Hyderabad: The ailing public sector telecom firms BSNL and MTNL are staring at an arduous road ahead. The Narendra Modi government’s announcement to merge state-owned telecom companies Bharat Sanchar Nigam Limited (BSNL) and Mahanagar Telephone Nigam Limited (MTNL), has come too late and might not meaningfully revive both companies.
The industry experts have the feeling that the proposed measure will create some competition for private players and only contain operational costs. The government could have initiated major reforms and drastic restructuring long ago and the current measures announced by the government is not sufficient enough to put the public sector firms on track.
Both these telcos are bleeding on the operational front. The merger, along with the proposed voluntary retirement scheme (VRS) package, can help contain operational costs, but it may not be sufficient to revive the sagging fortunes.
BSNL, which was once a Navatna company, became a sick one, with accumulated losses of more than Rs 90,000 crore. This is the consequence of BSNL's inability to compete with nimble and more efficient private players like Reliance Jio and Bharti Airtel. With a bloated workforce of 1,76,000, BSNL is simply uncompetitive. The biggest issue with both BSNL and MTNL, according to telecom sector experts, are the employees belonging to the ‘monopoly’ era.
The failure to change the mindset of employees to suit today’s ultra-competitive environment has been one of the major reasons for their decline. Low tariffs due to fierce competition in the mobile segment, high staff cost and absence of 4G services (except in few places) in the data-centric telecom market are the other main reasons for losses of BSNL.
The public sector firm has seen a dip in its revenue after the entry of aggressive Reliance Jio in the market in 2016. Reliance Jio shook the telecom industry with its disruptive pricing, has a pan-India 4G network. The data consumption on mobile devices has gone up substantially since the advent of 4G with RJio in late 2016.
Though the data consumption on mobiles grew substantially, the financials of the incumbents took a hit after the debut of RJio, which also led to consolidation in the telecom sector. Now, only three private players are left – Airtel, Vodafone Idea (after their merger) apart from BSNL/MTNL.
In a revival package enabling the public sector telecom firms to stand in this intensive competitive era, the government besides announcing to merge BSNL and MTNL, wants to raise Rs 15,000 crore via sovereign bonds, monetising assets amounting to Rs 38,000 crore and a voluntary retirement scheme (VRS) for employees over the next four years.
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In a macro perspective, merging of BSNL and MTNL sounds logical as the two operate in non-overlapping territories. Since all key private telecom players have a pan-India presence for mobile services, it makes sense for BSNL and MTNL too and so their merger. The PSU offers a viable counterbalance to have some semblance of competition.
The highly leveraged balance sheets of private operators are already forcing them to slow down the rollout of next-generation data networks to rural and economically unviable areas in the country. Having a strong PSU will not only prevent private players from increasing tariffs as an easy means to wriggle out of the financial stress but also ensure that even rural consumers are catered too.
The BSNL presence is in the strategic interest of the nation. BSNL plays an important role in connecting strategic establishments and regions across the country and hence needs their existence. When it comes to national security, the communication network is a key element. This function cannot be given to any private operator. Union Telecom Minister Ravi Shankar Prasad too stated that the BSNL always stood first to offer quick free services whenever the nation faces natural disasters like flood, cyclones and other emergencies. It often emerged as the only operator in these critical times.
National digital communication policy
In an era when the digital economy is growing at a rapid pace to take wider space, it is also dire necessity to have stronger state-owned telecom firms for safe and secure financial operations. In the National Digital Communication Policy (NDCP) launched in 2018, the Department of Telecommunications recognises some of the major elements of digital economy such as improved broadband penetration, better radio spectrum management, augmented the security of national telecom infrastructure, adherence to Net Neutrality principles amongst others.
The NDCP broadly outlines three main action paths, namely, `Connect India’, `Propel India’, and `Secure India’ in its approach to addressing issues in the digital era. Connect India looks at broadband as a tool for socio-economic development, while Proper India has the aim of harnessing the power of new digital technologies like 5G, artificial intelligence (AI) and Big Data.
And finally, Secure India will move forward to ensure sovereignty, safety and security of digital communication in the country. India has set 2022 to achieve the above goals through having strong state-owned telecom firms, but our neighbouring country China has made remarkable progress in this regard.
Besides playing a pivotal role in the digital economy, the Chinese telecom firms are simultaneously serving multiple goals in political, economic and social spectrums. Though in most countries the governments have given up their hold on telecom infrastructure and let in private enterprises, China remains an exception.
China surpassed one billion in 4G LTE subscriber base at the end of last year, with State-owned telecom firms — China Mobile, China Telecom and China Unicom — accounting for about 65 per cent, 18 per cent and 17 per cent of the subscribers respectively. Thus China accounts for more than 40 per cent of 4G subscriber base in the world.
When it comes to India, the public sector telecom firms account for just about 10 per cent of the wireless subscriber base and a miniscule 3 per cent in wireless broadband subscriber base. According to TRAI, as of May 2019, BSNL had a market share of 9.98 per cent, which, combined with MTNL, goes up to 10.28 per cent. In contrast, the private operators hold majority of the market. (Vodafone's market share is at 33.36 per cent, while Airtel is at 27.58 per cent) BSNL's fall from Navratna firm to sick PSU has been steep.
In a revival plan, the government is looking over-optimistic in its hope that the 4G spectrum will make the companies competitive. But the real issue that needs to be addressed is whether BSNL will be equipped to function competitively. The 4G spectrum alone does not guarantee customers.
Customers respond to easy access and responsiveness. Typically, the PSUs in consumer-facing businesses struggle a lot. This is because customers are demanding, and this requires a company's processes to be geared to respond to customers with immediacy. If anything, BSNL and MTNL's poor customer service is one of the biggest reasons for subscribers choosing to take their business elsewhere.
The government must evolve a credible action plan to evolve state telecom firms, capable of competing in a cutthroat telecom market. For instance, for a PSU to become competitive, it needs a degree of autonomy.
However, for far too long, the government has treated state-run telcos as personal fiefdoms. They have been continuously treated into investing in outdated technology and sold poor quality spectrum at high prices. Factors like these have contributed to the steady decline of both companies.
Governance reform of telcos is also a crucial aspect along with the rescue plan as is the money associated with it. Changing the work culture and infusing these companies' processes with transparency and accountability will require a lot of determination to see through what could be difficult decisions.
It needs to learn to let go, to deliver on its promise of minimum government and maximum governance. At this point, the rescue plan runs the very real risk of becoming another wasteful exercise, at a time when the economy is in the midst of a slowdown if it lacks holistic approach addressing all the concerning issues. The new proposal will perhaps be more acceptable to the employees at least, given the precarious financial situation of the two PSUs. If the reform and revival does not go through this time it could be the end of the two telecom companies.
(Telecom Sector Expert, Neeraj Kumar)
