NEW DELHI: It was Wednesday afternoon October 23, 2019. Nearly a million individuals directly or indirectly linked to the two sick telecom companies– Bharat Sanchar Nigam Limited (BSNL) and Mahanagar Telephone Nigam Limited (MTNL)— were breathlessly awaiting the outcome of Prime Minister Narendra Modi-headed Union Cabinet’s meeting underway.
Finally, by sundown, the Cabinet Committee on Economic Affairs (CCEA) approved the Rs 70,000 crore worth impetus to the two state-driven telecom carriers. The decision— which many hope would be game-changing for the two loss-making telcos — was soon followed by Twitter and Facebook humming with ‘Thank You’ messages to Prime Minister Narendra Modi and Home Minister Amit Shah.
The development was indeed reassuring to as many as 200,000 employees and a nearly an equal number of those in the partner community who majorly thrive on the business from the two ailing public sector behemoths striving for revival amid brutal sectoral rivalry, that too in the absence of high-speed data network.
But some are wondering what’s the fuss about? The much-sought Centre’s revival strategy lacks teeth with challenges galore. No timeframe is attached to the commercial fourth-generation or 4G-backed service rollout, and the much-awaited assets monetisation strategy – an integral component of the overall reprieve - is beset with bottlenecks.
The ambitious blueprint that has come after more than a year-long continuous ask from the top officials of BSNL and MTNL, principally talks about offering the voluntary retirement scheme (VRS) to drastically cut the wage burden, allocating next-generation airwaves administratively to make the two telcos competitive, and monetisation of real estate assets.
Virtual Retirement Scheme (VRS)— Virtual becomes a reality now
The Centre has announced an ambitious VRS for the employees who have attained 50-years of age. The ex-gratia component of the scheme comes at Rs 17,169 crore with the cost towards pension, gratuity and commutation to be borne by the government.
With more than 92,500 employees of BSNL and MTNL taking the voluntary scheme, it is expected to save as much as Rs 8,500 crore annually. Of the 22,000 MTNL headcount, 14,378 have opted for VRS, while BSNL’s nearly 78,500 employees choose to part ways. However, a few of them have also withdrawn their applications during a month-long window.
Under the formula, employees would receive 100-125% of the salary for remaining years of service, including the retiring month wage-based pension.
It may be arguably correct that if the workforce is reduced to such a large extent, then the telcos’ operational efficiency would go for a toss. However, BSNL maintained that it would continue to further hire resources on need basis and would focus on outsourcing some of the functions with outcome-oriented approach.
“We will do the outsourcing at that point (in the wake of deficit skilled manpower) of time, to maintain the operations, and may also opt for the people on the monthly contract basis, so that the gap can be fulfilled,” BSNL chairman Pravin Kumar Purwar said while dispelling fears.
Is 4G Coming Anytime Soon?
Due to the unavailability of high-speed data network or fourth-generation (4G) technology, both companies have been taking a revenue hit for many quarters and that too at a time when rivals were upping their 4G ante.
The loss-making telecom carriers, since the billionaire Mukesh Ambani-owned Jio’s disruptive 4G commercial launch in September 2016, have sought 4G airwaves to keep subscribers enticed from possible erosion.
BSNL is set to get frequencies in the 2100 MHz spectrum for pan India operation except in the Rajasthan circle, while MTNL, which only operates in two metros, would roll out data services on the 1800 MHz in Delhi and 2100 MHz band spectrum in Mumbai.
Considering 4G is key to the ambitious comeback of the two operators, the Cabinet has approved administrative allocation of radio waves to offer broadband and other data services at 2016 prices.
The spectrum, according to a government statement, would be funded through capital infusion at a value of Rs 20,140 crore and the Goods and Service Tax (GST) amount of Rs 3,674 crore to the spectrum value would also be borne by the Centre through budgetary resources.
“If you look at the market, it is gradually becoming data-based with 50% or more revenue coming from data services. So, data is an important piece for any telco to survive,” Purwar earlier said.
BSNL aims to roll out 4G services within the next six months with an outlay of Rs 1,200 crore on network deployment and expansion while in the current constraints, it is planning for network upgrade wherever possible.
“Offering data services would be challenging for at least one year as the ambitious rollout is expected to entail additional spend for procuring equipment and undertaking deployment,” PK Jain, president of the Indian Telecommunications Services Association (ITSA) said.
Assets Monetisation a Far Cry
The Cabinet has agreed to a Rs 38,000 crore-asset monetisation scheme over a period of four years. The initiative is a step to further monetise real estate across the country worth Rs 1 lakh crore through the Department of Investment and Public Asset Management (DIPAM).
The proceeds as envisaged, would be used to raise resources for retiring debt, servicing of bonds, network up-gradation, expansion and meeting the operational expenses.
