State-owned Mahanagar Telephone Nigam Limited (MTNL) has been continuously losing market share to the more nimble-footed, customer-centric private operators, both in the wireless and wireline segments. The operator’s wireline business, in which it once enjoyed a monopoly, has been facing competitive pressure while its revenues have been dwindling in the wake of falling wireless tariffs. Broadband, its key growth area, has been able to provide only a limited upside to the company’s revenues as this segment is yet to realise its true potential in the country. Its huge employee base has led to a further decline in profits.
MTNL, which provides service in the Mumbai and Delhi circles, added 195,128 cellular subscribers in the OctoberDecember 2009 quarter, taking its total mobile subscriber base to 4.56 million at the end of 2009. Its wireline business, which had been a key revenue earner for the company, took a beating with a significant number of disconnections and the rising mobile teledensity, which stood at 122 per cent in the Mumbai circle in December 2009.
In spite of the setbacks, MTNL has started the year on a positive note. Following Kuldip Singh’s appointment as CMD, the company has not only revised its overseas acquisition policy, but has also undertaken a number of initiatives to boost its bottom line as well as to increase its subscriber base and regain lost ground in the country’s highly fragmented telecom sector.
Key initiatives
3G
Despite being the country’s first operator to launch 3G services, MTNL has failed to leverage its first-mover advantage. Its ambitious target of adding 200,000- 300,000 3G users in the first year of rolling out 3G services through the franchise route has not been met. Despite receiving bids from the Virgin Group and Spice Mobile in September 2009, nothing substantial has materialised so far. With the 3G spectrum auctions now underway, the private players are expected to soon roll out 3G services, presenting a major challenge to the state-run operator.
In an attempt to revive its business, MTNL has, in the past one year, undertaken a number of initiatives. In November 2009, it tied up with Dell to offer notebooks embedded with 3G devices to enable its subscribers to access the internet at speeds of up to 3.6 Mbps. The operator has entered into a similar arrangement with HCL Technologies. Moreover, MTNL has recently tied up with Nokia to launch a free 3G internet offer for its prepaid customers in the Mumbai circle, whereby users will receive 100 MB data usage per month (for a three-month period), together with free talktime and video calls, on the purchase of Nokia 3G handsets.
Intense competition in the telecom sector has led to operators slashing call rates in order to stay in business. Close on the heels of the private players, MTNL launched its per-second billing scheme for both 2G and 3G subscribers in December 2009. Under the plan, calls within its network are priced at Re 0.005 per second while calls to other networks are charged at Re 0.01 per second. The operator also offers video calls for Re 0.01 per second across the country. Further, MTNL has slashed its short messaging service rates to Re 0.25 for local, Re 1 for national and Rs 2.50 for international messages. The company’s pricing policy has been aimed at converting its 2G subscribers into 3G users.
Broadband
When MTNL launched its broadband services on the ADSL 2+ technology platform in the country, industry analysts were sceptical of its success. This was one of the world’s latest technologies, with MTNL being only the second operator to use it. However, the technology has helped MTNL corner over 90 per cent of the total broadband market in the Delhi and Mumbai circles today. The operator earns about Rs 4.50 billion per annum from this segment. With broadband emerging as a key growth driver, MTNL has set a target of adding 1 million broadband subscribers by end-2010.
The company has been pulling out all the stops to hold on to its customers and maintain its leadership in the segment. In August 2009, MTNL doubled the speeds of all its unlimited plans at no additional costs to retain its subscribers. It has recently carried out further upgradations, raising the speed for its unlimited 1 Mbps plan by about 30 per cent. The company has also launched its VDSL service, which offers high-speed internet access and supports high definition television services as well as triple-play services. The service offers download speeds of up to 22 Mbps and upload speeds of up to 6 Mbps within a 1 km distance from the exchange equipment. While the VDSL broadband service benefits companies and corporate organisations requiring high-speed inter-net connectivity, the high download speeds offered by unlimited plans help in providing a better internet experience to its customers.
In January 2010, the operator launched an innovative low-cost broadband plan offering free downloads of up to 200 MB for a monthly rental of Rs 49 in the Mumbai circle. The plan, aimed at making broadband available to the masses at an affordable cost, has the lowest tariff in the country and provides up to 2 Mbps broadband internet connectivity.
MTNL is also looking to deploy the metro-Ethernet technology to improve its last mile connectivity. Meanwhile, it has deployed Wi-Max networks in association with Bharat Sanchar Nigam Limited (BSNL) and is currently working on its franchise relationships with suppliers such as Telsima, Harris Stratex and SOMA Networks.
