Its plush new corporate headquarters on busy Janpath in the heart of the capital exudes quiet energy. Changes, small but visible, are taking place in the palm-lined corridors of long-time telecom incumbent Bharat Sanchar Nigam Limited (BSNL), effected by Kuldeep Goyal, who recently took over as CMD from A.K. Sinha. His priorities: deal with the company’s shrinking market share, both wireless and fixed line; clear the air on the 45.5 million GSM line mega tender (later scaled down substantially); and tackle the severe capacity crunch that has been crippling BSNL’s mobile business for the past two years.
In his first interaction with the media this September, he came armed with a “To do” list, which, while outlining the strengths of the company, also pointed to the areas that needed attention. “Our profits have been falling over the past few years,” Goyal notes. “And we have been facing capacity constraints as our expansion plans have been delayed. In fact, we were hardly able to add any subscribers.But we are now moving forward on that front and intend to regain our second position by next year.”
To get there, Goyal and his team have put together a carefully crafted plan that will expectedly improve the company’s growth prospects. Besides, the company has hired a global consultant to suggest ways to improve some of its business processes in order to achieve better returns.
The efforts are multi-directional. For instance, there is a strong focus on acquiring a more corporate image and a major rebranding exercise is under way. With a media account of Rs 1 billion (one of the largest corporate accounts farmed out this year), BSNL has roped in some of the biggest agencies including Grey Worldwide, Euro RSCG and Media Direction (the media arm of RK Swamy BBDO) to revitalise its mobile, landline, WLL and broadband brands across all telecom circles.
The other initiatives are imparting personnel training at all user interface points; introducing value-added products on both mobile and fixed line platforms; launching IPTV in some areas; and augmenting broadband capacity before the year end in order to clear its pending 20,000 connections.
In a bid to compete better, BSNL recently sought the government’s approval to start mobile phone services using CDMA technology, like Reliance Communications (RCOM) and Tata Teleservices Limited (TTSL). A decision is still pending as GSM operators are objecting to it.
Meanwhile, BSNL is sprucing up its broadband services and has issued two WiMax tenders worth $750 million. On the cellular front, it has invited fresh bids for installing up to 50 million lines to expand capacity. This will be the basis of BSNL’s growth over the next 15 to 18 months.This time, the company is not expecting any delays. It has stipulated a time-frame of eight to nine months to ensure that the job gets done.
Thus, bit by bit, the pieces are falling into place. Already, there has been a marginal increase in the company’s monthly mobile subscriber additions. The growth rates have gone up from 1.9 per cent in July 2007 to 2.4 per cent in October.While the growth may not be huge, it is a positive trend.
Some advantages…several concerns
An integrated player, BSNL has a dominant position in all its areas of operation ?? landline, internet, broadband, long distance, rural and even mobile. It is the seventh largest telecom company in the world, with the largest fixed line network and an extensive mobile network.
“It is the only player that has such an extensive rural coverage and last mile connectivity,” notes Saurabh Kaushal, industry manager, ICT practice, Frost & Sullivan.
Moreover, as an incumbent and monopoly player, the company has enjoyed many advantages. “BSNL has been providing telecom services in its earlier avatar as DoT and now as a company,” says Goyal. “The private sector entered the mobile sector 10 years ago. We entered the mobile arena in 2002 and garnered 20 million customers, which translates into over 25 per cent market share. Further, we have 80 per cent share of the landline market and 33 per cent in data services. In other words, BSNL is the unquestionable leader in telecom services.”
That said, the company has its own share of woes. The biggest of these is its huge capacity crunch. With its last major network expansion having been undertaken in 2005 and subsequent expansion plans delayed, the company has been running its mobile operations on a highly overburdened network. In 12 of its 23 circles, the company has reportedly issued more mobile telephone connections than the available capacity. In another four circles, there is no capacity left for new connections. As a result, from a leadership position, BSNL hit an all-time low in terms of subscriber additions, managing barely 320,000 and 230,000 additions in April and May 2007 respectively.
