This is anti-competitive and unaffordable
When the Cabinet deliberates over the telecom ministry proposal to give a R12,000 crore bailout to telecom PSUs BSNL and MTNL, it would do well to keep in mind the proposal is anti-competitive and makes no commercial sense, especially for a government that is so cash-strapped it is asking cash-rich PSUs like LIC and NMDC to, if need be, bail it out by participating in sales of other PSU shares. Apart from the R12,000 crore waiver of the one-time fees telcos are being asked to pay for the ‘extra’ spectrum they hold, other concessions include refunding the entry fees paid by the PSUs for the BWA spectrum they hold and haven’t been able to do much with despite getting this over a year before the private firms did—indeed, the two PSUs haven’t made much progress with the 3G spectrum they hold despite the nearly 2-year lead they had.
First, the level playing field issue. Since several private telcos are competing, and beating, the two PSUs, waiving their one-time fees while levying it on the private firms means that the PSUs have no incentive to try and turnaround their operations—indeed, they can continue to offer below-cost tariffs which spoil the market for the private firms also. Given that India has a Competition Commission, the fair thing would be to refer the matter to it. While the telecom ministry is justifying the move on the ground that the PSUs serve a social function, it needs to be pointed out that BSNL is now the 4th largest mobile operator in rural areas after Airtel, Vodafone and Idea and its share in the rural market is roughly half of Airtel’s. BSNL also gets subsidies for its fixed line services from the USO Fund. As far as refunding money given by the two PSUs for their broadband spectrum, keep in mind the auction rules specifically ruled this out. Also, if a refund is to be made, and the government doesn’t get the same money in a re-auction, who is going to make this whole?
And, were such refunds to be given, would this make either PSU viable? BSNL posted a loss of R8,850 crore in FY12 and MTNL R4,018 crore—while BSNL has indicated its FY13 revenues will be 9% less than in FY12, MTNL’s first half losses of R2,151 crore are 26% higher than they were in the same period last year. Neither PSU is a hit with customers—only 55% of BSNL’s subscriber base is active and the figure is under 40% for MTNL, while that for the top 3 private telcos is over 93%. While private telcos service 1 million customers for every MHz of spectrum they have, the PSUs service just 0.37 million—this means the PSUs have way too much spectrum. Neither has any turnaround strategy that goes beyond trying to earn revenues from non-core areas like renting and leasing of real estate space, towers, and leasing of the CDMA network. MTNL, for instance, hopes to get R10,000 crore through sales of land assets—it has around 2,30,000 sq m of commercial land and 3,80,000 sq m of residential land. Why not sell the PSUs to strategic investors who can turn them around, apart from giving the government some good money?