explained | Government package to revive BSNL’s fortunes

the story So Far: Bharat Sanchar Nigam Limited (BSNL) was incorporated in September 2000 as a company to take over the business of providing telephone connectivity from the Department of Telecom Services, Central Government. It was meant to serve the entire country except in New Delhi and Mumbai, where MTNL – or Mahanagar Telephone Nigam Limited – would operate. Last week, the Union Cabinet approved a ₹1.64 lakh crore revival package for BSNL with a cash component of ₹43,964 crore.

What are the recapitalization plans?

The non-cash component of ₹1.2 lakh crore spread over four years will include administrative allocation of 4G spectrum worth ₹44,993 crore. CAPEX support of ₹22,471 crore over the next four years for “Promoting Development and Deployment of Atmanirbhar 4G Stack”, viability of ₹13,789 crore for commercially unviable rural wireline operations carried out during 2014-15 to 2019-20 The inter fund, enhanced credit structure complements the financial assistance package for sovereign guaranteed bonds of ₹40,399 crore and AGR (Adjusted Gross Revenue) arrears of ₹33,404 crore.

Earlier, in 2019, the cabinet had approved a package of around 70,000 crores for the revival of BSNL and MTNL, primarily to fund the Voluntary Retirement Scheme (VRS) package for the two firms.

How has BSNL performed over the years?

Before the announcement of VRS in 2019, BSNL had over 1.5 lakh employees. Around 78,000 had applied to exercise the option. Before VRS, the FY20 numbers had a loss of ₹15,500 crore, and employee cost ₹13,600 crore.

The workforce stood at 64,000 as of June 2021. Note that BSNL spent more than 50% of the revenue on employees in FY16. This dropped to 36% in FY2011, but compares poorly to, for example, Bharti Airtel whose numbers showed around 4% employee spending for both FY2011 and FY2012.

The government, which said the 2019 package helped stabilize BSNL and the latest bailout would help it become viable, expects BSNL to become profitable in three to four years from now. Recently, Chairman PK Purwar has been quoted as saying that the FY22 revenue will be lower by Rs 17,000 crore as compared to the previous year.

What went wrong with BSNL, which was profitable for most of the first decade of this century?

A report of the Standing Committee on Information Technology presented in Parliament in 2014 under Demand for Grants quoted a BSNL representative as saying that though private operators started offering mobile services in the late 1990s, BSNL Could do this only in 2002. Despite this, it was one of the top mobile service providers in most circles till 2005-06, when its expansion was in full swing. The statement speaks of problems related to ‘non-purchase of equipment’ starting at this time.

What was the problem with buying the equipment?

In March 2020, BSNL had floated a tender to buy 4G equipment to help it expand its mobile broadband network. The ₹9,000 crore contract included an upgrade of 50,000 sites across the country that would ‘position the telecom company to offer high-speed internet access to its users’. The project was seen as crucial to BSNL’s survival as it was already four years behind private firms in unveiling 4G services.

In April 2020, the Telecom Equipment and Services Export Promotion Council (TEPC) objected to the tender being ‘heavily in favor of multinationals’. TEPC is an industry association representing domestic telecom equipment manufacturers such as Tejas Networks, Sterlite, HFCL and Vihaan Networks. He said domestic suppliers could not participate in the tender due to stringent conditions such as the requirement of prior experience in setting up mobile networks for at least 20 million customers. The national security angle also came to the fore.

The government asked BSNL to rework the tender, but the question remained as to why the private operators did not face the same objection when the equipment was ordered to foreign companies. For example, that year, Airtel awarded a $1 billion 4G equipment contract to Finland’s Nokia. While it was a good idea to encourage domestic OE manufacturers, why should the entire burden of supporting indigenously developed equipment for 4G, and that too which was not tested earlier, fall on BSNL?

Given this, BSNL’s pattern of largely bearing the burden of proving indigenous technology to be viable may continue. The government has clearly stated that one of the reasons for supporting BSNL is to help in the development of indigenous technology.

The issues surrounding BSNL’s access to quality equipment seem to be a recurring problem. In 2008, BSNL came up with an ambitious plan to increase the network capacity to 94 million new lines with an investment of $10 billion. This would have made it the world’s largest telecommunications equipment tender at the time. Allegations of irregularities came to the fore in the process and the entire plan was scuttled. Naturally, BSNL slipped in terms of customer preference.

Is the skillset also a major constraint?

The DoT was quoted by the Standing Committee on IT in its 2014 report as saying that BSNL and MTNL are not only surrounded with a large number of employees, but the skills of these employees are also suitable to provide services to mobile and broadband. are not. Customer.

This is surprising, because one, BSNL had no trouble reaching the top in most circles between 2002 and 2005-06, as mentioned. Second, private operators dip into the cream of BSNL’s manpower to establish themselves or scale up their operations. Although the private sector had successful global partners (Airtel-Singapore Telecom, Essar-Hutchison (now Vodafone-Idea), none stopped BSNL from getting the best global advisors and know-how for its operations.

Should there be a profitability target for such an enterprise?

The government needs a telecom arm to help with disaster relief, and another, to reach every nook and corner of the country as a social responsibility. The private sector cannot be reasonably expected to offer services in a sector that is not profitable to them. The merger of BSNL with Bharat Broadband Network (BBNL), which has a BharatNet optical fiber network of 5.8 lakh km, which will create a combined asset of 1.4 million km optical fiber, is crucial for socially backward areas where services are not commercially viable. May be.

But, is it reasonable to expect the company to turn profitable? After losing nearly two decades in terms of time to compete, is it even possible to expect the company to become profitable? To boot, BSNL is not a pan-India 4G service provider at a time when more than 98% of the country has 4G coverage. In fact, the latest package for BSNL was announced even when the 5G spectrum auction was going on.