In this concluding part of our report on the public sector telecom operator, we look at possible options for its survival in an increasingly competitive and challenging sector.
State-owned Bharat Sanchar Nigam Ltd (BSNL) may not be in the intensive care unit yet, but it will certainly end up there unless structural changes are made to its functioning soon, feel analysts. But what are the options before the moribund telecom major, which still has the potential to give private sector operators a run for their money?
BSNL?s systemic constraints are distressingly similar to that of almost every Indian public sector unit, be it in power, oil, aviation or steel. But if it is to remain a serious player in the country?s increasingly competitive telecom segment, the company must achieve greater operational autonomy and transparency. And a first step towards that must surely be by listing on the stock exchanges.
Analysts have been harping that an IPO for BSNL is imperative?a fact that is acknowledged by company officials, who have been flirting with the idea for over two years, but initially faced lukewarm response from the government and later stiff resistance from unions. In the process, valuable time has been lost, resulting in BSNL abdicating its number one position in the segment and, hence, seeing one-third of its expected valuation eroded.
If remedial action is not taken now, it won?t be long before BSNL follows in the footsteps of older cousin National Aviation Co Ltd, formed by the merger of state-owned carriers Air-India and Indian Airlines. The completion of the airlines? merger looks difficult and, according to latest estimates, will take at least another two years. Meanwhile, both the airlines bleed continuously (this fiscal, losses are expected to touch Rs 2,000 crore) and have lost many of their best pilots to the private sector.
Similarly, given the shrinking profitability of BSNL, any delay in an IPO beyond March 2009 could spell disaster. AK Sinha, former CMD of the company, agrees. ?The IPO should come within the next six months or it will be too late. Ideally, the IPO should have been during BSNL?s peak performance two years ago when net profits were at Rs 9,000 crore,? he says.
An IPO and subsequent listing would not only help BSNL raise money, but also force it to run more professionally. Under Clause 49 of the Sebi Act, a listed BSNL would be required to induct 50% independent directors on the company board, ensuring that decisions are taken based on sound business principles rather than on bureaucratic whim.
?The company keeps performing poorly, but there is no proper action taken. Once shareholders stand up and ask uncomfortable questions, the management won?t be able to get away with it,? says Romal Shetty, an analyst with KPMG.
Pradip Baijal, former disinvestment secretary and former Trai chairman, feels that putting the company in the public realm would also provide objective views on the company?s performance rather than the current subjective ones. ?BSNL is a very big company. It is doing well in some areas, not so well in some, and badly in a few. The problem is that we in government assess companies according to our own notions, which is not right. The right approach is to put the company in the market and get the public perception,? said Baijal.
Employee unions, however, are not convinced as they continue to view an IPO as back-door privatisation. ?No money through the IPO will come to BSNL, it will go directly to the government,? said BSNL employees? union general secretary VAN Namboodiri. The company does not need funds as it has a Rs 35,000-crore cash surplus, Namboodiri added.
However, the flaw in Namboodiri?s argument is that the IPO would not be for immediate funds, but for future investment–important given the dipping profitability of the company. Secondly, the IPO is seen as a way to ensure that the company is run as a corporate entity, rather than as a government department, which as turned the extremely profitable company into almost a sick unit.
But little will be achieved on the IPO without the buy-in of the employees? union and no one knows that better than the company?s CMD, Kuldeep Goyal. ?An IPO has its advantages. No one can deny it. However, we are in no hurry and are trying to reach a consensus with the employees,? he said.
However, time is a luxury that BSNL does not have and the biggest loser as the company?s valuation erodes further is the government?and the taxpayer?itself. Analysts have valued BSNL at around $40 billion, which is roughly the same as the country?s largest telecom operator, Bharti Airtel. However, Bharti?s valuation is based largely on its earnings, brand and clarity of future business plans. In stark contrast, BSNL?s valuation primarily accrues from its fixed assets.
If the company were listed about two years ago when it was at its peak, its valuation would have been around $60 billion. Since then, BSNL?s marketshare in the fixed-line segment has fallen from a high 88% to 76%. In the mobile segment, its marketshare has dwindled from 20% to 14%. With competition in the sector growing more intense, the churn rate is expected to increase in the days to come, which could see BSNL losing further marketshare and, thereby, valuation if the government does not act quickly.
Communications & IT minister A Raja shares the concern, albeit from a somewhat different perspective. Raja on Tuesday asked BSNL to pay urgent attention to improving service, customer care and responsiveness to customer needs to beat the fresh challenges arising from the impending launch of mobile number portability. He also wanted the customer grievances redress system to be strengthened and the skills of the technical and managerial staff upgraded through training.
Of course, listing isn?t the only thing BSNL needs to get right. One area that needs immediate revamp is its procurement policy. In a technology-driven industry, investments in new technology have to be made quickly. Even with an IPO, 90% control over the company would still rest with the government, implying a continuation of the tendering system.
This archaic system causes delays?in both procurement and implementation?thereby directly affecting profitability. The government must realise the special needs of BSNL and exempt it from such tedious and lengthy procedures if its is to play on a level playing field with its private sector peers.
Some within the company feel that BSNL must also seek overseas acquisitions, which other Indian telecom companies like Bharti Airtel and Reliance Communications are already doing to spread their risks. In the case of BSNL, overseas acquisition would not only help it tap global opportunities, but also enable it to utilise its huge manpower?it has 20 times more staff than any other telco–more efficiently. BSNL has a staggering employee cost Rs 7,800 crore, the highest wage bill of any telecom company in India.
Clearly, then, it is the time for BSNL to clean up its act. After all, in the words of Baijal, ?Economic decisions are made today; there?s no tomorrow for them.?