Despite running into troubled waters, India’s largest telecom PSU Bharat Sanchar Nigam Limited (BSNL) has finally come ashore. After months of ambiguity and delay, BSNL’s beleaguered 45.5 million line GSM tender, or at least half of it, is finally in motion.
Ericsson has accepted BSNL’s offer of rolling out 14 million GSM lines across the country for approximately $90 per line. To this end, the Swedish telecom equipment manufacturer has submitted the bank guarantee. For the remaining 9 million lines, BSNL will offer an advance purchase order (APO) to Nokia Siemens Networks (NSN), the second lowest bidder.
This will provide much-needed respite to BSNL. Caught in the midst of politics and controversy, the PSU has been running its mobile services on a highly overburdened network. In 12 out of 23 circles, the company has reportedly issued more mobile telephone connections than the capacity available on its network. In another four circles, there is no capacity left for any new telephone connections. According to analysts, the situation has deteriorated further in the last one and a half months as no additional capacity has been generated.
Background
BSNL started the tendering process for its 45.5 million line GSM expansion around a year and a half ago. However, from the word go, the tender was dogged by controversy.
It hit a major roadblock when Motorola dragged BSNL to court, contesting its disqualification from the bidding process. The US-based telecom equipment manufacturer finally withdrew the case of its own accord.
The second hurdle was faced when, around two and a half months ago, the minister for communications and IT, A. Raja, deemed the final bids of $107 per line too high, especially when compared to the lowest bid (around $90 per line) for a similar tender of Mahanagar Telephone Nigam Limited (MTNL). Ericsson’s original bid had been approved by Raja’s predecessor, Dayanidhi Maran.
Consequently, BSNL reduced the size of its original tender from 45.5 million lines to 23 million lines. This was imperative since the PSU had already placed an APO for equipment with Ericsson for 14 million lines. Scrapping this portion of the tender would have landed the company in further legal complications.
However, if anything, the challenges have made the company even more ambitious. It has already invited fresh bids for installing up to 50 million lines to expand its cellular capacity. The BSNL board is yet to decide whether the tender will contain a 3G component.
This time, however, the company is not expecting any delays. The company has stipulated a time-frame of eight to nine months to ensure that the job gets done.Meanwhile, the ITI-Alcatel combine also has a contract to provide BSNL with a reserve capacity of 18 million lines in the west zone. This is in addition to the 4.55 million lines the service provider had already rolled out. Hence, the total capacity of 31.75 million lines, according to sources, will be the basis of BSNL’s growth over the next 15 to 18 months.
With the expanding network capacity, the company is well on its way to achieving its target of becoming the largest telecom service provider in Southeast Asia with 120 million connections by 2010.
Issues and concerns
Nevertheless, the tender turmoil has taken its toll on the company. BSNL’s subscriber base has been badly hit. During the period May 2007 to June 2007, the company added only about 430,000 wireless subscribers (excluding WLL and Digital Mobile figures). In comparison, Bharti Airtel added 1.96 million wireless users and Vodafone Essar 1.54 million. In fact, recently, Vodafone Essar’s mobile subscriber base overtook BSNL’s.
To add to its worries, BSNL is facing problems on its employee front. The company’s employee union is vehemently protesting its decision to offer a voluntary retirement scheme (VRS) to about 20,000 employees. While the PSU’s move was reportedly based on the rationale that the company was at a disadvantage compared to private telecom operators that had a highly qualified and younger workforce, the employee unions do not buy this logic and have threatened to go on strike. A strike presents another lengthy and cumbersome ordeal for the company.
Recent initiatives
The company is pulling out all stops to expand, diversify and get itself onto a more solid footing. Broadband being a key growth area, BSNL is targeting the segment to accelerate user additions and reduce churn.
This makes good business sense. An incumbent telecom operator, BSNL has the largest fixed line network in India.Consequently, it has bundled internet and broadband services along with its fixed line services, thereby putting its extensive fixed line infrastructure to effective use. This will generate a new source of revenue for the company as the growth of its fixed line revenues is stagnating.
Recently, BSNL signed a three-year 6 million line contract with NSN and UTStarcom for setting up broadband infrastructure in 283 cities across 17 states.The company has also drawn up plans to invest Rs 8 billion per year for the next three years in order to extend its broadband coverage to 1,000 cities, 20,000 villages and 100 blocks in the rural areas.
BSNL is also planning to launch multiplay service offerings and video-on-demand to further boost its internet subscriber base. It has issued a tender for 300,000 such lines.The company has also launched IPTV services in Bangalore and Pune, and will soon extend the service to cities like Chennai, Hyderabad and Kolkata.
Such measures will ensure that BSNL stays ahead of its competitors in the segment. As of March 2007, BSNL’s broadband subscriber base stood at 1 million followed by Bharti Airtel, MTNL and Sify with 593,230, 469,446 and 200,000 subscribers respectively. According to the Telecom Regulatory Authority of India (TRAI), BSNL is the largest ISP in the country with 45.21 per cent market share as of March 2007.
The company is going all out on other fronts as well. It is targeting to increase its revenue from Rs 390 billion in 2005-06 to Rs 900 billion by 2010-11. To this end, it is focusing on adding 108 million mobile connections at the rate of 3 million GSM connections a month, for the next three years.
To achieve this target, the PSU intends to invest Rs 600 billion over the next three years. In fact, it has allocated Rs 150 billion as capital expenditure for the current fiscal year. To be financed through internal resources, the outlay will be used to improve connectivity in the Northeast and Jammu & Kashmir, and to roll out IPTV services in major cities.
Moreover, the company has kept pace with the aggressive price undercutting taking place in the telecom industry. In order to woo customers its way, it has initiated a zero-roaming regime as one of its schemes. Both BSNL and MTNL have introduced Plan 550, which enables customers to avail of 300 minutes of free incoming calls while roaming. BSNL has also reduced its international roaming tariffs by 40 per cent for tourists using its network in India.
In addition to lower prices, the company is also focusing on providing more innovative content to its subscribers. To this end, it has signed two multimedia service agreements with Ericsson. Under one contract, Ericsson will be responsible for providing content services like ringtones, games, pictures, video clips and software applications via the web, WAP and SMS to subscribers. Under the second contract, BSNL’s ringback tone service will be based on Ericsson’s personalised greeting service.
Financial performance
BSNL’s efforts have paid off. Despite all the pitfalls, the company has generated revenues of over Rs 400 billion for financial year 2006-07, the highest among telecom operators. It is followed by Bharti Airtel with Rs 185.2 billion. Reliance Communications ranked third with revenues of Rs 107.66 billion.
Future growth
For its future growth, the PSU, like many other service providers, is banking on WiMax. It is planning to offer wireless broadband services using Wi-Max technology in 1,000 cities across India. It will float a tender for 1,000 base transceivers with a total value of Rs 4-Rs 5 billion. Currently, the company is awaiting a final policy announcement by the Department of Telecommunications on 3G spectrum and broadband wireless access to plough ahead with its plans.
All in all, with its capacity construction under way, BSNL is looking at bright times ahead. The company will now be able to recruit users at a rapid rate, giving its pan-Indian competitors a run for their money. Financial year 2007-08 promises brighter prospects for the company.
