The Hindu Business Line : Timely integration

THE PROCESS OF appointing investment advisors to examine the synergies between Bharat Sanchar Nigam (BSNL) and Mahanagar Telephone Nigam (MTNL), which has just been initiated by the Government, marks the revival of a proposal that was shelved a year ago. There is, however, a significant difference between the BSNL-MTNL merger proposal then and now. Earlier, the proposal was seen by MTNL's institutional investors as merely a device to scuttle disinvestment in the public sector telecom major. The resultant marking down of MTNL's share price made the proposal financially unviable from the Government's perspective. But this time around, the scenario is different. Since the Government has effectively put on the backburner the MTNL disinvestment plans, the plan to integrate BSNL and MTNL has a greater ring of credibility. It is thus hardly surprising that the MTNL stock was marked up by nearly 8 per cent recently.

Since the operational synergies between BSNL and MTNL have been obvious for several years, the rationale for integrating them is not hard to fathom. One, this integration will be strategic to BSNL. By gaining control over the two lucrative circles of Mumbai and Delhi, in both basic and cellular telephony, it will have access to customers who provide the highest Average Revenue Per User (ARPU) in the country and a true pan-Indian presence. This will also help MTNL as it is steadily losing market-share in mobile and fixed telephony to more nimble-footed private sector rivals. Two, over the past year, the private sector majors, particularly Bharti, Hutch and IDEA, have also consolidated aggressively and added substantially to their mobile subscriber base. Unless BSNL can replicate some of its successful strategies employed in Chennai and Kolkata to MTNL's circles in Mumbai and New Delhi, it will be unable to counter the combined might of the private sector operators — in both GSM and CDMA. Three, through the integration, BSNL will have an alternative source of funding to the `Access Deficit Charge' collections from private players, to finance its network expansion plans. This may become imperative as the private sector operators are stepping up their demands for removal of the ADC levy. If this line of funding gets shut off for some reason, BSNL will be able to access MTNL's healthy cash flows and reserves. This will also obviate any needless duplication of investments by BSNL in these two circles or MTNL's investment in national long distance telephony, plans which have been in the air for some time now.

If the merger is to succeed, the Government may have to bear some key elements in mind. To smoothen the process of integration, it will have to ensure that the interests of minority shareholders, who hold over 43 per cent of MTNL's equity, are protected. The Government will also have to work out a formula for the MTNL employee unions, highlighting that this integration is in their best interests. Finally, to ensure that the allegations of monopoly are deftly handled, the regulator/government needs to open up BSNL/MTNL's infrastructure in mobile and long distance services to the private sector on fair and equitable terms.

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