Modi Govt & BSNL-MTNL: Is ‘Revival’ Package a Prelude to a Sale?

Modi govt has made it clear that it wants to exit the business of running companies. What’ll happen to BSNL-MTNL?

Five years ago, I tried to sell my khatara car on OLX. Understandably, there were no takers. My driver told me to get the car painted. Sure enough, with a little makeover, I got a buyer almost immediately. One suspects, that is exactly what the government is trying to do with the two loss-making telecom companies it owns – BSNL and MTNL – even though, officially, it insists that there are no plans to sell them.

Between the two of them, the two telcos recorded a loss of nearly Rs 17,500 crore in 2018-19. They have a combined debt of about Rs 33,000 crore and, every month, they need to come up with about Rs 1,400 crore to pay their 2 lakh employees. So, with financial stress of this kind, no buyer is going to touch them with a barge pole.

But, the Modi government is desperate for cash. They have already worked out plans to sell the family silver by disinvesting the profit-making ‘navratna’, Bharat Petroleum.

Very soon, it is going to try and find buyers for its two big telecom assets. So, they need to be dressed up before sending them to the market. And, that will take at least a couple of years.

Rudiments of Modi Govt’s Plan for BSNL & MTNL

The rudiments of the plan have now been laid out. Part one is to get rid of people by giving them the option to retire early, on their own. Reports suggest, half of BSNL’s employees and nearly three-fourths of MTNL’s employees will retire over the next 5-6 years. By giving an attractive VRS option – of 125 percent salary, pension and gratuity – the government is hoping to reduce the total headcount of the two companies by at least 25 percent.

The government has given an ‘in-principal’ nod to merge MTNL into BSNL and reducing staff-strength will make that process much easier. The merger will also free up office-space, land and other assets. Some of these will be sold, over the next few years, to raise Rs 38,000 crore.

This money, along with the funds raised by floating sovereign bonds worth Rs 15,000 crore, will be used to retire some of the debt.

The merged entity will still have a lot of assets to make it attractive to any potential buyer in the not-too-distant future. Just the land and buildings that BSNL owns is valued at close to Rs 75,000 crore. Other than that, it also has huge tower assets across India. And, as of March 2017, MTNL had over Rs 10,000 crore worth of property, machinery and equipment.

Finally, BSNL and MTNL will get additional 4G spectrum at 2016 prices. If spectrum is the new crude oil, 4G spectrum is gasoline. It will not only give the two companies a small chance to compete with private players like Jio and Airtel, but also make them more attractive to any future buyer.

Sudden Downsizing Will be a PR Disaster. VRS Is the Next Best Strategy

The telecom minister is confident that the BSNL-MTNL combine will start making operating profits within the next two years. That will be a real turnaround story. However, one has heard such stories several times in the past. In the UPA period, the then telecom minister, Dayanidhi Maran, had launched special telecom plans to boost BSNL’s business. It didn’t work.

There was also talk of reverse merging BSNL into MTNL, which was already listed on the bourses, to create India’s largest telecom company on the stock markets. Nothing came of that either. And, right now, it is probably too late to consider that option. MTNL’s share price has dropped from over Rs 200 in 2006 to just about Rs 5 now. Jio has disrupted the telecom space so decisively, that no one is betting on telecom stocks any more.

So, raising funds, by selling government stake to the public is no longer feasible.

The pink-paper-pundits would have liked it if the government had found a buyer right away, and you will definitely hear some noises about how tax-payer money is going down the drain to prop-up two inefficient government companies. Their prescription would be to sack everyone, shut the companies down and then sell all the assets to private players.

That’s easy for experts and economists to say, because they don’t have to win elections.

The government, on the other hand, has already got some bad press because MTNL and BSNL employees haven’t been getting their salaries on time. Sudden, drastic downsizing will be a PR disaster. So, VRS is the next best strategy.

Utility of State-Owned Telecom Companies Should Not Be Measured by Their Profitability

Whatever Mr Ravishankar Prasad might say in public, he probably understands that if Airtel is finding it impossible to make money, and even Jio’s revenue per user has been falling for the past six quarters, BSNL and MTNL have almost zero chance of making any significant profits.

But, the utility of state-owned telecom companies should not be measured by their profitability. Telecommunications is, ultimately, a matter of public good and national security. Mr Prasad himself acknowledged that, when he said, these are strategic assets that help India cope with natural calamities and managing army networks.

Ultimately, what is likely is that these strategic assets might be demerged into a separate subsidiary, which will remain under government control, even if BSNL and MTNL are sold one day.

The Modi government has made it clear that it wants to get out of the business of running companies. So, despite the assurances given that BSNL and MTNL will remain in the government sector, it will not be surprising if this entire revival package turns out to be just a prelude to a sale.

(The author was Senior Managing Editor, NDTV India & NDTV Profit. He now runs the independent YouTube channel ‘Desi Democracy’. He tweets @AunindyoC. This is an opinion piece. The views expressed above are the author’s own. The Quint neither endorses nor is responsible for them.)