Bharat Sanchar Nigam Limited (BSNL), the state owned telecom company, is in dire straits. Though the company is still the largest provider of fixed telephony in India owing to its low cost packages, rural penetration, and pan-India coverage and the fifth largest provider of mobile telephony, it is fast losing ground to private operators who are better able to engage customers, leverage new technology for promotions and marketing, and offer attractive deals to Gen Y.
BSNL came into being in 2000 as a result of the corporatization of the Department of Telecommunications (DoT). The company enjoyed a monopoly and profited despite poor quality services, operational inefficiencies, and laggard decision making. The entry of private players in subsequent years however busted that business model.
BSNL and MTNL being Public Sector Undertakings (PSU) were exempted from competing with private operators on spectrum. In 2008, BSNL and MTNL were allotted 3G spectrum ahead of auction though they were later expected to match the winning bid in their respective areas. BSNL was also exempted from paying 2G spectrum charges of ₹1,650 crore earlier in view of its rural and social obligations.
Bottomless Pit
BSNL’s incurred loss in 2012-2013 amounts to ₹8,190 crore. The steep fall in profits over the last three years is attributed to:
- high employee cost (49% of revenue versus the industry average of below 5%)
- high customer attrition owing to poor customer service
- 3G and Broadband Wireless Access (BWA) spectrum purchase (₹18,500 crore)
- inadequate marketing
- implementation of revised pay scale (₹2,900 crore)
- tax liabilities (₹392 crore)
BSNL also had ₹5,231 crore as outstanding dues from customers as on 30 November, 2011 of which the company recovered ₹988 crore in the same period. Its cash reserve fell to ₹2,500 crore in 2010-2011 from a lofty ₹30,000 crore two years back.
Its not that BSNL is not trying. It hired SBI Capital in 2012 to help it raise a long-term loan of ₹12,000-₹15,000 crore for 5-7 years. The company also plans to generate revenue by leasing out its towers and network bandwidth, starting a telecom equipment manufacturing project, offering broadband connectivity to schools, leasing its land bank for commercial use, and setting up Wi-Fi hotspots across the country.
The company is expected to take remedial steps suggested by the Sam Pitroda committee created on the PM’s suggestion in 2010 to turnaround its loss. However, much of that is only on paper. Some of the pills are likely too bitter to swallow for the babus. It is yet to:
- undertake a strategic stake sale, or
- reduce its 3 lakh staff by a third, or
- sell 30% of the company in an initial share sale
The Future of BSNL
The Ministry of Telecom plans to present multiple suggestions to the Group of Ministries (GoM) to revive BSNL’s fortune. These include:
- government bearing the cost for keeping spectrum beyond 4.4 MHz in GSM and 2.5 MHz in CDMA bands
- providing a ₹23,000 crore bailout for BSNL and MTNL
- getting the Centre to bear the one-time spectrum fee for state-owned telcos
- refunding part of the 4G airwaves costs as the PSUs had surrendered this spectrum in 2011
Private GSM and CDMA operators object to the financial support for BSNL and MTNL as “not permissible” because “this would contravene all tenets of policy, fair competition and level playing field”. That’s a perfectly logical expectation.
BSNL is a text-book example of why the government should not stick its nose where it doesn’t belong. Private telecom operators have done to cheap, pervasive, universal access to basic telephony in 10 years what the government owned DoT, and now BSNL, couldn’t do in 50 years. But how do we reward this incompetence? By throwing good money over bad, by refusing to hold the bureaucrats running the show responsible, and by agreeing to every demand of the unions. Can we just stop pretending that this dog has a fight and just take it to the woodshed? Tax payers would like to know!
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