Why a simple BSNL-MTNL merger is not the solution

Does merging solve the issue of competitiveness? GoI needs to ponder over this if it plans to stay in the biz.

By KV Damodharan and Bhawna Kumar

This week, GoI announced that it proposes to revive the debt-ridden State-owned telecom operators Bharat Sanchar Nigam Ltd (BSNL) and Mahanagar Telephone Nigam Ltd (MTNL) through measures that include a merger.

From a macro perspective, merging BSNL and MTNL sounds logical. The two operate in non-overlapping territories. Since all key private telecom players now have a pan-India presence for mobile services, it makes sense for BSNL and MTNL too. So, why didn’t BSNL-MTNL merge long ago?


With de facto listing for BSNL, the merger could have enabled GoI to generate resources through partial divestment. However, the market value may not have fairly reflected the underlying asset value, so it didn’t happen. Cultural differences, pay scale variations, organisation structural differences and opposition from labour unions have been cited as stumbling blocks.

Experts argue that a merger should yield competitive edge in terms of technology, cost optimisation, market share and product development. In the case of BSNL-MTNL, however, such a possibility is extremely slim.

Does merging solve the core issues of weak competitiveness and poor accountability of management to performance? GoI needs to ponder over this if it plans to continue in the business.
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Like the Air India-Indian Airlines merger, a BSNL-MTNL one can be done. But what social purpose will BSNL-MTNL serve any more? What are the real strategic assets of BSNLMTNL? How can GoI unlock and extract the right value for such assets?

Since the telecom sector was opened up for private sector participation in 1995, BSNL and MTNL have become marginal players. In the mobile market, their combined customer share is 10.3% as of March 2019. BSNL’s customer share among rural mobile subscribers is lower at 7.2%, which debunks the hypothesis that BSNL serves the underserved rural market. Their market share in fixedline services is still quite significant, though, at 66.4%. But the segment serves just 2% of the sector’s customers, and has almost lost its relevance.

BSNLMTNL continue to be largest in the wired broadband market with a reported customer share at 54%. The real market share, though, is less than half of this, as a significant portion of their customer base is dormant and non-revenue-generating, and since the user base from several small and unlicensed players goes unreported.

In revenue terms, BSNL-MTNL share in the access services (in adjusted gross revenue) is 7.6%, lower than its 10.3% customer share. Financially, the two companies are in dire straits, with BSNL running cumulative losses of about Rs 32,000 crore in the last four years, and find it difficult to pay salaries to its 1.76 lakh employees.
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One strategic option available for BSNL-MTNL is to disinvest completely. But will GoI find any takers, and even recover its investment?

It may still need to pay additionally for voluntary retirement scheme (VRS) to reduce the employee base. Another option could be to sell or shut down just the consumer-facing businesses and continue to operate the enterprise business.
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In other words, become a ‘network of networks’ for other players, offering optical fibre, towers and last-mile network to operators through lease, virtual network and unbundling arrangements. GoI could also assess the possibility of a larger consolidation by pooling the assets of BSNL-MTNL with other PSUs in the space — Railtel, Gailtel, Powertel and Bharat Broadband Network Ltd (BBNL) — and offering network services to private sector players.

Combined, BSNL-MTNL and these PSUs would have 16-20 lakh km of optical fibre, and about 1,00,000 towers that could be used. However, the real question facing GoI is no longer whether ‘to merge or not to merge’, but to let BSNL-MTNL ‘be or not to be’ in its current avatar.

Damodharan is managing director, Pursuitex, and Kumar teaches at Amity University, Noida, UP
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
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