The Centre has been trying merge BSNL and MTNL for two decades now. In 2022, it announced a Rs 1.64 trillion package for the two PSUs, with merger as an outcome. Now, with Deloitte appointed as a transaction advisor, the government is pushing forward with the plan. Jatin Grover takes a look at merger proposal and why it hasn’t taken off so far.
Behind the merger proposal
The proposal to merge MTNL with BSNL was first floated ~20 years ago, when Pramod Mahajan was the Union telecom minister. The Centre’s intent to merge the two was driven by the objective of reviving the two telcos and rationalising their costs—by then, both had started facing financial pressure due to competition from the private players in the sector.
Experts hold that a merger will help the combined entity to lower costs and compete in the market. At the same time, it will increase the burden on BSNL, given the high levels of debt in MTNL’s books. In 2019, the Centre again approved the merger in-principle, but the plan was put on hold once more, thanks to MTNL’s weak financials. After the revival package of Rs 1.64 trillion, the Centre is aiming to complete the merger.
Why the merger hasn’t taken off so far
From late 2002, when the merger was first proposed, to 2014, when the Centre set a deadline of 2015 to complete the merger, the merger of the two telecom PSUs could not take off. The proposal was rejected multiple times, owing to complex issues such as different salary structures of both the PSUs (salaries of MTNL employees are higher than BSNL), higher debt of MTNL (of around Rs 30,000 crore), and MTNL being a listed company, among others.
“Due to financial reasons including high debt of MTNL, the merger of MTNL with BSNL is deferred,” the minister of state for communications Devusinh Chauhan told the Rajya Sabha on April 6, 2022. Besides, the employee union of BSNL also wrote to prime minister Narendra Modi before the revival package was announced last year to not go ahead with the merger as it would do irreparable damage to BSNL.
Why merge?
The Centre has made it very clear three private players and BSNL will help maintain competitive balance. The latest merger moves must be seen against this backdrop. Besides, MTNL is operational only in the Delhi and Mumbai circles, whereas BSNL is present in all other circles; thus, a merger will help strategise customer retention and acquisition better, apart from lowering costs.
To smoothen the path ahead…
The government’s revival package of Rs 1.64 trillion is a strong trigger for the conclusion of the merger.
As part of the revival package, the Centre has provided for MTNL and BSNL raising sovereign guarantee bonds to repay high-cost debt and restructuring it with new sustainable loans.Reports suggest that the Centre may also look at delisting MTNL from the stock exchanges to proceed with the merger.
What the financials of the two telecom PSUs look like
While the government had announced the revival package for the two telecom PSUs in 2022, to de-stress their balance sheets, on the operational front and financial performance, the companies don’t have a strong showing to boast off.
In FY22, BSNL’s revenues declined nearly 4% year-on-year, to Rs 16,809 crore. The company’s loss stood at Rs 6,982 crore, compared to Rs 7,441 crore in the preceding financial year. Over the last six years, BSNL’s revenue from operations fell by over 40%, which has also increased the losses for the company. One of the reasons for the company’s fall in revenues is the near-continuous loss of subscribers.
In the nine months ended December 2022, the company’s revenue rose 14.5%, to Rs 12,761 crore, whereas its losses rose to Rs 5,457 crore.
For MTNL, in the nine months ended December, the revenue was down 21%, to Rs 716 crore, and losses expanded to Rs 2,166 crore. According to projections made by the government, BSNL is expected to generate a net profit in the financial year 2026-27, owing to approval of the revival package.