A serious problem is staring at the government in general and telecom minister Kapil Sibal in particular—a problem that the New Telecom Policy 2011 will not be able to address. Come next June, the state-owned BSNL would not have money to pay salaries to its nearly 2.8 lakh employees, and if the government wants to avert this crisis, it needs to expeditiously draft and clear a voluntary retirement scheme (VRS) for roughly 1 lakh employees of the PSU. The government can do its arithmetic, but back of the envelope calculations show that it would have to shell out around R15,000-18,000 crore to fund this VRS programme. Is it ready to cough up this kind of money? One does not know, but what is certain is that come next June, a bailout would become necessary for the company.
This is the economics of the company—which is not listed and so does not...come out with quarterly results, and its earnings for the fiscal 2010-11 are yet to be officially announced. However, officials say that its net loss for the year stands at R6,384 crore. Add to this a net loss of around R400 crore that the company is understood to have posted in the April-June period of the current fiscal. Since July, the yearly R2,000 crore it used to get from the Universal Service Obligation Fund in lieu of the discontinued access deficit charge has also stopped. This means during the current fiscal the company is losing around R25 crore each day and R750 crore each month!
How is the company, then, still managing operations? The answer is simple: by dipping into its cash and depreciation reserves. But this will also not last long and, therefore, the deadline of June 2012. BSNL had huge cash reserves of around R30,000 crore. However, last year’s...3G and broadband wireless spectrum auction cost it dear. It had to dip into it to pay for them—an exorbitant R18,500 crore. It is now left with some R5,000 crore, which would enable it to last a maximum till June next year.
There isn’t much to expect on the revenue side because, for the last three years, the company’s revenues have been stagnant at around R28,000 crore while its costs—especially wage costs—keep rising. The company’s wage bill is at R12,000 crore and is expected to rise by 10% because of the mandatory revision it has to make each year. Simply put, its wage bill constitutes around 42% of its revenue. In contrast, for private telecom operators, the wage bill is only 5-6% of their total revenues.
Whether it was former telecom minister A Raja or the current minister Kapil Sibal or their predecessors, all of them, time and again, have been mouthing...platitudes about how the company needs to turnaround and everything would be done to achieve that. In reality, with every platitude being mouthed, the company’s performance has only declined. Prime Minister Manmohan Singh has also expressed his concern in the past and constituted an expert committee under the chairmanship of former telecom czar Sam Pitroda. As happens in government with regard to PSUs, a revolutionary report was prepared, presented and summarily buried with no action taken.
Recently, a new chairman and managing director was appointed who has been making the right noises, but how much of that would get translated into action and yield result is anybody’s guess, considering the company’s short history. Its mobile market share has been falling and today is below 10%. It was given 3G spectrum two years before competition but has failed to make anything out of it. It has tried to find franchisees to market...its 3G services but failed to find any so far because of the shoddy manner in which its request for proposal was drafted—it still thought BSNL was in a sellers’ market. It hired Boston Consulting Group to restructure its functioning and, according to its recommendations, did alter its functioning by creating service verticals. It today talks about hiving off its tower business to unlock value, which makes sense, though the idea has dawned a trifle late at a time when the tower space itself has become overcrowded, threatening the viability of many. Reliance Infratel and GTL have been looking at buyers for months with no success.
What really will then turnaround BSNL? Well, in the past, as is happening now, noises are again being made that the company would offer VRS, create a cooperative for the surplus employees, become more market-friendly and customer-oriented and market certain services through franchisees. However, none...of these would work, considering that time has run out for such strategies to yield desired results. Today, the gap between it and the competition had widened so much that any of these steps are bound to fail. The core of BSNL staff—the Indian Telecommunication Services personnel—are no doubt a bright lot, but have been trained and equipped for a different era, not today’s competitive telecom service market. Further, till today, they have resisted absorption into the corporation and continue to be government staff. This means that if tomorrow BSNL turns sick, the government will have to post them somewhere else or keep paying their salaries.
