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Rise and fall of Bharat Sanchar Nigam Limited – How from a Navratna BSNL became a sick PSU

Rise and fall of Bharat Sanchar Nigam Limited – How from a Navratna BSNL became a sick PSU

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  • GS 3 || Economy || Services || IT

Introduction

  • Bharat Sanchar Nigam Limited, commonly known as BSNL, is the largest telecommunication company in the country. BSNL is a state-owned company and has its headquarters in The organization has been in the business of providing telecom services and network management since September 2000.
  • BSNL boasts of having nearly 60 percent of the customer market share in India and being the largest provider of fixed telephony and broadband services. In addition to this, BSNL is the fifth largest and oldest mobile telephony provider in the country.

Context

  • In August 2021, the government refused a merger of beleaguered Vodafonewith state-owned BSNL and MTNL.
  • Multiple and strong logical reasons” suggest “outright rejection of any proposal that gets the debt-laden and loss-making private entity within the fold of the state-owned companies, which themselves have a poor track record of managing their business and are operational mainly on the back of recurrent government bailouts.

Status of BSNL (Bharat Sanchar Nigam Limited) and MTNL (Mahanagar Telephone Nigam Limited)

  • BSNL and MTNL had to be handed out an Rs 69,000-crore revival package around 2019 to keep them afloat, and are still struggling to attain profitability.
  • Rs 100 crore was set aside as direct budgetary support for these two major firms in the last Union Budget. But, they were supposed to rise over Rs 15,000 crore through internal and extra-budgetary resources.
  • For E.g. BSNL, in 2018-19, made a loss of almost Rs 14,000 crore, taking its accumulated losses to over Rs 90,000 crore. The company has almost 170,000 employees whose wages consume 77% of its revenues.
  • Both BSNL and MTNL have long been a drain on the public exchequer and the state’s borrowing capacities.

Issues facing

  • Accumulated Debt: BSNL and MTNL debt is 40,000 crore.
  • Complete Disregard for competition: BSNL fell from Navratna to sick PSU.
  • Lack of Autonomy: Government considers them as personal fiefdoms. In practice, they don’t enjoy any autonomy in their work.
  • Poor Customer Service
    • Not only 4G spectrum will make them competitive and it does not guarantee customers.
    • Easy access and responsiveness is the key to attract and retain customers
  • Investment in obsolete technology

What has caused this?

  • Huge Accumulated Debt
    • The Telecom sector has a debt of about 4 lakh crore.
    • SC order on AGR has added to the liability of telecom operators to make 1.3 lakh crore payment to the government. AGR Dispute dates back to 2005 and the claim amount has been because of interest and penalties.
      • Adjusted Gross Revenue (AGR) is the usage and licensing fee that telecom operators are charged by the Department of Telecommunications (DoT). It is divided into spectrum usage charges and licensing fees, pegged between 3-5 percent and 8 percent respectively.
    • Vodafone has a debt of Rs 98,000 crores and a spectrum fee of Rs. about 20,000 crores while BhartiAirtel has a debt of 1 lakh crores and a spectrum fee of 22, 000 crores
    • This move will leave just one player in the fray –Reliance JioInfocomm.
    • Fitch Ratings has put BhartiAirtel on the ‘Negative rating watch’.
  • Huge Losses
    • BSNL records 3400 crores net loss in FY 2019 and MTNL 14,000 crore net loss.
  • Substantial Investments in 4G Infrastructure:Telecom operators have already incurred huge Capex to roll out 4G infrastructure. Rolling out of 4G infrastructure is critical for higher Internet speed in India. It is estimated that 90% of the users in India will access the Internet through mobile by 2020.
  • Lack of Telecom Infrastructure in Semi-rural and Rural areas:Service providers have to incur huge initial fixed costs to enter semi-rural and rural areas. Key reasons behind these costs are lack of basic infrastructures like power and roads, resulting in delays in rolling out the infrastructure. Lack of trained personnel to operate and maintain the cellular infrastructure is another challenge.
  • Pressure on Margins Due to Stiff Competition:With competition heating post-entry of Reliance Jio, other telecom players are feeling the heat of substantial drop in tariff rates both for voice and data (more significant for data subscribers). TRAI needs to fix a base price and help create a level playing ground for all players.
  • Many other factors can be blamed for this situation, including government policy decisions of the past.
    • The entry of Reliance Jio has in addition made things difficult for all legacy players. But, above all, the decline of the public-sector telecom majors is due to structural changes in the business itself. The telecom sector is increasingly a service-based business.
    • This means that private-sector companies have an inherent advantage over even public-sector ones with the softest of budget constraints.
    • Given all this, there is little reason to imagine retaining BSNL or MTNL in their current state.

Steps by Government

  • Cabinet Committee on economic affairs has approved Rs 70,000 crore Revival Package
  • The money of the package will come from the sale of assets of public telcos and sovereign bonds.
  • Real estate assets worth Rs 37,500 crore will be monetized. But the problem is that BSNL does not own the majority of assets and they are owned by DoT. What and which assets to be put to the sale are not clear?
  • The money will be used to clear debt, upgrade the network and offer Voluntary Retirement Scheme (VRS) to retrench excess employees
  • The phased merger of BNL (operates rest of India) and MTNL (operates in Delhi and Mumbai). However, the move was opposed by the government on account of differential pay scales in two companies.

Is revival possible or not?

  • The companies and their associated Union departmental bureaucrats have argued that reviving them is less expensive than shutting them down.
  • In the case of BSNL, it would cost Rs 95,000 crore to get the 170,000 workers off the payroll through voluntary retirement schemes and the like.
  • A revival package, on the other hand, would be less expensive. However, it is also argued that not all public-sector employees should be treated equally.
  • Some can be re-absorbed by other public-sector enterprises or the government, which is short of personnel in many critical areas. Also, many others would be close to retirement anyway.
  • On the other hand, the revival plan is not very feasible as losses would sharply narrow beginning 2 years from now.
  • Consequently, BSNL would be in a poorer state by 2024.

Way forward

  • Governance Reforms
    • Changing work culture
    • Transparency and accountability
    • Learn from mistakes and realize its shortcomings in managing customer-facing business
  • Disinvestment
    • Offloading some of its stakes and holding on to 51%.
    • Giving management control to generate real interest in the turnaround of the state-run- telcos
    • It has also worked in the past e.g. in Bharat Aluminum Company Ltd to Private sector player Sterlite Industries Limited
  • Infrastructure development -As with Indian PSUs, the extensive network infrastructure that has been developed must be prioritized. This is in contrast to the tarnished brand name or the burden of employee roles.
  • The former infrastructure cannot be overlooked.
    • For example, the Bharat Fibre network spans more than 800,000 kilometers.
    • This is more than the combined value of Vodafone-Idea, BhartiAirtel, and Jio.
    • Worryingly, it is currently underutilized and undervalued.
  • Growth in Embedded Devices:The usage of embedded devices requiring mobile connectivity is growing exponentially. This will provide telecommunication companies a chance to increase revenue.
  • Quality of Service:Service providers need to maintain their focus on providing high-quality data and voice services that are reliable and affordable.
  • To ensure that this network is not duplicated by private-sector investment, significant national savings would be required. As a result, the focus for the PSU telecom majors must be on how their assets can be sold. This is done to ensure higher productivity and to determine how their manpower can be absorbed elsewhere as needed.

Mains model Question

  • Discuss the challenges facing the Indian telecom sector today. What should the Government of India do to save the telecom sector?

References