It’s not over for MTNL, BSNL

Revitalising the two state-run telecom behemoths, Bharat Sanchar Nigam Ltd (BSNL) and Mahanagar Telephone Nigam Ltd (MTNL), has become a priority for the government, with both firms posting losses for six consecutive years.

As per unaudited figures, BSNL posted a loss of Rs 8,198 crore in 2012-13, while MTNL recorded a loss of Rs 3,300 crore.

The Group of Ministers (GoM) concerned is expected to meet to discuss a trifurcation of the firms. However, what’s required is a streamlining of operations and greater independence.

Let’s not forget that both telcos operated as the dominant service providers before the entry of private players, who changed the game through aggressive pricing and promotional strategies.

Both, MTNL and BSNL are plagued by declining revenues coupled with high costs, which makes restructuring an absolute necessity.

RESTRUCTURE THEM

Also, with the government intensifying its rural focus, only BSNL can turn into reality the next wave of rural telecom penetration.

It has massive infrastructure, manpower, systems, and 80 per cent of landlines and 90 per cent of broadband connections in India are operated by it. Furthermore, the areas served by MTNL are the two most advanced in the country – Delhi and Mumbai.

Most leading business houses are either headquartered in one of these metros or have large offices in them. Also, it was MTNL that introduced the concept of affordable broadband in these metros.

As the President, Manufacturers’ Association of Information Technology, I am often asked “Do we need to bail out the two struggling giants? How will it be done?

Is it fair for a cash-strapped government to bear this additional burden?”

As a first step, the government should hive off two new companies for each – for telecom network infrastructure and land development, respectively – and operate them as subsidiaries. While BSNL and MTNL would continue to operate as services and marketing companies, the infrastructure firm would handle the towers, networks and technology business.

The land development arm would manage and monetise land assets in phases. This would enable MTNL and BSNL to create leaner organisations and focus on their core competencies as telecom service providers.

While the restructuring would provide greater visibility of the financial performance of each business, it would also address more effectively their funding needs. MTNL already plans to monetise its land bank of 230,000 sq mt for commercial purposes and another 380,000 sq mt of residential land.

There is an urgent need to keep in check the rising salary burden. For BSNL, 2011-12 salary costs were Rs 13,406 crore, or almost half of its revenue. Of this, Rs 5,000 crore was spent on 100,000 excess staff. For MTNL, employee cost as a percentage of revenue stands at 103 per cent.

In contrast, for private operators, salary expenditure ranges from 5-10 per cent of revenue. The Pitroda Committee recommended retirement or transfer of the excess manpower through processes like the voluntary retirement scheme. Additionally, the committee recommended disinvesting 30 per cent through a strategic Indian investor and an initial public offering.

Of these disinvestment proceeds, 10 per cent should be returned to the government and 20 per cent used for expansion and operations.

SPECTRUM AND CONVERGENCE

The armed forces continue to hold on to a large part of spectrum, which must be freed up for tele-density growth. BSNL must try to convince the government to let go of the defence spectrum and devise suitable working capital for its projects.

This is the age of brands, and MTNL cannot be immune to the need to raise the value of its own. It needs to invest heavily in an aggressive promotional campaign, and improve service quality so that it can target high-end customers and improve its share of non-voice services. In an overhaul of its marketing and customer care operations in Delhi and Mumbai in 2011, MTNL was asked to focus on the lucrative enterprise business segment and target significant improvement in call completion rates on its GSM network.

Broadening the services portfolio by venturing into cable TV and broadcasting might help infuse life into the loss-making entities. New opportunities are created by the convergence of services and networks across telecom, information, cable TV and broadcast media.

These opportunities include value-added services and internet telephony. To generate funds for the new technology that would be required, the government could issue tax-free telecom infrastructure bonds. Lastly, make BSNL a major rollout partner for utilisation of funds for National Optic Fibre Network projects.

With infrastructure and capability in place, this would require little capital addition and help the telcos overcome their troubled finances.

LEARNING FROM BT

The troubles faced by British Telecom (BT) and its subsequent revival could be a valuable case study for MTNL and BSNL. Before its privatisation in 1984, BT enjoyed a legal monopoly over fixed-line operations. Changing dynamics and market regulations forced a huge debt burden on it in 2000.

To stay alive, BT, through Future BT (later BT Group Plc), announced a radical restructuring initiative in November 2000. This included breaking up the business in to separate units – BT Ignite, BT Openworld, BT Retail, BTWholesale and BT Exact Technologies.

Additionally, with the appointment of Sir Christopher Bland as chairman in 2001, the focus shifted to the voice and data markets.

A £5.9 billion rights issue was planned and the loss-making Concert joint venture with AT&T was shuttered through a £2.4 billion sale and leaseback of its UK properties.

The measures gradually started to deliver and helped rebuild BT’s credibility. The massive debt cut target was achieved after a year, which helped BT’s credit rating. With turnover rising by 8 per cent for April 2001-March 2002, the turnaround was acknowledged as a success. It’s clear, then, that the telecom sector can contribute significantly to the economy.

A recent World Bank study indicates a direct link between telecom/IT growth and GDP growth. A 10 per cent investment in the IT/telecom sector will add 1 per cent to the country’s GDP growth in developing nations, says the study.

As of January 2013, India had a tele-density of 73.07 per cent, according to the Telecom Regulatory Authority of India. As of December 2012, broadband density was 1.21 per cent, with BSNL’s share of broadband connections at 0.8 per cent. The time has come to create a second success story in telecom and to move ahead with confidence. There is an urgent need to look ahead with the experience of the past and be ready to seize current opportunities.

(The author is President, Manufacturers' Association for Information Technology (MAIT).)

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