A delayed imperative: On BSNL-MTNL merger

 The Cabinet’s approval this week for a plan to revive the loss-making public sector telecommunications providers Bharat Sanchar Nigam Ltd. (BSNL) and Mahanagar Telephone Nigam Ltd. (MTNL) has come not a moment too soon. From having been monopoly providers of telephone connectivity, the state-run telcos have had to contend with sweeping change since the opening up of the industry to private players and entry of wireless telephony in the 1990s.

In just over two decades, the mobile phone revolution has catapulted India to the second rank in terms of wireless subscribers, with only China ahead. But the radical transformation of the industry landscape — wrought by the runaway growth in user numbers, rapid technological advances, and bruising competition — has come at a substantial price. The private sector saw the relatively older, large firms using mergers and acquisitions to consolidate as smaller rivals found themselves unable to cope with bitter tariff wars and the capital costs of bidding for spectrum and upgrading their technologies. BSNL, for its part, was saddled with the legacy of having been a large-scale provider of jobs as well as state-mandated connectivity to remote corners of the country. It is in the fulfilment of the state’s social objectives that the public sector enterprises (PSEs) racked up substantial costs, which the Centre’s revival plan aims to help address.
The proposal includes the allotment of critical spectrum to the two PSEs for offering fourth-generation wireless services, including broadband. The Centre will fund the spectrum’s cost through an infusion of ₹20,140 crore of capital while also bearing the related GST levy of ₹3,674 crore. And besides providing a sovereign guarantee on ₹15,000 crore of long-term bonds, which would help the firms restructure debt and partly fund expenses, the government will extend budgetary support of ₹17,169 crore for ex-gratia payments on a crucial voluntary retirement scheme. A lot will hinge on this VRS plan given that BSNL’s workforce of over 1,65,000 employees end up cornering about 75% of the telco’s total income. The Cabinet has also given an ‘in-principle’ nod for the two PSEs to merge, a move that would add market heft to the merged entity. A successful revival of BSNL will have far-reaching implications for the industry, this at a time when two of the three surviving private players are faced with not only sliding market share but a government bill of about ₹75,000 crore following the loss of a legal challenge. The reach of its network, especially in remote parts, makes BSNL a “strategic asset” that has national security implications given its role in serving the armed forces and responding to natural disasters. The revival plan, even if years late, is a clear recognition by the government of this indisputable fact.