Given the government has approved a R30,000 crore bailout programme for the chronically loss-making Air India without a viable turnaround plan—the consultant hired to evaluate the plan called it “ambitious” and requiring “massive reorientation efforts”—chances are it will look favourably at the bailout plan telecom minister Kapil Sibal wants for BSNL and MTNL. All told, were the plan to be accepted—for now Sibal wants a Group of Ministers (GoM) to be set up to examine the issue—this is expected to cost R23,000 crore, including a R12,000 crore waiver as the one-time fee for the ‘extra’ spectrum the two PSUs have. BSNL, Sibal said, is expected to make a R10,000 crore loss in FY13 and MTNL is expected to have completely eroded its net worth. In FY12, while BSNL’s losses were R8,851 crore, those of MTNL were R4,110 crore. That things have come to such a pass despite both having a big headstart over the competition speaks volumes for their mismanagement. Indeed, even today, with nearly 21 million customers for its landlines and 7.5 lakh km of optic fibre network—and 40,000 towers for the mobile business—BSNL is perhaps the best-positioned firm to deliver broadband services in the country which offer billings that no other telecom services can hope to match. Ditto for MTNL which still has 3.5 million landline customers—indeed, most top corporates in Delhi and Mumbai have MTNL landlines. In the case of mobiles, just 55% of BSNL’s subscriber base is active and the figure is 40% in the case of MTNL.
If these two PSUs are to be bailed out, it is important to know what their turnaround plans are, and to ensure that these are frontloaded. In the case of BSNL, while Sibal’s letter to the PM says many of the Sam Pitroda recommendations on its turnaround have already been implemented, the really important ones have not. These include splitting the CMD’s job with a eminent person acting as chairman to insulate the company from political interference, ensuring the ministry interacts with the PSU only through the Board, retiring a third of its workforce, selling 30% of its stake through an IPO and to a strategic Indian investor and moving to using managed services—its infrastructure will be managed by a third-party—of the type used by the private sector. Most of these have been turned down by the telecom ministry. Pitroda wasn’t asked to do a similar exercise for MTNL but the recommendations would be largely similar. Before wasting a GoM’s time, BSNL/MTNL would be advised to do some serious restructuring first. Indeed, both PSUs are sitting on so much valuable spectrum—they have just a third the number of subscribers per MHz of spectrum the private sector players have—this needs to be taken back and auctioned first. It wouldn’t hurt the PSUs who are doing precious little with it, but would benefit the industry and help add to the government’s coffers.