Another 'revival plan'

BSNL and MTNL should be privatised

Union Telecommunications Minister Ravi Shankar Prasad told reporters on Tuesday that the Union Cabinet had come to a decision on what would be done to the two state-owned telecom firms, Bharat Sanchar Nigam Limited (BSNL) and Mahanagar Telephone Nigam Limited (MTNL). The two companies would be merged, he said, with MTNL, which operates in Delhi and Mumbai, serving as a subsidiary of BSNL till then. The two companies were, according to the Union Budget for 2019-20, supposed to raise over Rs 15,000 crore through internal and extra budgetary resources. This money will be raised through the issue of bonds that will be serviced by the state-owned firms but, of course, guaranteed by the Union government. This is a drop in the ocean of what BSNL alone has lost up to this moment. The unlisted PSU lost almost Rs 14,000 crore in financial year 2018-19, which took its accumulated losses to over Rs 90,000 crore at that point. MTNL has  about Rs 20,000 crore of debt on its balance sheet. 

The question is if the government genuinely believes that these entities can be turned around into useful contributors to the sector. On the “pro” side of the ledger, the assets, especially land, on which the PSUs are sitting could perhaps be worth Rs 70,000 crore or more. Set against that is a slew of negatives, beginning with the companies’ inflated salary bill. The almost 200,000 employees in MTNL and BSNL together take up the lion’s share of the outgo — in BSNL’s case, 77 per cent of what it spends is on salaries. The revival plan agreed upon by the Cabinet hopes that an attractive voluntary retirement package will tempt a good number of these workers to retire in the next five to seven years. BSNL has also asked for an equity infusion from the government equivalent to the administered price of 4G spectrum — since it is of the opinion that a lack of 4G spectrum has rendered it uncompetitive against private sector 4G players. 

The telecom sector is notoriously nimble — even incumbent private sector players have struggled to deal with the most recent entrant, Reliance Jio. Much depends upon pricing and the quality of service. The sector is less a large-scale network infrastructure business and more a service provision game now — and in this contest, the public sector will always lose to private sector players that are inherently more responsive to consumers. It is also deeply unfair to legacy players who took on enormous amounts of debt to buy spectrum and retain competitiveness in the sector to have to face a public sector major with access to spectrum at administered prices, and that faces a soft budget constraint since it can borrow against the word of the sovereign. Constant backing to Air India led to a distorted aviation market that has now killed not one but two full-price airlines. Is this what the government wishes to do to the telecom sector? It must face facts: BSNL and MTNL cannot be turned around without taxpayers shelling out a substantial amount. And even if they could, the effort would distort the market and drive private players out, causing overall social losses. These firms need to be privatised, not revived.