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View from India: Telecom PSUs merge in bid to claw back losses

The Union Cabinet has approved the merger of state-owned Mahanagar Telephone Nigam Ltd (MTNL) with Bharat Sanchar Nigam Ltd (BSNL) this week.

The telecom merger has happened for a number of reasons, as indicated by Telecom Minister Ravi Shankar Prasad.

MTNL and BSNL are public sector undertakings (PSUs). MTNL, which operates in Delhi and Mumbai, requires access to wider circles while BSNL has a national footprint barring Delhi and Mumbai; so it doesn’t make business sense to create two separate pan-India telecom PSUs. The merger is, therefore, a natural transition.

Around 14 per cent of the market share of the mobile business is constituted by BSNL and MTNL. In 2018-2019, BSNL had an estimated loss of Rs 13,804 crore, while MTNL incurred a loss of Rs 3,400 crore. The merger aims to make up for the quantum of losses.

The merger involves an infusion of Rs 15,000 crore via sovereign bonds, a voluntary retirement scheme (VRS) and an allocation of 4G airwaves. Opportunities for monetising assets such as land and telecom towers will be made available.

Together both companies have around 190,000 employees and nearly half of them are eligible for the VRS package. BSNL has 750,000km of optical fibre network (OFC) across the country and over 66,000 towers, so clearly tower infrastructure can be capitalised. Both companies have land assets. Minister Prasad has been quoted in the media as saying that the government of India (GoI) intends to monetise assets of the companies, which are estimated to be around Rs 38,000 crore, in the next four years.

Media reports have revealed that both MTNL and BSNL have been loss-making ventures from time to time. To facilitate national roaming facilities for its customers in Delhi and Mumbai, MTNL’s roaming agreements costs were sky high. Other infrastructure issues, such as points of interconnection, have also dampened its resources. BSNL operates everywhere expect in Delhi and Mumbai but it failed to keep pace with the competition as it could only partially offer 4G network in some parts of the country.

4G spectrum is likely to be allocated to BSNL by the end of this calendar year. It will be provided administratively at prices that were prevalent in the year 2016. A nationwide deployment will hopefully give it a much-needed competitive edge.

When 4G falls into place, BSNL is likely to position itself as a data-first company from being a voice services provider. Already, BSNL has partnered with YuppTV, an over-the-top (OTT) content provider. Reportedly, as per agreement, YuppTV will offer video content and broadband technology services to mobile and fixed-line users. BSNL has 120 million customers and almost 60 per cent market share in the fixed-line subscriber base. 

Competitive tariff has made it very challenging for the telecom sector as a whole. Nevertheless, BSNL still operates in a telecom sphere dominated by private players such as Vodafone Idea, Airtel and Reliance Jio. BSNL’s existence stems from the fact that it is a government-owned body and its services extend to several government-led agencies. BSNL’s network speed can, however, slow down at times. Yet the service operator continues to offer uninterrupted network during emergencies.

As reported in the media, GoI has anticipated that both telcos will be operationally profitable in the next two years and fully profitable by 2023.

In conclusion, the spotlight is on the telecom industry. If the BSNL-MTNL merger is to streamline the revenue loss, the Supreme Court (SC) verdict has upheld the definition of Adjusted Gross Revenue (AGR). In simple terms, AGR is the usage and licensing fee that telecom operators are charged by the Department of Telecommunications (DoT).

This morning's news indicates that SC has passed a judgment that GoI should recover over Rs 92,000 crore from telecom companies; this accounts for their license fee and penalty plus interest. As per the DoT, the most impacted companies are Vodafone Idea, which will have to pay Rs 28,308 crore, while Bharti Airtel will owe Rs 21,682.13 crore. Reliance Jio is hardly affected by the SC ruling as it has negligent dues.

These telcos are already reeling under debt so it is a challenge for them to tide over the situation. They only hope that SC will reconsider its decision.

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