New 4G spectrum will cost them Rs 20,000 crore and, with even Airtel/Vodafone-Idea bleeding, their losses will only mount.
At a time when, like Kingfisher Airlines, even Jet Airways looks like it could shut down—and when even IndiGo is cancelling so many flights—many point out that Air India continues to fly without as many problems; the argument is made in the context of the demand for shutting down chronic loss-making PSUs such as Air India or MTNL and BSNL that don’t even have enough money to pay salaries. Seductive as the argument is, it is totally misleading since, if Kingfisher—or Jet Airways—had the hapless taxpayer to make good all its losses, year after year, it too would be flying today. Put another way, if the poor taxpayer wasn’t there to ensure that all of Air India’s debts were repaid, top executives of the airline would also, like Vijay Mallya, be seeking refuge in the UK or, like Naresh Goyal, be grounding planes and looking for a white knight to take over the airline.
While the government has just released Rs 171 crore to allow MTNL to pay salaries for February, and will probably do the same for BSNL should it fail to drum up the necessary resources, prime minister Narendra Modi—and whoever the next prime minister is—needs to think hard about whether the two PSU telcos should be shut down since, while they are not pilloried like Air India is, their loss levels are much greater and the likely trajectory is likely to be even higher. For FY19, for instance, their combined loss could be around Rs 11,500 crore; while BSNL’s losses are likely to be around Rs 8,000 crore, MTNL lost Rs 2,634 crore in the first nine months of FY19 as compared to Rs 2,970 crore in all of FY18.
Nor is there any real plan to turn around the PSUs that continue to lose market share quite regularly. BSNL’s market share in the mobile segment, for instance, has fallen from 13.3% to 9.7% between 2008 and today, and for MTNL, the fall is from 1.2% to 0.3% over the same period. Indeed, while BSNL was once seen as the only telco willing to go to rural areas, most private sector telcos have a far higher share of this market. The collapse in revenues has meant that while its wage bill equals 99% of its turnover in the case of MTNL, it is around 55% in the case of BSNL; most private telco salary bills are 4-5% of turnover. And unlike Air India whose big capex days are over—the government’s main expenditure is in funding annual losses—the government needs to fund a generous VRS for both PSUs that could run into Rs 6,000-7,000 crore; if both telcos want 4G spectrum, this will cost another Rs 20,000 crore or so for just 5MHz while most private telcos have several times this amount; and renewing its existing 3G spectrum that will soon expire will cost MTNL around Rs 9,500 crore. Also, leading telcos like RJio and Bharti Airtel spend around Rs 20,000-25,000 crore in annual capex.
Even after all this is given, and there is no guarantee that it can be given by a cash-strapped government, it is not clear that this is enough to ensure the two telcos will turn around. Both Bharti Airtel and Vodafone-Idea are well-run companies and have a lot more 4G spectrum than either of the two PSUs—assuming they both buy 5MHz each of this—but thanks to the hyper-competition unleashed by RJio, their losses were Rs 2,000 crore and Rs 10,000 crore in Q2 and Q3 of FY19; in which case, even if the government gives the two PSUs what they want, their losses will increase dramatically. Indeed, it is to fund this cash-burn that Bharti Airtel is raising Rs 32,000 crore and Vodafone-Idea Rs 25,000 crore. While Air India’s attractiveness to a buyer, should there be one, is in its ready-made network across the country as well as globally, replicating the BSNL/MTNL network is quite easy as other telcos are, in any case, creating fresh capacity and can take on their subscribers quite easily. In which case, while selling either won’t be easy, Modi needs to decide if he wants to throw so much good money down the drain.