DoT proposes rescue plans for sinking telcos

9 May 2013

India’s Department of Telecommunications (DoT) has resurrected long-dormant plans to merge state-backed operators Bharat Sanchar Nigam Ltd (BSNL) and Mahanagar Telephone Nigam Ltd (MTNL) in a bid to return the duo to profitability, Business Line reports. In a report passed to the Empowered Group of Ministers (EGoM) for consideration, the DoT claimed that the pair faced competition from operators whose pan-India footprints provide a significant advantage over MTNL and BSNL, particularly with regard to business and enterprise customers. The DoT’s note added that the ‘employee cost as a percentage of revenue is over 103% for MTNL and 49% for BSNL against the industry average of less than 5%.’

Amongst the other proposed strategies to reverse the decline of the two loss-making providers, the DoT called for the government to fund a one-off payment of INR59.25 billion (USD1.099 billion) to settle MTNL’s pension liabilities. Also put forward was a voluntary retirement scheme to reduce BSNL’s workforce by 100,000, to be funded by the sale of land owned by the company and/or interest-free loans from the government. In addition, the DoT suggested that government institutions and employees should be asked to only use telecoms services form either BSNL or MTNL. Meanwhile, a committee headed by advisor to the prime minister Sam Pitroda, proposed hiving off the telcos’ infrastructure into separate units as a means to unlock growth.

TeleGeography’s GlobalComms Database notes that a potential tie-up between MTNL and BSNL was considered as early as September 2002 but was seemingly shelved in 2007-2008. Alternative restructuring plans were put forward in 2009 and 2011, including splitting the companies into individual units for wireless, fixed and broadband services. In April 2012 however, the DoT announced that a merger was still in the works, but had been temporarily delayed. Plans to combine the two have been opposed in the past by workers unions and held up by issues relating to employee parity and the de-listing of MTNL shares.