It is just as well that the minister of state for communications, in reply to a parliamentary question, has scotched speculation about a potential merger between MTNL and BSNL, a proposal that has been circulating informally for a while now. Any merger between the two giant telecom PSUs will be disastrous for both. It will probably be more disastrous for MTNL, which still remains profitable largely because of its continued dominance of the landline network in metros. BSNL, as reported by FE, is expecting to accumulate massive losses this financial year, possibly amounting to at least Rs 4,000 crore. BSNL has been struggling to meet a rise in operating expenses and a massive rise in its wage bill, courtesy an ill-thought-out 30% pay hike to all its employees. MTNL resisted a similar demand from its employees, despite a strike, and that?s perhaps what is keeping it afloat. Incidentally, some 90% of MTNL?s 40,000 employees are in the non-executive category, a problem that generally plagues PSUs across the board. Any merger between the two firms will simply bloat the size of a largely unproductive non-executive cadre and drag the merged entity down.
If the government wants to draw a lesson on the perils of merging two giant PSUs, it need look no further than Nacil, the merged entity comprising Indian Airlines and Air India. The merger did not solve any problems of the two companies, including excess workforce. If anything, the problems were simply magnified. What the merger did succeed in doing was to pull down Indian Airlines as a profitable entity into a loss-making one. MTNL, if it?s merged with BSNL, is likely to meet the same fate without even considering the extra financial burden that will be put on the new entity in bringing the pay of MTNL workers in line with their higher-paid counterparts in BSNL. Instead of mulling over a potentially disastrous merger, both the firms and their parent ministry ought to be working towards privatisation of both companies. There is absolutely no rationale for the government to be in the telecom business?consumers are already getting plenty of quality services at cheap rates through private players. The quality of services offered by MTNL and BSNL are dismal in comparison. That said, the companies, with a trimmed workforce, would be a good buy for a private sector player. They have many valuable assets and still control important market segments. The government could, therefore, make a neat amount of money by divesting its stake in MTNL and BSNL?another reason to move the two telecom PSUs onto the divestment block as soon as possible.
