State-run telecom operator and onetime profitable company Bharat Sanchar Nigam Limited (BSNL) has been having a rather rough run over the past few years. The operator has had to contend with various capacity and tenderrelated issues. To make matters worse, its financial health is also not very strong. The books show a likely loss of Rs 36.41 billion for 2009-10 for the operator (the official results are yet to be announced).
BSNL’s profits witnessed a steep decline, from Rs 30.09 billion in 2007-08 to Rs 5.75 billion in 2008-09. The magnitude of the loss in profits has, quite naturally, got the government very concerned.
Explaining BSNL’s position to the standing committee on telecom, the Department of Telecommunications (DoT) pointed out that the company had to pay a whopping Rs 36 billion in arrears to the non-executive employees with effect from July 2007, and this was the primary reason for the dip in its balance sheet. Frequent reductions in tariffs in a highly competitive market and a sharp decline in landline revenues were the other reasons stated for the operator’s underperformance.
Of course, there is nothing new there. BSNL’s performance has been heading south for many years now. Its list of woes is long, and includes equipment procurement issues; capacity crunch, a sharp reduction in landline revenues, frequent tariff cuts,unrelenting competition, discontinutation of licence fee reimbursement, bureaucratic delays, and governmental interference.
But, as the parliamentary standing committee has pointed out, the market conditions are much the same for private operators as well. Yet, in contrast to BSNL, they have been thriving, getting in subscribers and making money.
To bring BSNL up to speed, a committee led by Sam Pitroda was constituted in early 2010. The high-level panel, which included banker Deepak Parekh and telecom secretary P.J. Thomas, was to take a serious call on improving BSNL’s financial health.
The committee’s recommendations included disinvestment of 30 per cent stake in BSNL and voluntary retirement of over 100,000 BSNL employees apart from other operational and management changes.
The report, as expected, found no favour with the company’s employee unions. In early April, the unions, representing over 300,000 BSNL employees, called for a nationwide indefinite strike, which was revoked later in the month, after Minister for Communication A. Raja spoke to the employees. He assured them that the proposed listing of BSNL would be referred to a group of ministers especially constituted to take a look at the issue. He further added that no decision would be taken without proper consultations with BSNL’s employee unions. Industry analysts believe that, given the scenario, the proposed listing is unlikely to take place in the current fiscal year (2010-11).
However, DoT is keen that BSNL’s enterprise value be enhanced significantly before the initial public offer. The operator is gearing up to bring about fundamental changes to rebuild the company’s image. To begin with, the company is looking to hive off its tower business into a separate entity. It is also looking to spin off its land assets into a separate company. However, for developing the land bank and monetising the real estate assets, the deeds have to be transferred to BSNL first. According to DoT, the exercise has already begun. DoT will retain certain assets for its field units while the rest will be transferred to BSNL after the signing of the transfer agreement. The agreement is proposed to be signed within six months.
Pitroda had also proposed to separate the post of managing director/CEO and chairman. According to the Pitroda report, CEOs must have experience in the relevant domain, and the senior management must include a COO, CFO, CIO and CTO, all of whom should report to the CEO. The committee has also recommended that a three-year contract be signed and all the key members be given stock options.
Based on these recommendations, it is being proposed that BSNL be taken off the purview of the Public Enterprise Selection Board (the governing body for selection and salaries of the board, and senior management of the company) and be allowed to function as a quasi-government body, with its chairman hired from the private sector. However, this will not be simple. “It has never happened in India. It will require the prime minister’s approval,” says a senior DoT official. Besides, market experts seriously doubt the feasibility of such a reform. According to them, BSNL’s chairman and managing director draws a salary of less than Rs 2 million per annum, while a CEO in the private sector draws more than Rs 40 million per annum. It will not be easy to get professionals from the private sector to work at this salary level.
That said, BSNL certainly needs to be put back on track. Acknowledging the state-run operator’s declining market share (from 31.29 per cent in 2006-07 to 15.75 per cent in February 2010), Raja, in a note to the Rajya Sabha, stated: “BSNL is making an all-out attempt to retain its landline customers and increase utility by providing several value-added services. The company is working towards improving its landline network by introducing new services and by improving its marketing strategies. The company has already leased passive infrastructure and is actively scouting for opportunities abroad. Besides, BSNL is also in the process of rolling out its Wi-Max network and is taking the lead in providing wireless broadband services in the country’s rural blocks in 2010-11.”
It is undoubtedly work in progress for BSNL. To succeed, it will have to tackle key issues such as the crippling capacity crunch and the growing competition. But at a more fundamental level, it will first need to change its bureaucratic ways.
