Editorial: Don't delay this call

It was only a couple of years ago that the government-owned Bharat Sanchar Nigam Limited (BSNL) and market leader Bharti Airtel had roughly the same number of mobile phone subscribers. Today, BSNL has less than 60 per cent of Bharti Airtel's numbers and, last year in May, even Vodafone-Essar beat it to the second slot. While Bharti Airtel's superior marketing and service presumably have something to do with the shift in market shares, a large part of BSNL's relative decline has to be explained by its severe equipment shortage, which prevents it from rolling out its services fast enough to meet consumer demand. The most eloquent testimony to this is the fact that six months after Communications Minister A Raja intervened to get BSNL's 45-million-line order slashed and price reduced, the state-owned company is now coming out with an order for 100 million lines. While it must be conceded that Mr Raja's intervention has helped reduce costs, by how much is not clear "" given the way the prices of electronic equipment fall all the time, any delay in taking purchase decisions inevitably results in lower prices. Also, it is not clear how much of the price reduction agreed to by equipment supplier Ericsson is due to the changed specifications of the tender. While the benefits are not clear, the losses are easier to quantify and run into hundreds of crores of rupees in terms of revenues that BSNL could not earn from would-be subscribers. In terms of market capitalisation, the loss is far greater since the subscribers BSNL lost have probably been lost forever if they signed up with some other mobile phone provider when BSNL could not meet their needs. These losses probably run into several billion dollars, if one takes into account that Vodafone paid Hutch around $700 for each subscriber. In other words, it is clear that the minister's intervention has proved very costly for the state-owned telecom company.

 

Against this background, it should be obvious that any further delay in the company's procurement plan will serve as a double blow, especially since the extra funds it got by way of Access Deficit Charges (ADC) are on the way to being phased out. It is also not clear as to what benefits BSNL will get if it goes ahead with some of the proposed changes from the previous tender. These proposals include having separate tenders for each of four zones in the country and even calling for separate bids for different parts of the network such as billing systems, IT solutions, and so on. It is true that companies like Bharti Airtel have done well by bidding out separate parts of their network, in terms of both cost savings and increased efficiencies. But it is an open question as to whether a government company has the managerial savvy to execute such complex arrangements; indeed, given how long it takes for it to get each tender approved, adding more tenders that require clearance is perhaps not the smartest thing to do. That applies to running networks being laid out by, potentially, four different suppliers.

The problem is that Mr Raja is not the kind of minister who will let things be and allow the company management to function unhindered. And given what has happened on spectrum auctioning, it is not clear the Prime Minister will intervene if things go wrong. Since the Left parties draw a lot of their support from trade unions, such as those in BSNL, they may like to ensure that the company is allowed another chance to compete effectively.