In a fresh attempt to infuse new life into the state-run telecom operator, Bharat Sanchar Nigam Limited (BSNL), the government has announced a revival package worth Rs 1.64 trillion and approved its merger with Bharat Broadband Network Limited (BBNL). With these measures, the government hopes BSNL will turn profitable by 2026-27.
This is the second major attempt by the government to help BSNL achieve a financial turnaround. Earlier, in October 2019, it had provided a bailout package worth Rs 740 billion to BSNL, with a significant part of it (around Rs 299.37 billion) being earmarked for the employees’ voluntary retirement scheme. The scheme helped the company achieve a substantial reduction in its wage bill. Consequently, the operator narrowed its losses by around 52 per cent, from Rs 155 billion in 2018-19 to Rs 74.41 billion in 2020-21. Moreover, BSNL reported a positive earnings before interest, taxes, depreciation and amortisation (EBITDA) of Rs 11.77 billion in 2020-21 as against a negative EBITDA of Rs 68.79 billion in 2019-20.
The first bailout package helped BSNL improve its financial metrics by bringing down its expenses. However, despite increased support from the government, the operator struggled to shore up its revenues. On the contrary, its revenues declined from Rs 189.07 billion in 2019-20 to Rs 185.95 billion in 2020-21.
The financial package announced this time aims to support BSNL in improving its quality of services and increasing its 4G footprint, besides helping it deleverage its balance sheet. The fresh set of revival measures reaffirm the government’s intent to keep BSNL afloat owing to its significant role in providing telecom services to sectors of strategic importance, such as defence, and expanding digital connectivity to rural and remote areas of the country.
Measures to improve BSNL’s financial health
The new revival plan comprises a slew of measures to help BSNL improve its financial and operational performance. The government has allowed BSNL to raise Rs 403.99 billion through the issuance of long-term bonds with a view to restructuring its existing debt and de-stress its balance sheet. To further improve its balance sheet, the government has announced that BSNL’s adjusted gross revenue (AGR)-related dues, amounting to Rs 334.04 billion, will be settled by converting them to equity. Moreover, the government will provide funds to the company for settling the outstanding amount on account of the remaining AGR-related and GST-related dues. The government has stated that the authorised capital of BSNL will be increased from Rs 400 billion to Rs 1,500 billion in lieu of AGR dues, provision of capex and allotment of spectrum. Furthermore, BSNL will reissue preference shares of Rs 75 billion to the government. The revival package also includes a viability gap funding of Rs 137.89 billion to BSNL for running commercially unviable rural wireline operations from 2014-15 to 2019-20.
The government has announced that it will fund BSNL’s capital expenditure for the next four years. This is projected to be around Rs 224.71 billion and will include spending on the development and deployment of an Atmanirbhar 4G stack, a move that would significantly boost the growth of indigenous technologies in the country.
The revival package also includes measures to improve the quality of BSNL’s services as well as enhance its 4G footprint. For instance, the government has announced that BSNL will be allotted spectrum in the 900/1800 MHz bands administratively at a cost of Rs 449.93 billion through equity infusion. With this spectrum, BSNL will be able to provide high speed 4G services, especially in rural areas, and compete with other private players that are already offering 4G services and also gearing up to launch 5G services.
Merger with BBNL to expand BSNL’s broadband footprint
Besides approving a mega financial package for BSNL, the government has given its go-ahead to the merger of BBNL with the state-run telecom operator. BBNL is a special purpose vehicle set up by the government in 2012 under the Ministry of Communications. The aim was to establish, manage and implement the BharatNet project, which seeks to provide high speed optical fibre cable (OFC)-based connectivity to all 250,000 gram panchayats in the country. The merger will help BSNL gain access to an additional 0.585 million km of optical fibre network, which has been laid across 0.19 million gram panchayats under the BharatNet programme. Currently, BSNL’s own optical fibre network covers around 0.8 million km. The OFC infrastructure under BharatNet will help BSNL service a growing number of fibre-to-the-home (FTTH) connections. At present, BSNL has around 2 million FTTH subscribers and is witnessing steady growth in this segment.
BBNL’s merger with BSNL is likely to bode well for the BharatNet project as well. Even before the merger, BBNL depended, to a large extent, on BSNL to provide connectivity and bandwidth at the block or village level. Further, since BBNL was established purely as a project management entity, it had limited experience and manpower for marketing and commercial utilisation of telecom networks. The government believes that giving the management of BharatNet, including the responsibility for its operations and maintenance, and network monetisation to a single agency will bring greater synergies and accountability, resulting in better outcomes.
Real revival is a much bigger challenge
Industry experts believe that increased financial support from the government will keep BSNL going for now. However, a real turnaround would require the operator to compete aggressively with the private players by bringing a significant improvement in its service quality. This, however, is easier said than done. For one, while the three private players are now gearing up to launch 5G services, BSNL is still struggling to expand its 4G footprint. Moreover, with private operators making inroads into rural and remote areas with affordable tariff plans and the promise of high speed data services, BSNL is slowly losing its dominance in this segment. Further, the inordinate delay in the merger of Mahanagar Telephone Nigam Limited (MTNL) with BSNL has precluded the latter from rolling out its services in the key markets of Delhi and Mumbai.
The other challenges for BSNL stem from its very nature of being a public sector undertaking. Hence, more often than not, BSNL’s decisions are guided by social considerations rather than commercial viability. Moreover, as per government norms, BSNL is required to go with the lowest bidders for technological collaborations, and these may not always offer the best service quality. In a market where the technology dynamics are changing at a brisk pace, BSNL ends up losing to its rivals when it comes to rolling out next-generation technologies.
Besides BSNL’s critical role in expanding telecom services in rural areas, developing indigenous technologies and providing connectivity to strategic and sensitive players, the government believes that a strong state-run player is necessary to act as a “market balancer”. The government, therefore, has shown its intent time and again to keep BSNL afloat through various relief and revival packages. In the past few years, the operator has also been able to improve its financial performance with increased support from the government. The challenge for the operator now is to explore ways to enhance its revenues and compete aggressively with private players on price and quality. With the government now proposing to administratively allocate 4G spectrum to BSNL and with BSNL gaining access to BBNL’s OFC network, the operator may be able to finally start providing high speed services to its customers. However, a real turnaround would require the grant of more functional and financial autonomy to the operator, enabling it to make commercially viable decisions and ensuring its long-term presence in the Indian telecom market.