The going doesn't seem to be as good as expected for state-owned telecom players BSNL and MTNL. A look at the numbers and what they could mean.
BSNL and MTNL, despite their social obligations, could have swept the market, according to both company officials and analysts.
While the Indian telecom story of recent times is a hit everywhere, there is a note of concern in that its incumbent players don't seem to have it all going good for them.
Of course, both Bharat Sanchar Nigam Ltd and Mahanagar Telephone Nigam Ltd, being state-owned, can be offered support, if the Government so wishes.
Still the fact remains that while the private players are variously reporting that they have broken even, coming into profit, or plumping up their profits further, these two giants may report figures that are headed southward.
The Chairman and Managing Director of Bharat Sanchar Nigam Ltd, A.K. Sinha, has, at various fora in recent months, said that the company's profits for 2005-2006 will be less than the Rs 10,000 crore reported in the previous year. Officials at BSNL say it could hit Rs 9,000 crore, maybe even less. This is despite higher revenues expected, at Rs 39,500 crore, as against Rs 36,000 crore the previous fiscal.
To give BSNL its due, there were many factors that were outside of its control. The telecom regulator reduced Access Deficit Charges (ADC) to be paid to it by private wireless telephony operators; overall tariffs got reduced due to both competition and regulation; in addition BSNL is the only company that really reaches services to the more unviable areas of the country since it has its social obligations.
But there are other indicators that are not so good either, according to analysts. Its total subscriber base, as on March 31, 2006, was nearly 552 lakh. Of this, its GSM mobile base was at 172 lakh, growing a robust 50 per cent over the year. (As at May end, it was 18 lakh constituting a 24 per cent market share of the GSM base; it currently has 57 lakh connections in the country, 34 lakh fixed and the rest mobile).
However, in the fixed line segment, though net additions were over 5 lakh, disconnections were over 30 lakh, say BSNL officials. This is bad because fixed line gives a higher Average Revenue Per User (ARPU) than mobile.
The state of its listed sister company, Mahanagar Telephone Nigam Ltd, whose services span the prime circles of Mumbai and Delhi, is less encouraging.
Its profits were down by 38 per cent in 2005-2006, at Rs 578 crore, down from Rs 938 crore. Not only that, unlike BSNL, its revenues too declined, to Rs 5,249 crore, down from Rs 5,592 crore.
While reduction in ADC, leased circuit prices and other tariffs dented its profits, MTNL too fared badly on other fronts. Its fixed line phone base reduced by over 1 lakh, to 38.77 lakh, down from 40.7 lakh, its GSM base doubled, to 19.4 lakh from 8.81 lakh, but analysts say even this is not high given the prime circles the company operates in, where several other operators have crossed the 1 million-mark each.
Also, the decline in fixed lines is to be taken seriously, say analysts. While MTNL's ARPUs from fixed lines are Rs 734, it is less than Rs 300 for its GSM service. "Tata Teleservices, Reliance and Airtel are priming up their fixed line plans. In the metros the private companies have taken over most of the prime corporate customers for fixed line services," says a senior official with MTNL.
For BSNL too, the threat is not far behind. "In places such as Coimbatore, you find corporates taking an Airtel fixed connection in preference to BSNL," he says.
The loss of a fixed line means a lot, because increasingly a fixed line is bundled with several other services, usually a highly paying broadband service and say, value-added services such as conferencing, and so on.
BSNL and MTNL, despite their social obligations, could have swept the market, say both their own officials as well as analysts. Their capital expenditure outlay annually is often large enough to swallow the aggregate capex of the entire private sector.
BSNL's capex for the current fiscal is pegged at between Rs 16,000 crore and Rs 17,000 crore. MTNL plans to spend over Rs 6,000 crore, according to officials, just in the two cities of Mumbai and Delhi.
The private sector's plans pale in contrast: Reliance Communications, with a pan-India presence, plans to spend Rs 5,000 crore each year for the next three years (according to the Chairman, Anil Ambani, during the listing of the company); Tata Teleservices, present in 20 circles, plans to spend Rs 4,000 crore during the year. And Airtel, with a presence in all the circles, between Rs 6,000 crore and Rs 9,000 crore.
A larger outlay should ideally mean better bargaining power with vendors and equipment suppliers, and better margins, therefore, for BSNL and MTNL, say analysts. But both are weighed down by the tendering process, mandatory for all public sector companies, which also makes them slow to go to market. Litigation by vendors who have not won large bids has also been common (some say, provoked by competition), leading to further delays in projects.
At least now, chief general managers of circles can independently tender up to certain amounts, and this speeds up matters a bit, says a BSNL official.
Both companies have large workforces to deal with. BSNL has 3.5 lakh and MTNL 50,000. This, when the largest players in the private sector have between 3,000 and 5,000 employees each, with many planning to cut down their staff even further. "As the network is rolled out, it needs only maintenance and your need for employees goes down," says a senior official with a private company.
Even the staff at BSNL and MTNL could be deployed to advantage, according to analysts. Both have "aggressive" plans for training of staff, but a hoary work culture and hierarchy has made this difficult.
In full swing
But future plans at the public sector companies are in full swing. BSNL plans to add 2 million broadband connections this fiscal, 3 million WLL connections, connect 14,000 village with satellite phones, increase its optic-fibre network, start triple play (voice, data and entertainment) services in the cities (starting with Pune and Chennai). TV on demand, 3G services, are all in the pipeline.
Its bumper 60-million line GSM tender is in processing stage. And 50 per cent of all new connections in the next three or four years will be in the rural areas, according to a statement made by the Minister for Telecommunications in Parliament recently.
BSNL's initial public offer plans have been put on the backburner, but that does not mean anything, says a government official. "MTNL is listed but we find that BSNL is in general much more dynamic and has added better numbers too."