BSNL and MTNL to merge, Centre announces Rs 70,000 crore revival package

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Updated: October 24, 2019 1:31:47 AM

Further, while Bharti has a total workforce of around 16,000, Vodafone Idea employs around 9,000.

It will post a net loss of Rs 396 crore in FY23 and then break into a profit of Rs 2,235 crore in FY24.

The government on Wednesday, finally approved a nearly Rs 70,000-crore revival package for the ailing telecom PSUs, Bharat Sanchar Nigam (BSNL) and Mahanagar Telephone Nigam (MTNL), which will include the two raising long-term sovereign bonds, allocation of 4G spectrum by the government, a voluntary retirement scheme, and the merger of the two firms.

The revival package is a little less than the Rs 74,000 crore which the department of telecommunications had initially pitched for but fails
to assure that the two loss-making PSUs will be able to compete in a hyper-competitive telecom market where incumbent private sector
players are also finding it difficult to survive.

Communications and IT minister Ravi Shankar Prasad said that BSNL/MTNL are strategic assets and a social responsibility was also kept in mind while taking a decision on revival of the firms. “We gave a lot of consideration while working out the package. How could we ignore fate of over 1.65 lakh families of these employees,” Prasad said.

The biggest chunk of the revival package, Rs 29,937 crore, will be towards a VRS package for employees above 50 years of age. This will comprise Rs 17,169 crore ex-gratia amount and Rs 12,768 crore towards pension, gratuity, and commutation.

The government believes that by reducing the huge workforce of the PSUs, 1.65 lakh employees of BSNL for instance, which eats up 77% of its revenues in payment of salaries, the companies can become competitive and profitable over a period of time. The case of MTNL is even worse which has total employee base of 21,679 (it provides services only in Delhi and Mumbai) and its staff cost is 87% of its revenues.

Of the 1.65 lakh employees in BSNL, 1.16 lakh are above 50 years of age. Similarly, in MTNL of the total 21,679 employees, around 19,000 are aged above 50.

Next comes Rs 24,084 crore towards administrative allocation of 4G spectrum to these firms. This cost will be notional because the price of the spectrum is auction determined but the PSUs would not be required to pay anything for it, unlike their private sector peers.

The two firms will also raise long-term bonds of `15,000 crore for which sovereign guarantee will be provided by the government. With this amount the two firms will restructure their existing debt and also partly meet their capex, opex, and other requirements.
The government also said that the two PSUs would monetise their assets like land etc worth `38,000 crore over a period of four years.

As reported earlier, the idea behind coming out with a revival package rather than a closure was that the latter would have cost even higher — around Rs 95,000 crore.

Further, strategic disinvestment of these two firms will not work out as there may not be any takers for it, considering the current financial stress in the telecom industry.

However, analysts are not convinced by the plan and the logic behind it. It’s true that BSNL has a large number of employees at around 1.65 lakh whose wage bill comprises 77% of its revenue. The wage bill to revenue cost for private operators like Bharti Airtel, Vodafone Idea or Reliance Jio is 3-4.5%. Further, while Bharti has a total workforce of around 16,000, Vodafone Idea employs around 9,000. But merely reducing BSNL’s workforce and therefore its wage bill will not make the company competitive as it lags far behind its private sector peers in terms of network coverage and efficiency.

The optimistic projection underlying the government’s revival blueprint is that BSNL, which posted a net loss of Rs 13,804 crore in FY19, will see it widen to Rs 18,231 crore in FY20 but thereon it will start narrowing and come down to a loss of Rs 5,432 crore in FY21. It will post a net loss of Rs 396 crore in FY23 and then break into a profit of Rs 2,235 crore in FY24.

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