The Department of Telecom (DoT) is working to develop a plan for the stage-wise merger of loss-making state-run telecom operators BSNL and MTNL, and is expected to approach the Union Cabinet with the proposal by June this year.
The telecom ministry feels that a pan-India government operator is important for the sector to keep a check on cartelisation by private players. It anticipates that the ongoing consolidation in the industry will lead to four private players — Bharti Airtel and Telenor, Reliance Jio, the merged entity of Vodafone India-Idea Cellular and the firm created out of the merger of Reliance Communications, MTS and Aircel.
On the merger of BSNL and MTNL, former DoT secretary JS Deepak told the parliamentary standing committee on information technology, “We are working on a plan… I would not say that we have a plan of merging these companies in phases.”
He said, “The experience of Air India and Indian Airlines, which you have pointed out, is something before us, which is not a happy experience, but we realised that there would be some synergy in merger.”On the merger plan and timeline, Deepak said, “We may have to do it in stages and we are working to develop a plan. I would want to take it to Cabinet before the end of June, and as you have directed, as soon as it is ready we will share it with this committee.” DoT informed the committee that the launch of Reliance Jio Infocomm’s (Jio) free voice and data till March 31 and low prices on data thereafter, while keeping voice free, has “disrupted” the “already highly-leveraged” telecom industry to a great extent and has forced rival operators to come out with matching tariffs to retain subscribers.
The ministry said: “The present cut-throat competition will lead to high operation costs, low EBITDA and low revenues. For warding it off, CPSE (BSNL) is taking all proactive measures within its powers to meet challenges ahead.” Deepak told the panel that the current consolidation drive in the sector will lead to four private players, adding that one of them will be the entity that will come out of the proposed merger of Vodafone and Idea, who have informed the ministry that they are in “conversation”. Besides, he also informed the panel about the merger of Reliance Communication with Aircel and MTS and that of Bharti with Telenor (this merger was announced earlier this month). “So there is place for a fifth player. As per the competition index for telecom in India, competition increases till there are five players and after that it levels off. So we should have five players, especially as many of them have a tendency and possibility of cartelisation. So that way a pan-India government operator is necessary.”
The demand for the merger of the two public sector enterprises is not new. The issue has been hanging fire for the past five-six years. In 2015, DoT had planned to close the merger of the two firms by July-end, but this could not happen due to various procedural hurdles. The government had even mandated IIM-Bangalore to prepare a report on the merger. Then in December 2015 again, a plan was put forth under which was BSNL was to take over the operations of MTNL on a revenue-sharing basis, but this again did not happen.
Even last week, the parliamentary committee on petitions, in a report tabled in the Lok Sabha, mooted the need for a merger of BSNL and MTNL, which it said would give both the entities a chance for competition against the emerging consolidated private sector players. During the April-December period of the 2016-17 fiscal, BSNL reported a revenue of R20,291 crore, while its expenditure stood at R25,145 crore for the same period. In 2015-16, BSNL reported revenues of R32,918 crore and a loss of R3,880 crore in 2015-16.
On the other hand, MTNL posted a revenue of R1,753 crore and an expenditure of R3,239 crore during the April-September period this fiscal. It reported a revenue of R3,197 crore and a loss of R2,005 crore in the 2015-16 financial year. It has a debt of around R14,810 crore.