Can the BSNL-MTNL Merger Assist them to Retain the Lost Glory?

The DoT proposal of a merger between the two state-run telecom firms – BSNL and MTNL has been revisited after a gap of three years, in a bid to streamline costs and cut glaring losses.

In a draft floated by the DoT in February, it had said, BSNL and MTNL should be merged as they have complimentary operations and can combine their strengths for synergies. Increasing competition in the telecom sector has also led to a dip in the performance of the PSUs. The structure of BSNL and MTNL make it difficult for them to be accountable for their performance. DoT should therefore set up a multi stakeholder committee to develop a restructuring plan for both firms.”  According to the department’s proposal, the committee should have members from public enterprises, DoT and department of IT and ministry of finance.

The merger plan was earlier shunned due to MTNL being a listed company and opposition from BSNL employees.

MTNL reported a net loss of Rs 2,611 crore on revenue of Rs 3,781 crore during the financial year ended March 31, 2010. BSNL expects to register a net loss of Rs 2,725 crore on revenue of Rs 31,738 crore during the fiscal year ended March 31, 2011.

Both MTNL and BSNL also received 3G spectrum two years before private operators, but failed to garner a substantial 3G base, which only was reduced further with competition from private operators who started rolling out 3G services towards the end of last year.

Providing more steam to the argument, MTNL offers services only in Delhi and Mumbai, while BSNL operates in rest of the country. If both PSU’s were to merge, they could together offer services all over the country. The Centre holds a 56.25 percent stake in MTNL and is listed on the New York Stock Exchange (NYSE) and India, while BSNL is 100 percent owned by the government. Both the PSU’s together hold a 12 percent share of the Indian mobile market and presently have roaming arrangements with each other.

According to a recent statement by DoT, There are valid arguments in favour of the merger and we are considering it. However, even if the two entities are not merged immediately, they can, at present, work out a mode of functioning as a pan-India service provider.”

So what are the likely benefits of the merger? According to a statement by Kuldip Singh, chairman and MD, MTNL, The merger is for the government to decide, but bringing synergy is one of the objectives of the merger. The idea of synergy is to provide seamless connectivity to the customers.”

 

Single window services such as one billing and redressal mechanism for subscribers of both the firms is a possibility. Telecommunications, enterprise and customer care will also be streamlined, according to TRAI norms of synergy. Enterprise and VAS are major areas of concern for both the service providers, who have been struggling to come up with attractive schemes for customers like the recent reduced tariff plan by BSNL for paramilitary forces and MTNL’s  partnering with DigiVive for mobile TV services for its 2G and 3G customers.

“The first consideration would be benefit to our customers. The second consideration in that order of priority would be that it should be mutually beneficial to both the organizations, and at the same time to top it all, it should be within permissible norms,”  RK Upadhyay, CMD, BSNL was quoted as saying.   

 

As was reported earlier by TelecomLead.com, BSNL is facing a host of hurdles right from delays in its IPO plans due to declining net profits, decline in its wireless and wireline business, and loss of customers due to MNP – not to forget its’ afore mentioned inability to cash in on 3G. However, it is still a leader in broadband and in the rural areas of the country.

This is an area where MTNL stands to score – the latter having received immense flak thanks to its fluctuating broadband connection speed. Besides, MTNL is also facing a rapid decline in its landline connection and stiff competition from wireless service providers in Delhi and Mumbai. The operator also decided to take a franchise route for its 3G services due to heavy CAPEX investment needed, which did not correspond to its 3G subscriber base numbers.

With MTNL recently shelving its plans indefinitely for WiMax bids from private players, and BSNL being commissioned to conduct large scale deployments of WiMax in rural areas, this merger could be timely for both companies.

Sachin Pilot, minister of State for Technology in a recent interview said, We think it’s a good idea for two large companies like BSNL and MTNL to leverage their resources. If they can be complimentary to each other, why not create a one stop shop for a consumer who wants national coverage. But anything we do will be done only after taking into consideration the views of the management, employees, and all the stakeholders in both these companies.”

 

 The Board for Reconstruction of Public Sector Enterprises had also recently recommended that along with MTNL, telecom equipment manufacturer, ITI should also be merged with BSNL.

The merger is not the right solution to retain their lost glory. The government should infuse fresh life by inducting professionals. By bringing RK Upadhyay as the CMD of BSNL, the government lost an opportunity. Both the companies are facing red-tapism, unable to meet customer demands, still using old systems and growing slowly. Merger can considered be later.

 

Beryl M

 

editor@telecomlead.com