- State Editions ˅
- Cover Story
- A YEAR OF FEATS
- 150th Anniversary Issue
- Middle India
- Literary Issue Special
- Cinema Issue Special
- Women's Special Issue
- Foreign Policy Special Issue
- for a cause
- Photo feature
- national interest
Bleeding, but not being treated
The onslaught by private telecom players in the mobile telephony services has hit BSNL and MTNL hard. They have steadily lost market share and have failed to keep pace with the competition and aspirations of the customers. They must pull up their socks
Mukesh Ambani owned Reliance Jio’s launch of the Prime offer on March 1 has sent shivers down the spines of the major telecom operators. Though Jio will now start charging customers from April 1, after virtually seven months of free data and voice services, other operators are a worried lot. They are really concerned about Jio’s offer of highly discounted rates for a year, besides free domestic voice calls to its customers who enrol during this month paying a meagre Rs 99 fee. Earlier, Jio’s launch of WELCOME plan of free voice and data offer on 5th September 2016, more than six years after award of the 4G/BWA spectrum, followed by the Happy New Year Offer had virtually rattled all major incumbent telecom operators to the hilt.
Private telecom operators have acted aggressively to protect themselves to combat the threat from the new-entrant in the last six months. Vodafone and Idea have started serious merger discussions over a co-managed company while Reliance had merged with Sistema’s MTS in March 2016, and were reported to be in final merger discussions with Aircel. Tata is also reported to have joined the discussions of this group. Airtel is already taking over Telenor, the Norwegian giant, which thought it better to leave the country than to continue their services. It had already taken 4G Spectrum of the Qualcomm, Aircel and Augere earlier to face Jio’s onslaught.
In the quarter ended December 2016, all major operators have been badly bruised. The Government has also lost significantly in the revenue-sharing as the Aggregated Gross Revenue (AGR) of the telecom industry as a whole has plunged by 7.3 per cent. India’s leading telecom operator, Bharti Airtel, posted 55 per cent fall in its net profit from the previous year, with a dip of 7.5 per cent in its quarterly revenue from the previous quarter. Vodafone and Idea also saw their AGRs falling by 5.1 and 4.9 per cent respectively. While Vodafone suffered badly, Idea reported its first quarterly loss of Rs 384 crore since its listing in FY2008.
Surprisingly, there is no information available in the public domain of the action proposed to be taken up by the shareholders and management of the Government telecom companies, Mahanagar Telephone Nigam Limited (MTNL) and Bharat Sanchar Nigam Limited (BSNL). BSNL offers communication services in all regions of the country, except the metro cities of Mumbai and Delhi, where MTNL operates. Though both companies are categorised as Navratna/Miniratna companies and their board have been given enhanced administrative and financial powers, no concrete measures have been undertaken by them to combat the challenges thrown by the new entrant. Even the Government has not undertaken effective action to see that these two companies are able to pull up their resources to meet the threats posed by Jio. In the quarter ended December 2016, MTNL, a listed company, has incurred loss of Rs 820 crore against the quarterly revenue of Rs 691 crore. In 2015-16, it had incurred loss of Rs 2006 crores after adjusting loss on discontinued services. MTNL has been losing its customer base for several years and has been surviving due to financial support from the Government on one or the other pretext.
BSNL has also been struggling since 2007-08 and has incurred loss of Rs 3,880 crores in the FY 2015-16. It has an accumulated loss of Rs 1,4911 crores as of March 2016. Once a monopoly in domestic telephony, it has been deteriorating in its performance over the years as it could not expand its mobile services on time. It could not compete with the nimble-footed private mobile phone firms, which were taking decisions quickly. As on December 31, 2016, BSNL and MTNL had a market share of only 8.91 per cent of the wireless subscribers base in the country, whereas both PSUs accounted for more than 70 per cent of wireline market share. In the wired broadband service also, they have retained 60 per cent of the subscriber base. As the BSNL is not a listed company, it does not declare its quarterly financial results. It is, therefore, not known as to how Jio has impacted the financials of the company.
The communications gear maker Indian Telephone Industries (ITI) is also struggling for decades. So far, the Government has failed in its multiple attempts to sell the ailing company. The Board for Reconstruction of Public Sector Enterprises (BRPSC), which advises financially troubled state-run companies, had strongly recommended the merger of ITI with BSNL, or its takeover by the BSNL as a separate subsidiary, thereby ensuring strategic vertical integration.
In May 2014, it was widely expected that the proposal to merge the three telecom PSUs could be one of the first things that the new Government would be undertaking. The DoT had also earlier told the Parliamentary Standing Committee on IT that the proposal to merge the PSUs made sense. The BRPSE had also recommended that MTNL could be brought under BSNL. All the three PSUs have been making losses in the face of tough competition from private players. In the interim, it was reported that the Government was actively considering setting up a holding company, with BSNL and MTNL as its subsidiaries. The move was expected to revive the ailing PSUs, by synergising their operations. This was one option recommended by IIM-Bangalore in a report on measures for reviving the firms. The others included delisting MTNL and then merging it with BSNL, and MTNL becoming a subsidiary of BSNL.
The UPA Government was also trying for a merger between the two for quite some time, but failed to take a decision. In August 2015, the NDA Government also approved financial incentives for the two PSUs. In lieu of returning 800 MHz spectrum, they were refunded Rs 169 crore (BSNL) and Rs 458 crore (MTNL). Also, the approval was given to BSNL to hive off its towers into a separate company, aiming to generate additional revenues, a decision the private operators took a decade back. These measures did help these PSUs to window-dress their accounts for the time being at the cost of the public exchequer but both PSUs have been struggling to survive in the competitive telecom industry and incurring heavy losses year after year for quite some time.
Though BSNL has been taking various measures to come back to profitability and is focussing big time on data services to improve revenues, it is doubtful that it can survive the latest onslaught from Jio. Merger between MTNL and BSNL is the only way out. There are problems, though. MTNL has huge debt which BSNL does not want to take over on its books. Both have large manpower with differential pay structure. But the Government has to take a call. Either merge or privatise. Half measures have not worked. In the present situation, the two PSUs will be confined to wireline services only in not so distant future.
(The writer is a former DG Audit (P&T) in C&AG of India)
- London horror: West must stop self-kicking 27 Mar 2017 | Balbir Punj | in Edit
- Allow Trump to function 27 Mar 2017 | Pioneer | in Edit
- Overcoming water woes 27 Mar 2017 | Pioneer | in Edit
- Defence is not a part-time job 27 Mar 2017 | PK Vasudeva | in Oped
- Holistic approach to tackle nutrition 27 Mar 2017 | Shyam Khadka | in Oped
- One GST, but many taxes still 27 Mar 2017 | Shivaji Sarkar | in Oped
- Think now | Charles Taylor 27 Mar 2017 | Pioneer | in Thoughts
- The face of anti-BJP front 26 Mar 2017 | Hari shankar vyas | in GupShup
- The Hindu renaissance 26 Mar 2017 | Pramod Pathak | in Spirituality
- Negotiating Ayodhya: A road to nowhere 26 Mar 2017 | Kanchan Gupta | in Coffee Break