Does the government have an MTNL-BSNL gameplan? PDF Print E-mail
Friday, 12 March 2021 00:00
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BSNL-MTNL merger plan was always a bad idea, but now that it has been junked, it is not clear what is in store


Given that the plan to merge the ailing BSNL and MTNL made little sense, the government has done well to formally defer the plan, based on a written reply in the Lok Sabha. Mergers are always tough to pull off in even the private sector given different corporate cultures, but it gets even tougher in a PSU environment where jobs are guaranteed; apart from issues like seniority, it would have been next to impossible to get MTNL’s staffers to take a 20% pay cut to match BSNL salaries. While both PSUs have done very well to slash their employee base through a VRS – BSNL is down from 166,974 to 69,824 and MTNL from 21,708 to 4,185 – getting them back in the black will take a lot more; both have been loss-making in the last decade, save for one solitary year (FY14) in the case of MTNL. The reduction in the employee numbers will mean employee costs will become more manageable; prior to the VRS, MTNL’s employee costs were 87% of its turnover and it was around 78% for BSNL compared to around 4-5% for private sector telcos like Bharti Airtel.

But reducing staff costs is one thing, what really matters is the ability of these two telcos to improve the topline. In the case of BSNL whose turnover fell by over a third between FY15 and FY19, the turnaround plan projects a mammoth 82% increase by FY24, the year in which it is supposed to get back into the black; MTNL is expected to get back into the black only in FY26, and this will require its turnover to rise by 83%. Indeed, over the last decade, BSNL’s market share in the wireline business fell from 74% to 39% while that in the wireless business has fallen a bit from 11% to 10%.

What is not clear is how this is to be achieved; the fact that the merger has been put off less than a year and a half after the Cabinet cleared it suggests the government is not as sure of its plan anymore. While MTNL is likely to become even more irrelevant – its share in the wireless market fell from 0.8% to 0.3% in the last decade – now that BSNL is to be allowed to provide cellular telephony in Delhi and Mumbai, it is not clear how BSNL is to be revived either. Indeed, while the government passed the Rs 70,000-cr bailout package for the two PSUs in 2019, this assumed unnaturally low capital expenditure; yet, if BSNL is to migrate its predominantly 2G customers to 4G as the government wants, it will need to, RJio-style, spend a lot on subsidizing 4G handsets for its customers who spend just Rs 42 (BSNL and MTNL combined) per month versus Rs 104 for the private telcos.

Indeed, as this newspaper has been reporting, BSNL’s best chance for survival/revival lay in getting its 4G services going but that tender has been delayed by a year already due to government’s insistence it be cancelled following the Chinese action; this was uncalled for as there were non-Chinese vendors who could have built out the network. After that, the government decided that BSNL would no longer be allowed to float a turnkey tender as it has in the past – and like other telcos do – but would have to float smaller tenders for different parts of the tender and then hire a systems integrator to put it all together; this can set back BSNL’s progress substantially since it has never executed such a project. In which case, if the government doesn’t want to revisit the option of shutting down both BSNL and MTNL, it has to be prepared for another big cash infusion a few years down the road.


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