Today, BSNL, with 31.03 million subscribers, lags far behind in the mobile pecking order. It needs to contend with private telecom majors such as Bharti Airtel (50.9 million subscribers as of October 2007), RCOM (37.81 million) and Vodafone Essar (37.18 million).
The company, moreover, finds its hands tied in more ways than one. A stateowned entity, its operations are subject to bureaucratic delays and often, controversy.Every issue needs to pass through various levels before it is approved or rejected.”This is time consuming and not the best way to deal with competition, of which there is plenty at present in the telecom sector,” observes Namrta Sudan, analyst, Kochhar and Company.
The controversial GSM mega contract is a classic instance. First, getting the tender off the ground took over a year.Several delays later when BSNL finally accepted the bids, the company got caught in litigation. Subsequently, the communications minister changed and the new minister decided that the lowest bid of $107 per line (quoted by Ericsson) was not really low enough. Therefore, the option was to either go through the entire process again or settle for a scaled-down version of the previous order.
BSNL went for the latter. But the problems with the contract are far from over. Recently, Nokia Siemens Network refused to accept a $910 million contract from the state-owned company on the grounds that it could not supply the equipment at the price agreed to by the lowest bidder, Ericsson. So, in a bid to salvage the project, BSNL is now considering awarding the entire contract to Ericsson, if the latter accepts, that is.
Private operators have a huge advantage of speed here, as they do not follow a tendering process. Bharti, RCOM and Vodafone are all furiously expanding their networks to meet the growing demand, and they are doing so in half the time that BSNL would require. “BSNL’s major weakness is its inability to take fast decisions. Telecom being an extremely dynamic industry, where things change literally within minutes, fast decisionmaking is the key to success,” says telecom analyst Mahesh Uppal.
BSNL’s other disadvantage is its “sarkari” baggage. “The company has yet to consolidate its corporate image. It continues to straddle some of its old ways of doing business and can be lax in certain areas,” observes Romal Shetty, director, risk advisory services, KPMG. Besides, the company has to deal with a huge workforce, which its leaner private sector rivals do not have to contend with. Therefore, they can be far more agile and nimble-footed.
Quality of leadership is another area of concern. BSNL would compete better if it hired professionals and was not dependent on internal resources for leadership, which may not necessarily be up to the mark.
Winds of change
But the new leadership seems to be ushering in welcome change. With Goyal at the helm, BSNL seems determined to shake off its old ways and polish up its image.
The new CMD clearly has immense confidence in the company’s intrinsic strengths: “BSNL has always been the leader in telecom. It will take years for any of the private operators to catch up with our strength of network and operations.”
Further, he adds: “You must appreciate that telecom is a liberalised field, where the players are very aggressive. BSNL has been adapting very well to the new realities. It has become the number one trusted telecom brand within four years of its formation, which means that the company has been able to create a positive image among its customers and is able to meet the competition head-on.”
Uppal agrees: “Anyone who has taken a cursory look at the market today can see how competitive BSNL has become and how innovative its services are becoming.BSNL was perhaps the first company to offer video ringtones. It is no longer the typical boring old government company that will do things after the world has stopped doing them.”
In fact, BSNL has set its sights on becoming the largest telecom service provider in Southeast Asia with 120 million connections by 2010.
Key focus areas
How exactly does it intend to get there?Creating capacity is the first step. In the past few years, BSNL has focused primarily on its cellular operations. However, it realises that growth in this area can be achieved only through network expansion.
Meanwhile, broadband will be its next thrust area. As of August 2007, it had 1.04 million broadband customers. As per its expansion roadmap, this figure will be increased to 20 million by 2010. Towards this end, it has set aside a sum of Rs 15 billion, which will be utilised to connect over 2,500 cities and 25,000 villages by March 2008, against 1,000 cities at present.
