By Ramesh Kanitkar
The government’s telecom twins can’t tango anymore. BSNL and MTNL are seeing rapid erosion in their top line, earnings and brand equity as they struggle to stay afloat in an increasingly competitive environment. Realistically speaking, they are both dead in the water due to the competition that is killing them softly. BSNL, which is the government’s telecom arm for all areas outside of Delhi and Mumbai served by MTNL, is bleeding profusely.
Its select indicators reveal that it has a turnover of Rs. 29,687 crore and a net loss of Rs. 6,384 crore based on available financials for March 31, 2011. Its losses for 2011-12 are reportedly in the vicinity of Rs. 8,800 crore.
Worse still is its vast army of employees — as many as 281,635 across the country reminding you of the problems being faced by Air India in rationalising its work force.
A voluntary retirement plan for employees as part of efforts to revive the loss-making company has been in the works forever at BSNL. It has set an internal target of 99,700 employees — Group A (1,483), Group B (6,262), Group C (76,655) and Group D (15,214).
The VRS has been under discussion since 2009 when a panel headed by Sam Pitroda, adviser to the prime minister on public information infrastructure and innovations, recommended that BSNL take the VRS route to prune its nearly 2.81 lakh strong workforce by a third.
The rapidity of its fall can be best explained through its annual revenue figures – BSNL saw its overall revenue fall from Rs. 39,715 crore in 2006- 07 to Rs. 38,053 crore in 2007-08 and further to Rs. 35,812 crore in 2008-09, before dipping to Rs. 32,046 in 2009-10. The trajectory, as one can see, is pointing southwards. It is actually a most piquant situation for a combined BSNL and MTNL separation scheme involving 1.21 lakh workmen will cost the government an additional Rs. 17,445 crore.
Dang, I guess you are damned both ways. R. Chandrasekhar, secretary, department of telecommunications (DoT), in a conversation with this writer earlier this year, had said, DoT needs to take proactive and pre-emptive measures to salvage and save these two companies.
Remember, there is a public interest which is being served by public sector companies. If they are left unattended and a business as usual approach is applied, then they could run into severe problems.
“Drastic measures are the need of the hour and we are alive to this.” The companies have approached DoT to surrender their Broadband Wireless Access (BWA) spectrum in certain circles to be able to get a refund of the one-time upfront BWA spectrum charges paid by them.
The cash-strapped and loss-making MTNL has asked for a refund of the Rs. 4,533.97 crore (paid for Delhi and Mumbai circles); BSNL has sought a refund of Rs. 6,724.51 crore for surrendering spectrum in Tamil Nadu, Karnataka, Kolkata, Maharashtra, Andhra Pradesh and Gujarat. These requests have been in the pending basket of the telecom ministry. Only a couple of years ago, BSNL suffered a net loss of Rs. 1,823 crore in 2009-10.
A far cry from the time when the company reported a net profit of over Rs. 10,000 crore in 2005-06.
What’s worse is that it wants a handout from the government to tide over its financial crisis.
The question that begs an answer is whether good money should be spent on bad money.
Should taxpayers continue to cough up money to bail out these dinosaurs?
MTNL, which incidentally, is listed, is an abomination. It has a market capitalisation, as of Friday closing, of Rs. 1,675 crore on an end of day price of Rs. 26.60.
For the quarter ending June 30, 2012, its losses have overtaken its revenues — Rs. 1,059 crore and Rs. 833 crore, respectively. For the full year ended March 31, 2012, the story was exactly the same – revenues of Rs. 3,368 crore against losses of Rs. 4,018 crore. The total debt on its books for 2011-12 was Rs. 9,647 crore and its staggering wage bill was Rs. 1,740 crore. Throw in a pension bill of Rs 340 crore and you can’t begin to imagine the financial burden that the running of this company places on the government.
Stock broker Ramesh Damani is appalled at the state of play. He says, “They are basket cases. Obviously, they have been bypassed by the telecom revolution. Both have to be sold off; there is no business case anymore for the government to stay in the telecom sector. In a competitive set-up, they have seen erosion in their market share. MTNL’s market cap is less than its payroll cost.” And that is the most telling statement — Rs. 1,740 crore wage bill versus Rs. 1,675 crore market cap.
Over the past two years, the price of MTNL’s stock has more than halved to Rs. 26. Its second quarter results for the period ending September 2011 showed widespread ruin as the net loss of Rs. 864 crore was more than the company’s turnover of Rs. 861 crore. That set the trend line.As with BSNL, the company’s financial condition worsened after the 3G and BWA auctions, for it had to match the top bids made by private sector firms.
MTNL had to shell out Rs. 6,564 crore for the 3G spectrum and another Rs. 4,534 crore for the BWA spectrum in the Delhi and Mumbai circles. At the start of the previous financial year, the company had a net cash position of around Rs. 6,300 crore. After the spectrum payments and the operational losses incurred in 2010, it ended fiscal 2011 with a net debt of nearly Rs. 11,000 crore.
The company’s high level of indebtedness is further weakening its financial performance. Staff costs, excluding expenses for retirement benefits, fell marginally to Rs. 423 crore, while the actual payout for retirement benefits climbed by 22 per cent to Rs. 124 crore. Besides, provisions for retirement benefits rose to Rs. 254 crore. The firm has approached the government to approve VRS for about one-third of its workforce to deal with high costs. The long-pending merger of BSNL and MTNL has been hanging fire for years, moving from one table to another as pen-pushers refuse to sign off on the big-ticket decision.
“There is a clear business case for a merger,” Chandrasekhar had said to me. “There is no ambiguity about this and, in fact, it is now increasingly being driven by compulsions; this is the only way to go. At the same time, we have to look at a listing exercise for BSNL and we are looking at completing it over the next 12 months.”
Like BSNL, its work force is a huge drag on its financials, as of March 31, 2012, it had 41,611 employees on its rolls. INAV