Why BSNL-MTNL merger will not make sense for Indians? 

India’s union cabinet has approved a revival plan for ailing telecoms BSNL and MTNL. The India government is considering the merger of MTNL with BSNL in order to revive the two state-owned mobile operators.
BSNL Kerala offersThe bailout package includes merger, strengthening the finances through sovereign bonds, offering voluntary retirement scheme (VRS) and providing 4G spectrum at administrative rates. The entire package would cost around Rs 70,000 crore.

The package includes raising of Rs 15,000 crore sovereign bonds to meet the capital need of both the companies, 4G spectrum allocation worth Rs 20,140 crore, Rs 29,937 crore for VRS covering 50 percent of their employees, and Rs 3,674 crore for goods and services tax that will be levied on allocation of spectrum.

4G spectrum will be provided administratively at 2016 price and monetise the assets of  BSNL / MTNL worth around Rs 38,000 crore in the coming four years,” Ravi Shankar Prasad, minister of Telecommunications and Information Technology, told reporters in the national capital.

BSNL and MTNL will also offering VRS for the employees who are 53-and-a-half years and above age. Such an employee will be offered 125 percent of their salary, gratuity, pension, etc all computed till the age of retirement (60 years).

BSNL and MTNL put together have employee base of around 1.90 lakh employees (1.68 lakh and 22,000), and around 50 percent of the total employees eligible for the VRS.

BSNL’s loss is estimated to be around Rs 14,000 crore with revenue of Rs 19,308 crore in FY19. In 2017-18, the provisional loss of BSNL was Rs 7,993 crore and is estimated to swell to Rs 14,202 crore in 2018-19. The number of employees in BSNL stood at about 165,179.

BSNL has 7.5 lakh kilometer optical fiber network across the country. Jio has OFC network of nearly half the length at around 3.25 lakh kilometers, followed by Airtel with 2.5 lakh kms and Vodafone Idea with 1.6 lakh kms, according to the data compiled by Sanchar Nigam Executives Association (SNEA).

BSNL has lands and properties at premium locations with an estimated value of over Rs 3 lakh crore. The revival plan approved by the Modi government includes arranging Rs 38,000 crore in the next four years through monetisation of BSNL’s land and properties.

BSNL sources said the company has a loan liability of just Rs 20,000 crore. Vodafone India has loan liability of Rs 1.18 lakh crore followed by Reliance Jio with Rs 1.12 lakh crore and Airtel with Rs 1.08 lakh crore.

BSNL has over 66,000 towers. BSNL has created a separate company – BSNL Tower Corporation (BTCL) – to monetise its huge investment in the tower infrastructure. The company aims to follow the tower sharing model to capitalise the large number of mobile towers it has.

BSNL plans to roll out 60,000 mobile sites for 4G services across India for an estimate cost of up to Rs 7,200 crore. The company has already installed 10,000 mobile sites for 4G service in select cities of Kerala, Rajasthan and Uttar Pradesh and plans to activate all of them within one and half month.

“In the first phase, we have plan to roll out 60,000 mobile sites for 4G services across India in the next 12-15 months. These sites will be rolled out in cities where penetration of 4G handset is high and BSNL has good customer base,” BSNL Chairman and Managing Director P K Purwar said.

Why merger will not be effective?

The plans to merger two ailing companies will not bring any significant impact on the Indian telecom industry.

First, both BSNL and MTNL fail to attract high-ARPU customers in the recent past. They do not even have enough capacity to handle data demands of Indians.

Second, BSNL and MTNL have failed to attract talent. Both companies are still run by government employees. BSNL never had strong leaders to achieve their financial targets in the past several years.

Third, both MTNL and BSNL lost the 4G business opportunity. Venturing into 5G without 4G background will not materialize any result.

Fourth, BSNL will not considerable market share in the broadband space in the wake of the entry of Reliance Jio. BSNL has already lost market share in both fixed phone and mobile phone business.