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.
For BSNL, the genesis of the decline can be traced back to late 2006 when the company?s mega tender for expanding GSM mobile line capacity was inordinately delayed due to archaic government rules of procurement, which apply to all PSUs. The award of the tender finally took place more than 18 months later, that too in a trimmer version. This dealt BSNL a body blow as its private sector rivals used the interim period to beef up their own operations.
Created in 2000, when it was carved out of the department of telecommunications, BSNL started mobile services in October 2002, much later than its peers, but had everything going for it. By mid-2003, it emerged the country?s second-largest GSM mobile operator overtaking Hutch-Essar (as it was known then). Such was the enthusiasm that many predicted it would wrest the top spot in the mobile space from Sunil Mittal-led Bharti Airtel.
However, quite the opposite took place. In 2006, the rechristened Vodafone-Essar reclaimed second position and in August 2008, Bharti Airtel went on to become the country?s largest telecom operator, both fixed plus mobile.
?BSNL has been losing marketshare for quite some time now and has no brand recall,? says Romal Shetty, an analyst with KPMG, adding, ?Since the tariffs are uniform in the telecom segment, pricing is not the issue. There are essentially two roadblocks: the private guys are much better at marketing and have better branding; second, the state-run telco is never the first in market innovation or customer services.?
Far from being equal to the task of taking on the competition, former CMD AK Sinha says the company is hobbled by red tape. ?Equipment procurement is a major issue, which needs to be looked into. At a time when the sector is highly competitive with big private sector players able to create additional capacities quickly, if archaic government processes of tendering are adhered to, the company will always suffer?. Sinha should know. It was during his tenure that the GSM mega tender was floated, delayed and then trimmed.
His successor and current CMD, Kuldeep Goyal, is hamstrung by his official position to be as candid. Says he, optimistically, ?We are in the process of installing 25-million additional line capacity and aiming to emerge ahead of Vodafone Essar.? BSNL recently closed another bid for laying a network of 93 million lines across the country. Goyal is putting on a brave front because a company of BSNL?s size should have been adding 3 crore lines a year. Only then would it match the profits and revenues of its competitors.
Nevertheless, BSNL officials are able to put on a brave front because the company is still debt free, has huge cash reserves and a bank balance in excess of Rs 35,000 crore. But that may not seem so impressive if one delves into the company?s business prospects.
First, consider the investment side. BSNL, which has already bagged 3G spectrum ahead of the auction purely because it is state owned, will have to pay in the region of Rs 7,000-8,000 crore (equivalent to the expected highest bid) six months later. It will have to spend another Rs 3,500 crore for the 25 million lines it is currently in the process of installing and a further Rs 40,000 crore for the 93-million line capacity, for which it has already floated a tender. This totals around Rs 50,000 crore.
Now, where are its revenues going to come from? Landline phones, where it has the largest base, is a declining business and according to estimates, BSNL will lose around Rs 1,000 crore here. The growing GSM mobile business, which is its bread & butter, is currently growing at a measly 2.8%. Though it is still assured of numbers, BSNL?s Arpu at Rs 180 is lower than the industry average of around Rs 208, primarily because it offers lower tariffs than its competitors.
In order to keep up with the industry average, BSNL needs to post a revenue growth of 25%, which currently is a mammoth task and only achievable if the company makes a rapid turnaround. A comparison of the company?s net realisation per minute with other telecom giants shows that BSNL ranks at the very bottom, with net realisation per user at only 66 paise, while for others like Bharti Airtel it as high as 83 paise. Since tariff cuts have become commonplace in the industry, BSNL will shortly start bleeding in the mobile segment as well.
In the broadband Internet segment, where the company still has leadership position with a customer base of 25 lakh, leading to revenues of Rs 2,000 crore, the outlook does not look very optimistic, either. To cash in on broadband, the company needs to scale up on WiMAX and have its own bandwidth. While being part of Europe-India gateway cable consortium helps in the latter, the move has started late. On the WiMAX front, the problem is that its focus is on rural coverage-in keeping with government priorities-where the revenues are low.
Now, consider the cost side. Here, the main component is a massive wage bill, which bites off approximately Rs 7,800 crore from gross profit as BSNL has over 3.2 lakh employees–a whopping 15 times more than the workforce of any pan-India private telecom service provider. In short, the government?s slothful elephant is no match for the predatory tigers in the country?s lush telecom jungle.
Tomorrow: BSNL?s revival options