There’s only one way the government can save the company and that is by diluting its stake to below 51%. Considering the asset base, spectrum and network of the company, it would be a steal for any private sector company, especially since all the new...licensees who could be potential targets for M&A are tainted and under litigation and investigation.
But this is a bold move. Is the UPA government ready for it? .... FE
This is the economics of the company—which is not listed and so does not...come out with quarterly results, and its earnings for the fiscal 2010-11 are yet to be officially announced. However, officials say that its net loss for the year stands at R6,384 crore. Add to this a net loss of around R400 crore that the company is understood to have posted in the April-June period of the current fiscal. Since July, the yearly R2,000 crore it used to get from the Universal Service Obligation Fund in lieu of the discontinued access deficit charge has also stopped. This means during the current fiscal the company is losing around R25 crore each day and R750 crore each month!
How is the company, then, still managing operations? The answer is simple: by dipping into its cash and depreciation reserves. But this will also not last long and, therefore, the deadline of June 2012. BSNL had huge cash reserves of around R30,000 crore. However, last year’s...3G and broadband wireless spectrum auction cost it dear. It had to dip into it to pay for them—an exorbitant R18,500 crore. It is now left with some R5,000 crore, which would enable it to last a maximum till June next year.
There isn’t much to expect on the revenue side because, for the last three years, the company’s revenues have been stagnant at around R28,000 crore while its costs—especially wage costs—keep rising. The company’s wage bill is at R12,000 crore and is expected to rise by 10% because of the mandatory revision it has to make each year. Simply put, its wage bill constitutes around 42% of its revenue. In contrast, for private telecom operators, the wage bill is only 5-6% of their total revenues.
Whether it was former telecom minister A Raja or the current minister Kapil Sibal or their predecessors, all of them, time and again, have been mouthing...platitudes about how the company needs to turnaround and everything would be done to achieve that. In reality, with every platitude being mouthed, the company’s performance has only declined. Prime Minister Manmohan Singh has also expressed his concern in the past and constituted an expert committee under the chairmanship of former telecom czar Sam Pitroda. As happens in government with regard to PSUs, a revolutionary report was prepared, presented and summarily buried with no action taken.
Recently, a new chairman and managing director was appointed who has been making the right noises, but how much of that would get translated into action and yield result is anybody’s guess, considering the company’s short history. Its mobile market share has been falling and today is below 10%. It was given 3G spectrum two years before competition but has failed to make anything out of it. It has tried to find franchisees to market...its 3G services but failed to find any so far because of the shoddy manner in which its request for proposal was drafted—it still thought BSNL was in a sellers’ market. It hired Boston Consulting Group to restructure its functioning and, according to its recommendations, did alter its functioning by creating service verticals. It today talks about hiving off its tower business to unlock value, which makes sense, though the idea has dawned a trifle late at a time when the tower space itself has become overcrowded, threatening the viability of many. Reliance Infratel and GTL have been looking at buyers for months with no success.
What really will then turnaround BSNL? Well, in the past, as is happening now, noises are again being made that the company would offer VRS, create a cooperative for the surplus employees, become more market-friendly and customer-oriented and market certain services through franchisees. However, none...of these would work, considering that time has run out for such strategies to yield desired results. Today, the gap between it and the competition had widened so much that any of these steps are bound to fail. The core of BSNL staff—the Indian Telecommunication Services personnel—are no doubt a bright lot, but have been trained and equipped for a different era, not today’s competitive telecom service market. Further, till today, they have resisted absorption into the corporation and continue to be government staff. This means that if tomorrow BSNL turns sick, the government will have to post them somewhere else or keep paying their salaries.
There’s only one way the government can save the company and that is by diluting its stake to below 51%. Considering the asset base, spectrum and network of the company, it would be a steal for any private sector company, especially since all the new...licensees who could be potential targets for M&A are tainted and under litigation and investigation.
But this is a bold move. Is the UPA government ready for it? .... FE
