In a significant move, the government has announced that the process of merging Bharat Broadband Network Limited (BBNL) with Bharat Sanchar Nigam Limited (BSNL) will be completed by March 31, 2022. Earlier, in January 2022, it had reportedly announced its plans to merge the two entities by the end of this fiscal and stated that BSNL would complete the work being undertaken by BBNL under the BharatNet project. The move is being undertaken to consolidate all the government’s telecom operations under one um­brella, initiate a possible turnaround of BSNL and help it transform into a strategic asset.

The government has been quite active this year in terms of initiating a turnaround for BSNL. In the Union Budget 2022-23, it allocated Rs 450 billion to BSNL for spectrum, capex and other uses.

However, some BBNL officials have reportedly expressed their reservations about the proposed merger due to BSNL’s non-performance on the BharatNet project in the past and its pending dues to vendors. Further, they are of the opinion that the merger would give BSNL direct access to the Universal Service Obligation (USO) Fund, which may lead to controversial impropriety issues.

These issues may arise because all telecom service providers (TSPs) contribute to the USO Fund. As per the licence agreements, service providers have to pay an 8 per cent licence fee on their revenue from the sale of telecom services, of which 5 per cent goes towards the USO Fund. Therefore, going ahead with the merger could mean that only BSNL would get to use the fund’s proceeds, creating issues among telcos.

BSNL, however, has stated that as a custodian of the USO Fund assets, it will ensure that these assets are made available to all TSPs/internet service providers (ISPs) and other agencies on arm’s length principles.

On the flip side, the merger could enable BSNL to access close to Rs 600 billion from the USO Fund, overcome its cash crunch and emerge as a strong fourth player in the industry. Since the telco is now at the final stages of 4G testing and may soon start ground-level network testing and deployment of 4G technology, the funds would help it proliferate its 4G network faster.

The merger would also strengthen BSNL’s optical fibre cable (OFC) footprint. While the telco already has a network of 680,000 km of OFC, the proposed merger would enable it to gain access to 567,000 km of OFC laid across 185,000 gram panchayats ac­ross the country. This OFC infrastructure can help build a strong backbone for BSNL’s network and help it leverage opportunities in the fibre-to-the-home (FTTH) space, which is considered the next growth avenue for the sector.

Clearly, the proposed merger has advantages as well as drawbacks. It now remains to be seen whether the government will go ahead with it and usher in a new phase of growth for BSNL.