Taxpayers must fund an unviable Rs 70,000-crore BSNL-MTNL plan

By: |
Published: October 24, 2019 9:09:53 PM

While BSNL’s sales fell 33% in the last 4 years, govt projects this as rising 66% in the next 4 four in the belief that once it has 4G spectrum, users will flock to it. Not fixing AGR-definition for 6 years means broke telcos have to shell out Rs 92,000 cr!

bsnl, mtnlBSNL’s revenues rising is difficult at the best of times, and a lot more so at a time when the industry’s revenues continue to collapse due to the RJio onslaught.

Few mergers really work, and as the history of India’s failed PSUs show, neither do revival packages—Air India is an example of both, UDAY of the latter—but, that hasn’t stopped the government from trying yet another mega-merger-cum-revival-package. BSNL that employs 165,000 people and whose losses almost doubled to Rs 13,804 crore in FY19 is to be merged with MTNL that employs 22,000 people and whose Rs 3,398 crore losses are 14% higher than in the previous year. But, even after a generous VRS package of around Rs30,000 crore and 4G spectrum worth Rs24,000 crore, along with a government-guaranteed bond of Rs15,000 crore, the projection sees BSNL-MTNL turning around only in FY24!

Should even this happen—with the taxpayer funding the increased losses in the interim period— it will be nothing short of a miracle; indeed, the similarly-ambitious Air India turnaround plan ended with FY19 losses rising 38% to Rs7,365 crore. While BSNL’s revenues fell by a third over the last four years, the turnaround plan assumes they will rise by two thirds over the next four! Right now, over three fourths of BSNL’s revenues go towards just paying wages. So, the turnaround plan is contingent on a large number of staffers taking the VRS—Airtel has three times BSNL’s turnover, and less than a tenth the number of employees—and, at the same time, revenues soaring once BSNL gets 4G spectrum. Whether customers will flock to BSNL’s 4G is not clear, but it is worth recalling that even though BSNL/MTNL got 3G spectrum a year and a half ahead of private sector players, they didn’t make much of the advantage.

BSNL’s revenues rising is difficult at the best of times, and a lot more so at a time when the industry’s revenues continue to collapse due to the RJio onslaught. Industry revenues rose from Rs2.33 lakh crore in FY14 to Rs2.74 lakh crore in FY17 when RJio began operations and then fell to Rs2.33 lakh crore in FY19. Nor is it a given that large numbers will take the VRS since the government has made it clear the PSUs are not to be shut down; in which case, it may make sense for employeesto stick on with BSNL since, in any case, the employees aren’t going to find it easy to get alternate employment.

In a sense, then, prime minister Modi has taken a gamble—and probably a correct one given his popularity—that the taxpayer will continue to fund white elephants like BSNL and Air India. Of course, with FY20 tax revenues likely to fall short by at least Rs2 lakh crore, it is not clear how the government will fund all the losses, the VRS, the free spectrum, along with more spending on the poor and on capex; we’re not even talking of the impact of cutting income tax rates across the board.

In the same way as the Rs33,000 crore package for Air India kept air fares artificially low, and contributed to the problems faced by other full-service carriers like Jet Airways, the huge package for BSNL-MTNL will push back the industry’s revival; after all, if these PSUs had shut down, tariff levels would have risen gradually.

The government’s reluctance to take on large trade unions at BSNL prevented it from shutting down the unviable BSNL; the same fear of Coal India’s unions ensured no mines have been auctioned for private sector commercial mining. Similarly, the government’s inability to tackle knotty issues in telecom resulted in another big blow for the sector in court on Thursday; while Bharti-Airtel needs to pay around Rs22,000 crore as a result of the court’s verdict, Vodafone-Idea will have to pay around Rs27,000 crore.

The genesis of the dispute before the Supreme Court goes back to 1999, when telcos moved to a ‘revenue-share’ agreement for paying licence fee instead of the flat fee till then. At that time, however, the scope of what revenue comprised wasn’t locked in. It would obviously include subscriber rentals and call/SMS charges, but the telcos said interest on bank deposits couldn’t be added; the government, though, wanted this as well as some other items included. When TDSAT ruled in favour of the telcos, the government said it had decided what would be included in ‘revenue’; so, this was a ‘licence condition’ and, hence, outside TDSAT’s purview! The matter went from court to court, but the discussion was no longer about what constituted revenues, but about regulatory turf. For a decade under Manmohan Singh and five years under Modi, the government didn’t allow TDSAT to decide on this, nor did it sit down with the telcos and hammer out an agreement. Also, since it is only now that the Supreme Court has finalised the definition of ‘revenue’, the government shouldn’t logically be charging penalties and interest on the so-called dues—in Airtel’s case, just Rs5,500 crore are dues, the rest are penalties, interest, and interest-upon-penalties.

The government’s role in bankrupting the industry is well-known, from Trai playing favourites—for reasons best known to the government, the Trai chief was reappointed despite Trai’s shabby performance —to the government failing, and not just in the last five years, to correct rapacious levies. High levies made sense when spectrum was given out free, but when the spectrum was sold at (artificially) high rates, the licence fee should have been abolished; when you buy a house, you either pay the cost upfront or monthly EMIs, you don’t pay both, right?

Also read BSNL-MTNL Merger: Five factors that averted crisis, saved BSNL from closure 

In FY15, when Modi came to power, Airtel’s revenues were Rs92,039 crore and profits Rs5,183 crore; in FY19, its revenues fell to Rs80,780 crore and profits to Rs409 crore. Vodafone-Idea’s revenues halved from Rs74,053 crore to Rs37,006 crore, and profits from Rs3,193 crore (Idea alone) to a loss of Rs 14,604 crore. With telcos bleeding and shutting shop, even government revenues have been hit; the fact that telcos were too broke to participate in spectrum auctions for the last three years added to the problem. The industry losses have put at risk not just around Rs2.5 lakh crore owed to banks but also the Rs3 lakh crore of spectrum dues owed to the government. How the government hopes to fix this is not clear, but it is tragic that a once robust industry with large capex should be brought to its knees by unfriendly government policy.

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Next Stories
1FSSAI milk study shows contaminants a key concern, mgmt must begin early in value-chain
2Missing numbers: Not releasing lynching data hurts the govt’s image
3Bombay HC order will hit phone tapping by taxman etc