Ironically, in the current economic stress-like scenario, attracting a prospective buyer is one of the top bottlenecks in addition to policy pain points, say experts.
BSNL, according to Purwar, has identified as many as 14 high-value land parcels worth about Rs 8,000 crore as part of a phased approach, and added that the telco has been receiving support from the government to overcome existing challenges.
In order to smoothen the process, the BSNL’s top management wants to allocate its land resources in-principle to other government departments and agencies.
Sandeep Agarwal, co-chairman of the Telecom Exports Promotion Council (Tepc) believes that the decision making in BSNL was even slower than many government departments, and may not be able to decide on the floor valuation of assets.
“Although BSNL has chosen properties which are comparatively cleaner for monetisation but still, approvals will be required to monetise which may delay the entire process,” Agarwal added.
Is Debt Restructuring via Rs 15,000 crore Worth Bonds Sufficient?
It is also devised that BSNL and MTNL would also raise long-term bonds of Rs 15,000 crore for which sovereign guarantee would be provided by the government. Such a step, according to the government, would restructure their existing debt and partly meet capital (Capex) and operational (Opex) expenditures.
BSNL and MTNL have the industry-lowest debt of Rs 15,000 crore and Rs 20,000 respectively.
However, due to continued adverse market outlook and financially-sick BSNL and MTNL in particular, the two public-sector companies have been struggling to obtain credit despite sovereign guarantee provided by the Department of Telecommunications (DoT), and that hostile sentiment is yet to diminish.
“Arranging Rs 15, 000 crores from the market by floating sovereign bonds will not be easy as it is still not clear as to what will be the public response because of adverse public perception,” ITSA said.
Merger Between BSNL & MTNL— Making the Two Ends Meet
The merger between the two public firms is back on the table after the initial plan during the former telecom minister, Kapil Sibal’s era was precluded following a slew of challenges including wage disparity and MTNL being a market-listed entity.
Instead, a synergy between the two was considered with a scheme of things in which BSNL might be asked to manage MTNL’s deteriorating network, but that too didn’t work out.
MTNL has a natural suitor, and it would marry to BSNL, as per plan. In the interim, it has been proposed that MTNL would act as a subsidiary of BSNL since the entire process of amalgamation would take a longer time.
“Merger of BSNL and MTNL is a big challenge because MTNL was created by an enactment in the Parliament and it is stocks are listed while BSNL was created under the Company’s Act and it is not a listed company,” Jain added.
What’s More to be Done – Now or Never?
In addition to accelerated efforts to maximise revenue from the consumer as well as enterprise business, the immediate credit infusion is much needed to keep the two telcos afloat to primarily fund operational expenditure (Opex).
While Purwar at the helm of affairs, it is high time to step up efforts to bring down operational cost and internal expenses to substantial levels. BSNL, in particular is aiming to cut power consumption by 15% or to save nearly Rs 400 crore annually from the present Rs 2,700 crore worth expense.
The Universal Service Obligation Fund (USOF), a Rs 50,000 worth strong corpus to fund rural telephony should treat BSNL fairly, and shouldn’t create any sort of bottleneck in clearing dues to the state-owned telco. This is also since both operators must-win back vendors trust which has been lately weakened following delayed outstanding payments.
“Both BSNL and MTNL have legacy work culture which is quite bureaucratic and the human resource which is brought from the then DoT, do not have mind-set of a service provider. If that work culture continues, it is very difficult to turn around the company,” ITSA’s Jain said.
Customer care and optimum uptime are some of the critical areas that need a holistic relook by the two public-owned companies.
“Proper maintenance philosophy is to be formulated and adopted to minimise the downtime of services. The proper up-keep should also to be ensured so that there would be no break down in the services,” Jain added.
With 4G around the corner, the public sector service providers should renew its efforts to upgrade 2G and 3G networks across circles with a focus to achieve industry goals of Voice over LTE or VoLTE, in addition to efforts to bring out effective leasing models for vast telecom infrastructure encompassing 68,000 telecom towers and 7.60 lakh kilometres of fibre network.
“Optical fibre networks of BSNL and MTNL should be sold out and leased back via Infrastructure investment trusts (InvITs) and could be managed at an arms-length by third parties ready to provide a seven-year-long service-level agreement (SLA),” Agarwal said and added that such an initiative would boost their income significantly.
The model once implemented by state-run operators, according to him, shall attract sovereign funds such as SoftBank and multinationals like Google, Facebook, Amazon and Netflix could provide a decent Return of Investment (RoI) to BSNL and MTNL.
Of the 20% telecom towers currently under the tenancy, BSNL gets roughly Rs 200 crore annually which, according to Purwar, is an area that the telco would focus to further increase additional revenue to up to Rs 1,000 crore a year.
The state-controlled has recently started dark fibre leasing, and have plans to further look into various strategies including InviT to deleverage its balance sheet.
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