BSNL is becoming an example for an inefficient public sector enterprise in India. There are several factors that can affect the leadership of BSNL in several segments in Indian telecom.
Due to the inadequate action by the Department of Telecommunications (DoT), BSNL may not be able to renew a subsidy worth Rs 2,000 crore which is meant for rolling out landline services in India’s rural areas.
Starting July 2008, BSNL enjoyed a subsidy of Rs 2,000 crore for a period of three years. The subsidy was as per the provisions of the USO Fund. This subsidy was aimed at compensating the telecom service provider as BSNL lost out on access deficit charges ( ADC) three years ago.
If BSNL is unable to benefit from the subsidy in coming years due to the negligence of the telecom department, it will affect the ambitious broadband plans of BSNL. One of the main focus areas of BSNL during 2011-12 is broadband expansion.
BSNL is the leader in fixed line broadband thanks to its landline connections spread across the country. BSNL’s broadband revenues stood at Rs 895.38 crore for the quarter ending June 2011. BSNL competes with Airtel (0.58 crore revenue), Aircel (Rs 20.87 crore), Sify (13.24 crore), Tata Internet Services (Rs 4.10 crore), Tulip Telecom (Rs 16.71 crore) and Vodafone Spacetel (Rs 5.53 crore).
However, BSNL is facing tough competition from private players. The innovative wireless data cards and schemes offered by companies such as Tata Teleservices, Reliance Communications, Airtel and Sistema Shyam Teleservices have the potential to threaten the leadership of BSNL in broadband business. Roll out of LTE services will add more pressure on BSNL’s existing market share in broadband.
Despite BSNL’s innovative partnerships including the Apple iPad 2 deal, the mobile operator is going through a tough phase. It seems that new chairman and MD, R K Upadhyay’s efforts have still not hit home, as BSNL posted a drop in revenues from Rs 7,208 crore for the quarter ending March 2011, to Rs 7,139 crore in the quarter ending June 2011. Despite some of the lowest tariffs in the country and most attractive schemes, people are skeptical of latching on to BSNL’s network which is known for inconsistent coverage and other hang-ups.
Losses for the company continue to accrue due to the large number of staff salaries. While the telco has received vast criticism for being inefficient, despite being overstaffed, DoT seems to have finally taken up this matter, by asking the PSU to reduce the current headcount of 280,000 by one lakh, following up on a similar proposal by Advisor to the PM on public information infrastructure and innovations, Sam Pitroda.
BSNL had earlier proposed trimming its workforce by 21,000, in the light of a huge cash-deficit, but on further consideration, the DoT has upped this number by a much larger margin, looking at this as the only way to arrest falling revenues. Employees may be provided with various schemes including VRS, if they have to leave.
Ironically enough, this announcement from DoT came a few days after BSNL – pulling on desperate measures to save its interests from being dissolved – suggested to its employees to rope in their families to help the company, by way of becoming direct mobile recharge selling agents on a commission basis of 4.5 percent. Based on the success of the idea, the family members could move on from selling mobile recharge vouchers to SIM cards and other products.
Looking at a steady drop in revenues for both state-run telcos – BSNL and MTNL, the DoT floated a proposal twice – in 2008 and 2011 for a proposed merger between the two, where each could benefit from each other’s strengths and cut costs drastically. However, on both occasions, these plans fell through.
Meanwhile, the Finance ministry asked the DoT not to entrust BSNL with the Rs 20,000-crore project to build a national broadband network in rural areas, starting with village constituencies, that was earlier approved by telecom minister Kapil Sibal. It has suggested that a special purpose vehicle (SPV), consisting of a consortium of mobile operators, should run the project, via a free and fair auction process to decide which operators will be given this project.
Undeterred thus far, BSNL has now asked the DoT to set up a single common wireless broadband network for rural areas, with support from the USOF, as opposed to several operators setting up parallel networks in the region. This will allow all the other operators to be able to use this wired network to provide broadband services in rural areas, and would follow an MVNO model. BSNL’s petition came after the DoT announced its plan to launch a scheme favouring two operators to set up broadband infrastructure in each circle through auctions for the same.
While the decision taken by the Finance ministry, may be to ensure a free and fair chance for all operators to expand their broadband network across the country, without allowing BSNL to become a monopoly in rural areas, another reason may also be a lack of trust in BSNL’s abilities to fulfill this obligation. It is a known fact that very little progress has been made since BSNL was awarded the contract to roll out broadband on a mass scale in rural areas, and with the recent uncertainty on whether it will continue to be given a subsidy from the USOF for roll-out operations, the telco may well slow down its expansion operations.
The telecom industry is happy that the ministry is not favouring BSNL for the wireless broadband network. But several consumers in the country enjoyed cost effective telecom packages thanks to both BSNL and MTNL. Both of them forced private players to come out with innovative tariffs. If BSNL starts losing out on its broadband leadership, it will hamper the consumer interest.
By Beryl M
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