The latest fiasco involving the Central Vigilance Commission investigation into the 93-million GSM line of the state-owned BSNL for alleged irregularities adds another chapter in the inglorious saga that has dogged the once star-performing PSU. The company, which started off in 2000 after being carved out of the department of telecommunications, made a good start, but things have not been working well for the company during the last three years.
Though some of the sheen of the telecom sector has faded recently with the intensely-fought tariff wars denting the bottom lines of private sector companies, the slide for BSNL began earlier. For the company?which was the most profitable among telecom operators just four years back, posting a net profit of around Rs 10,000 crore?the decline could not have been more marked. The company saw a net profit erosion of 81% at Rs 574.85 crore in 2008-09. Its total revenue, at Rs 35,811.92 crore, registered a marginal growth over the previous year?s Rs 32,360 crore.
The scenario is grim. During the current fiscal, BSNL?s wage bill and operational costs are set to rise. While operating costs are slated to go up by around Rs 1,600 crore this financial year, wage bill is set to rise by Rs 2,000-2,500 crore. It is estimated that the company may post losses of around Rs 4,500 crore during the current fiscal, the first since its inception in October 2000.
The biggest culprit in BSNL?s miserable performance has been the outrageous wage bill of Rs 10,000 crore for its over three lakh employees. Compared with Bharti Airtel?s 4.6% employee- turnover ratio, this represents 28% of BSNL?s turnover.
In the past, the company definitely suffered a heavy blow on account of tendering delays in expanding its GSM network. However, the decline got accentuated as some of the support being provided by the government also met the sunset clause. The abolition of the access deficit charge (ADC) ? the reimbursement for venturing into unprofitable areas for social goals ? took away around Rs 6,000 crore from the company. In lieu of it, BSNL gets an yearly sum of Rs 2,000 crore from the universal service obligation (USO) fund, but that does not fill the gap.
It now also has to pay a yearly revenue share licence fee of Rs 2,400 crore to the government, which until 2007 was being reimbursed to it.
The problem is that the company?s management simply identified delays in expansion plans in 2006-07 as the reason for its decline. Sure, it was a pre-eminent cause, but there were other areas which needed to be fixed. For instance, the burgeoning costs and falling yields. Unfortunately no thought or effort has been made in these directions. In April 2008, the company floated another tender to add 93 million lines, thinking the huge capacity addition would solve all its problems.
Though the tender has once again run into problems with only one bidder being in the fray and, therefore, emerging as the lowest one, times have also changed. The PSU has failed to realise that merely adding numbers was not the solution. Today one needs to ask whether it makes business sense for the PSU to spend Rs 36,000 crore to add 93 million lines.
The premise on which the expansion plan was based has itself become outdated. The expansion plan was conceived on the ground that its marketshare would stabilise at around 15%. In reality, it has dropped to less than 13%. Secondly, with the ongoing tariff wars between telecom operators, BSNL is going to bleed the maximum since it can?t reduce its operational costs, primarily the wage bill. At best, BSNL?s marketshare is expected to stabilise at round 8% once the new operators launch their operations.
It?s quite clear that the company doesn?t need to add huge line capacity. Further, once the 3G spectrum auctions take place, it will need to upgrade its existing infrastructure and even match the bid amounts that private operators make. Under these circumstances, it would make better sense for the company to first strategise its focus areas and put in place revenue streams so that the funds don?t dry up when they are critically needed.
