MTNL-BSNL service agreement awaits as DoT checks for tax implications

The 10-year service agreement is crucial for MTNL which is struggling with a heavy debt load of Rs 31,944.51 crore as well as facing operational challenges

The Department of Telecommunications (DoT) is currently scrutinising potential tax implications before granting final approval to a significant 10-year service agreement between Mahanagar Telephone Nigam Ltd (MTNL) and Bharat Sanchar Nigam Ltd (BSNL), according to a report by the Financial Express. This agreement, approved by MTNL’s board on Wednesday, is a strategic move that allows BSNL to manage MTNL’s operations without merging the two state-run telecom giants.

The DoT’s focus on possible tax implications highlights the government’s cautious approach to avoiding unforeseen financial liabilities. Officials are particularly concerned about ensuring that the deal doesn’t result in additional costs for the government, which is already supporting MTNL’s sovereign bond payments but has refrained from covering other liabilities, such as the company’s substantial bank debt.

MTNL-BSNL 10-year agreement

This agreement is seen as a pivotal step for MTNL, which is struggling under a debt load of Rs 31,944.51 crore and facing operational challenges. The partnership with BSNL is aimed at stabilising MTNL’s finances by achieving earnings before interest, taxes, depreciation, and amortisation (Ebitda) neutrality, ensuring that its revenue matches its expenses. This financial stability is crucial for the planned rollout of 4G and 5G services in Delhi and Mumbai, regions currently served by MTNL. 

In addition to the service agreement, MTNL’s board has approved several other key proposals. These include the sale of shares in its overseas subsidiary, Mahanagar Telephone (Mauritius) Ltd (MTML), and in MTNL STPI IT Services Ltd (MSITS), as well as the closure of Millennium Telecom Ltd (MTL), all in line with guidelines from the Department of Investment and Public Asset Management (DIPAM).

Agreement aims for efficiency

The agreement between MTNL and BSNL allows for flexibility, with provisions for early termination or extension by mutual consent. This arrangement is designed to sidestep the complexities of a merger, which had been previously considered but was deemed too challenging to implement.

MTNL, which currently holds a modest 0.2 per cent market share with about 1.9 million wireless subscribers, is aiming to boost its operational efficiency through this collaboration with BSNL. However, the DoT’s final nod will depend on the resolution of any tax or financial issues that may arise, ensuring that the government’s fiscal interests are protected.