Why merging BSNL and MTNL is a good idea

The Cabinet decision to merge BSNL and MTNL is probably the third attempt at merging the two public sector telecom companies.

In 2002, then Communications Minister Pramod Mahajan came up with the idea to merge Mahanagar Telephone Nigam Ltd with Bharat Sanchar Nigam Ltd. The rationale was simple: MTNL, which operates in Delhi and Mumbai, would not survive unless it got access to a larger market. Since there was no reason to have two pan-India telecom operators, Mahajan thought it was best to merge MTNL with BSNL. The merger didn’t go through due to structural complexities. MTNL is listed and BSNL is not so there was an issue of whether MTNL should be delisted or BSNL should be listed. The other major issue was the employees union was opposed to the entire idea of the merger.

MTNL was set up by the Centre at a time when telecom infrastructure in the country was extremely poor and under the management of a Government department. Faced with strong criticism from the Opposition, the Government in 1986 decided to carve out a corporate entity in the two metro cities with the objective of providing a better quality of services, at least for customers who can afford to pay for telephone services.

The strategy proved fruitful with MTNL emerging as one of the most valuable public sector companies, bagging Navratna status in 1997. Operating in two of the most lucrative markets in the country helped. MTNL was among the first to deploy GSM cellular services, CDMA-based limited mobility services and also Internet Protocol TV (IPTV) much ahead of the others. In 2003-04, MTNL reported over 45 per cent increase in net profit to ₹1,277 crore compared to ₹877 crore in the previous financial year.

But then the down slide began. Delhi and Mumbai were becoming saturated. Most other operators had expanded to get a national footprint. MTNL had to go for expensive roaming agreements and other arrangements like points of interconnection to enable its users in Delhi and Mumbai to get pan-India network. Its staff cost also went up to 90 per cent of its revenues compared to the industry average of 5-6 per cent.

Cheap mobile/internet connections to politicians and Government employees also drained its resources. The consolidated loss widened to about ₹3,388 crore for the full year ended March 2019 from ₹2,970.9 crore in 2017-18.

The new proposal will perhaps be more acceptable to the employees at least, given the precarious financial situation of the two PSUs. If the merger does not go through this time it could be the end of the two telecom companies.