm as well.

Clearly, the problem is far more deep-rooted. BSNL appears to be mirroring other PSUs who flourished as long they functioned as monopolies, but couldn’t take the heat when the market opened up to other players. Be it the case of older cousin Videsh Sanchar Nigam Ltd or Air-India, the story is uncannily familiar.