According to a senior BSNL official, “DataOne, BSNL’s broadband service, is one of the fastest growing and cheapest services in the country. We are on an average adding 3,000 customers a day across the country. We have offered 2 million Sancharnet internet users a free upgrade to broadband. I am sure this will give a big impetus to meet our broadband targets.”
However, the overall broadband uptake in the country is way below target.To this, Goyal points out, “Any discussion on broadband targets has to take into account the ground realities. Broadband has to work on copper cables in the present network. It needs a computer with Pentium 4 and above, and a sound operating system. To overcome this, BSNL has tied up with HCL to provide such computers on an instalment basis. Also, service providers must be given enough time to procure, install and market this high-end service. Therefore, out of the 25 million urban subscribers in our network, only about 20-25 per cent can be provided broadband services.” The same would be the case with other operators as well.
BSNL is also gearing up to introduce IPTV services across the country. Its trial runs in many areas have been successful.Meanwhile, the company is planning to strengthen it wireline segment, where it still enjoys over 80 per cent market share.In the past few years it has been facing a spate of disconnections and surrenders.To reverse this trend, BSNL has announced a massive reduction in fixed line tariffs. It has brought all its fixed line subscribers under the One India plan, which allows calls across the country to be made for Re 1 per minute. For its landline customers, BSNL has also introduced value-added services like caller line identification, call waiting, call transfer and hotline free of cost. Besides, it has bundled internet and broadband services along with its fixed line service, thereby putting its extensive fixed line infrastructure to effective use.
“We are matching the predatory tariffs of private players in many areas. We are expanding our franchisee network and converting all PCOs into multi-utility telecom points where our customers can avail themselves of all the services provided by the company,” says S.D. Saxena, director, finance.
As far as rural initiative is concerned, BSNL services 99 per cent of this market.For the coming year, it has set a target of setting up 23,000 rural telephone exchanges with 1.5 million DSL ports covering 25,000 villages for broadband services. Further, it plans to cover 1,000 rural blocks by wireless broadband.
To meet these targets, the company has planned a total investment of Rs 228.8 billion for 2007-08. Of this, Rs 30.69 billion will go towards fixed line and WLL, Rs 74.17 billion towards mobile and Rs 31.63 billion towards broadband.Over the next three years, BSNL intends to invest Rs 600 billion, a large chunk of which will be set aside for adding 108 million mobile connections at a rate of 3 million GSM connections a month.
Financially, BSNL is on a strong wicket. Though its revenue has been falling, it is still much ahead of other players. In 200607, it registered a gross turnover of Rs 397.15 billion against Rs 401.7 billion in the previous year. Net profits too declined, from Rs 89.4 billion in 2005-06 to Rs 78.06 billion, primarily on account of dwindling access deficit charges and heavy taxes.”BSNL is an enterprise with a valuation of approximately $35 billion, projected revenue of Rs 400 billion and Rs 90 billion in profit. However, past company trends have not shown a significant rise in profitability.In the past three years, the company has experienced profits of only Rs 80 billion on average,” says Shetty.
But this, say company officials, is set to change. Thinking on more corporate lines, BSNL is targeting to increase its revenue to Rs 900 billion by 2010-11. It has revived its plans to float an IPO, and intends to divest about 20 per cent over the next 12 months. But this is contingent on government approval and getting the buy-in of labour unions which are against the move. However, if the IPO comes through, analysts expect that BSNL, with over 65 million users, could be valued at close to $100 billion, which puts a 20 per cent stake dilution at $20 billion ?? the largest the country has witnessed so far.
Meanwhile, for the first time the PSU has invited bids from private operators willing to lease out their passive infrastructure such as towers, shelters, generator sets and other power systems. This is a perceptible shift from its earlier stance of neither wanting to seek infrastructure support from private players nor lending any support.
These are some of the changes that clearly show that BSNL is looking to become more competitive. It certainly has the potential. All it needs to do is loosen its shackles and plough its way ahead.
