As a new triopoly emerges in India’s mobile telephony and data
services sector, the government should worry about the likelihood – in
fact, certainty – that it now has two more Air Indias on its hands,
where taxpayer resources will have to be endlessly wasted. It should get
out when it still can with its head held high.
Bharat Sanchar
Nigam Limited (BSNL) and its little brother Mahanagar Telephone Nigam
Limited (MTNL) are bleeding profusely, and no power on earth can save
them from destroying themselves in the current cut-throat telecom
market. Both are overstaffed, overburdened, and plain and simply
uncompetitive and unviable. MTNL is clearly a goner, and the speculation
is that it cannot afford to renew its spectrum licence when it falls due next year.
The
last financial results available (2016-17) show that MTNL’s revenues
were just about enough to pay wages. BSNL’s staff were estimated to be gobbling up half the company’s annual revenues, when staff costs as a percentage of turnover were in single digits in most other telecom companies.
A Mint report
quotes BSNL chairman and managing director Anupam Shrivastava as
postponing the company’s hoped-for tryst with profits by yet another
year, to 2019-20, since it won’t be possible this year due to “market
disruptions”. In the last two financial years (2016-17 and 2015-16) for
which audited figures are available, BSNL made net losses of Rs 4,786
crore and Rs 4,875 crore.
Shrivastava’s mild optimism about making
some money some time in 2019-20 stems from the fact that it has added
subscriber numbers over the last two years, as other unviable telecom
players exited the field (Tata Tele, Telenor, Reliance Communications,
and Aircel, among them). But this is unbelievable, for gaining
subscribers when tariffs are falling or low means more losses.
The
reality is that India’s rapidly maturing telecom market will now
operate to “The Rule of Three”, an idea propounded by two Indian-origin
B-school professors in the US, Jagdish Sheth and Rajendra Sisodia, in a
book with the same name. Their basic discovery is that in any mature
market which has no major entry or exit barriers, there can be only
three general players with 70-90 per cent market share. The rest have to
be specialists or niche players. BSNL’s future can only be as a niche
player, if at all, but one should not bet on it.
According to the
May 2018 subscriber data provided by the Telecom Regulatory Authority of
India (TRAI), India’s top three telecom players (Bharti Airtel,
Vodafone-Idea and Reliance Jio have an overwhelming 87 per cent of the
market between them (around 986 million out of a total wireless
subscriber base of 1,131 million). BSNL and MTNL, between them, have
around 10 per cent, or 116 million users.
These numbers don’t look
too puny, but in an industry hurtling towards further losses under the
pressure of tariff wars, they don’t mean much. Especially when neither
BSNL nor MTNL has any hope in hell of turning a profit. With their
super-large employee bases – BSNL had 1.96 lakh workers (see page 28 of annual report) and MTNL 27,919 (see page 14 of annual report)
in 2016-17 – these companies essentially exist to keep their staff
employed rather than to serve customers. With just a tenth of BSNL
staff, Bharti Airtel made more than twice its revenues in 2016-17. There
is no way this kind of productivity gap can ever be bridged without a
hefty round of staff reductions.
So, what should the government
do? The easy answer is privatise the companies, especially BSNL, and
fund the voluntary retirement of excess staff. But no government can do
this in an election year; this can happen only after May 2019, assuming
we still have a strong government in place at that time.
The next
best thing to do is to offer a 49 per cent stake and the 116 million
customer base to the highest bidder, with a promise to offload the
balance equity at market prices when the legislation for privatisation
is in place. The government should also promise non-interference in the
running of these two companies till them, with its rights restricted to
nominating a non-executive chairman and two directors. They should have
no veto on operational decisions.
But one doubts governments in
election mode have the stomach even for this limited action. By May
2019, we will have three Air Indias on our hands. Poor taxpayers.