The Department of Telecom has reinitiated the move to merge Bharat Sanchar Nigam Ltd and Mahanagar Telephone Nigam Ltd, in a bid to streamline operations and improve profitability.
Note sent to EGOM
In a note prepared for the consideration of the Empowered Group of Ministers headed by Finance Minister P. Chidambaram, the DoT has said that both PSUs face competition from pan-India operators who are in a position to extend benefits especially to enterprise and business customers, while BSNL and MTNL are hampered by their inability to offer a similar dispensation.
“Merger of BSNL and MTNL into a national telecom service company may be considered for strategic and operational synergies,” stated the DoT note to the EGoM. This is part of the telecom ministry’s plans to revive the two telecom companies. The unaudited financial results for 2012-13 indicates that BSNL would make a loss of Rs 8,198 crore, while MTNL recorded a loss of Rs 3,335 crore up to December 31,2012.
MTNL’s net worth is likely to be eroded completely in the first quarter of 2012-13, while BSNL’s net worth is in excess of Rs 50,000 crore, most of which is locked in fixed assets. “The employee cost as a percentage of revenue is over 103 per cent for MTNL and 49 per cent for BSNL against the industry average of less than 5 per cent,” the DoT note said.
Therefore, DoT has proposed short-term and long-term strategies to help the two PSUs fight competition from the private players. This includes paying Rs 5,925 crore to MTNL as a one-time amount towards settling its pension liabilities. Pension contributes 86 per cent of the salary costs at present and is expected to exceed salary costs by 2014-15.
DoT has also backed BSNL’s Voluntary Retirement Scheme to reduce the workforce by one lakh people.
DoT said the VRS can be funded through various options, including from the money generated by selling land owned by the company or through interest-free loans by the Government. The department has also suggested that Government institutions and employees should be asked to use telecom services only from the two PSUs. “Reimbursement facility provided to Government employees may be made applicable only if they take connection from BSNL or MTNL,” DoT said.
This is not the first time that the DoT is trying to embark on a plan to revive the two telecom PSUs. The proposal to merge the two companies was floated few years back, but it was put on the back burner after issues related to de-listing of MTNL shares and employee parity was raised.
A committee headed by Sam Pitroda, Advisor to the Prime Minister, had also suggested a number of things including hiving off the telecom companies infrastructure into a separate unit to unlock value. But all these efforts have either gathered dust to lack of political will or due to strong opposition by the workers union.
It is not clear how the DoT will push through with these proposals.