IPTV
MTNL offers internet protocol television (IPTV) services in association with Aksh Optifibre under the brand name iControl. The service has so far been made available only to its landline customers who have a broadband connection, which has resulted in slower uptake. To counter this, the operator has recently decided to offer its IPTV service over dedicated landlines. MTNL Delhi has already introduced two new IPTV plans in this category – the Premium IPTV plan offering 140 channels (barring the sports bouquet) at a monthly rental of Rs 249, and the Connoisseur plan (including the sports bouquet) at a monthly rental of Rs 299. The operator intends to adopt a similar policy in the Mumbai circle.
MTNL has also tied up with the Ukbased ROK Entertainment Group, a mobile technology and applications company, to launch ROK’s mobile video service, iPlayer, in the country. Under the agreement, users will be able to watch streaming videos or download video content on to their mobile phones at a monthly rental of Rs 30. The service has so far been launched only in the Mumbai circle.
Overseas acquisitions
MTNL, which currently has a presence in Nepal and Mauritius, is now planning to enter the overseas markets in a major way. Tapping the overseas markets seems a viable option for the company, which has been witnessing declining revenues as well as increasing competition at home. The operator has bid for licences in several countries including Kenya, Sri Lanka, Saudi Arabia and Bhutan, but has not been able to make significant inroads on account of insufficient funds. It lost to France Telecom for a stake in Telkom Kenya. Also, its recent attempt to acquire a stake in Zain Telecom was thwarted by Bharti Airtel.
However, the company intends to keep exploring opportunities in the African market either through acquisitions or by obtaining a licence. MTNL earmarked Rs 5 billion for this purpose in 2009.
In November 2009, it issued an expression of interest for securing a unified services licence in Oman in order to launch its mobile, fixed line and broadband services in the country. One of the major motivations for the company to enter the Omani market is relatively high ARPU level for mobile and fixed line services of $44 and $82 respectively, unlike in India where it is closer to $5 for both. The operator has also pre-qualified the bidding process for acquiring a major shareholding in Nigeria Telecommunications, for which it placed a bid on February 15, 2010. However, it faces stiff competition from 14 other pre-qualified investors including the Nigerian arm of the MTN Group and Emirates Telecommunications.
Meanwhile, MTNL has abandoned its bid to buy out Zambia-based Zamtel owing to BSNL’s decision to withdraw from the deal. The two PSUs were to bid jointly for acquiring 74 per cent stake in Zamtel and had been shortlisted by the Zambian government together with seven other pre-qualified bidders.
Other initiatives
The state operator has undertaken a number of measures to increase its revenues. It has resolved to enter into agreements for sharing its 1,250 towers in the Delhi and Mumbai circles with private players. MTNL will also share its optic fibre network to generate additional revenues. Further, the operator plans to utilise its land assets to generate revenues through advertising and renting. The company has earmarked Rs 13 billion for 2010-11 to fund its GSM expansion plans and enhance its broadband operations through its fibre-to-the-home network.
Financial performance
Faced with intense competition in its two circles of operations, MTNL’s profits have taken a hit. The company’s total revenues declined by 18 per cent from Rs 11.25 billion to Rs 9.19 billion between December 2008 and December 2009. It reported a net loss of Rs 8.95 billion in the quarter ended December 2009.
MTNL’s wireless revenues declined by 22 per cent year-on-year and its wireline revenues fell by 24.8 per cent between December 2008 and December 2009. Its wireless EBITDA (earnings before interest, taxes, depreciation and amortisation) fell by 70.6 per cent to Rs 92.11 million at the end of December 2009. Despite a wireline ARPU of Rs 750, the company’s overall ARPU at end-December 2009 was about Rs 200.
MTNL’s earnings per share fell to Rs (13.91) from Re 0.85 between the December 2008 and 2009 quarters. Further, the operator’s staff expenses soared as it increased the dearness allowance provided for retirement benefits from 1.5 per cent (in the quarter ended December 2008) to 4 per cent in the December 2009 quarter. However, it has managed to lower its administrative expenses on a year-on-year basis.
The company is optimistic with regard to its performance in the JanuaryMarch 2010 quarter, the results of which are yet to be released. The operator, which recorded revenues of Rs 44.56 billion in 2008-09, is expected to generate Rs 49 billion-Rs 50 billion in 2009-10. It is hopeful of generating profits, with the Income Tax Appellate Tribunal upholding its position on the tax dispute for fiscal years 1998-99, 1999-2000, 2000-01 and 2005-06, and refunding Rs 13.8 billion to the operator.
Going forward
Despite its declining fortunes, the company is optimistic and expects to add about 200,000 wireline subscribers in the current year. However, with the private players’ expected foray into the 3G space, it will take more than the ongoing initiatives for the company to regain its position in the highly competitive Indian telecom market.
