Skewed plan

The Department of Telecommunications’ plan to revive BSNL and MTNL primarily hinges on massive job cuts while leaving unaddressed policy decisions that have favoured private operators and pushed the PSUs into a financial mess.

A November 22, 2011, photograph shows employees of BSNL/MTNL at a demonstration in New Delhi demanding immediate repatriation of non-optee Indian Telecom Service officers who had been on deputation in BSNL/MTNL since its formation.

AS plans are afoot for a revival of the now-bleeding public sector telecom behemoths Bharat Sanchar Nigam Limited (BSNL) and Mahanagar Telephone Nigam Limited (MTNL), the dominant perception of the two in the public mind is of inefficient companies with ever-increasing employee costs. While the depleting revenues of the two companies are indeed a reality, there is no denying that BSNL has been burdened with meeting the social obligations of the government in extending telecom services to rural areas and conflict zones without being adequately compensated.

The Department of Telecommunications (DoT), in a note sent on May 10 to the Empowered Group of Ministers (EGoM) headed by Finance Minister P. Chidambaram, has chalked out a proposal to revive the loss-making companies. The note discusses short-, medium- and long-term measures for the revival and revitalisation of BSNL and MTNL. In 2011-12, BSNL and MTNL reported net losses of Rs.8,851 crore and Rs.4,110 crore respectively. The DoT’s proposal, while continuing to emphasise the social obligations of BSNL as a public sector undertaking (PSU), suggests an enormous reduction in staff strength through a voluntary retirement scheme. This was one of the key recommendations the Sam Pitroda Committee made in 2010 for its revival. The Telecom Commission, however, decided not to implement it at that time.

This has created widespread resentment among some sections of BSNL employees, who accuse both the National Democratic Alliance (NDA) and United Progressive Alliance (UPA) governments of working against the interests of BSNL while expecting it to fulfil the social objectives of telecommunications.

This has been the unresolved dilemma in the government’s approach towards BSNL: while the company is expected to provide connectivity in remote areas where private players dare not tread, it is expected to compete on a par with them in a competitive market and garner profits. What is often left out in the popular discourse on BSNL as an inefficient company incurring losses year after year is its extensive infrastructure in rural areas. According to figures provided by the DoT in the above-mentioned note, BSNL has a total of 37,564 branches, of which 28,532 are in rural areas. While the DoT has also been emphasising on the need to cut down on the huge “employee costs” of BSNL, it does not recognise the fact that a sizable proportion of its staff is employed in rural areas.

K. Sebastin, general secretary of the Sanchar Nigam Executives’ Association (India), told Frontline : “About 80 per cent of the employees of BSNL work in the rural and other far-flung areas to provide landline services. Huge manpower is required to maintain the telephone exchanges in the rural areas.” The reduction of a supposedly bloated workforce is now being offered as a quick-fix solution to the problems emerging out of key policy decisions taken by the government which placed BSNL at a disadvantage compared with private players.

The present financial crisis in the company is a consequence of a spate of ad hoc policy decisions by the management and successive governments. While a government department’s (DoT) services were spun off into a separate telecom company (BSNL) ostensibly to grant it autonomy, major issues of integration of the staff of the company remained unresolved. This has created a gulf between the management of the company and its employees, with a large section of the employees alleging that the management is still dominated by bureaucrats on deputation from the DoT who have no sense of loyalty.

There have been no concerted attempts to infuse new talent to help it keep pace with the competition. Instead, a slew of policy decisions by both the NDA and UPA governments have failed to make the most of BSNL’s core competencies, including its extensive network of about 40,000 towers and its expansive infrastructure of 7,50,000 kilometres of optical fibre.

Rural connectivity and social obligations Despite the liberalisation of the telecom segment, the National Telecom Policy, 1999, envisaged a social purpose for the PSU. BSNL was expected to meet the social objectives of the telecom sector by providing affordable services to remote areas.

At present, BSNL has 28,532 telephone exchanges in rural areas and 5,78,808 village public telephones. Also, the charges for the landline segment in rural areas are regulated by the government, and BSNL does not have a free hand in increasing its revenues from these areas.

In 2003, the Telecom Regulatory Authority of India (TRAI) introduced the Access Deficit Charge (ADC) for landline service providers. This was to compensate fixed-line operators for the losses they incurred providing basic telecom services on which they were not recovering their cost of operation. These included telecom services in rural areas, local charges and provisions for free calls. The ADCs were included as part of the tariff by private operators and, except in the case of local calls, were paid by subscribers on calls made to and from fixed lines. It was, in effect, a levy paid by private operators to fund the rural and remote operations of the public sector. Following the introduction of ADCs in 2003, there were several revisions of the same by TRAI. In 2007, the total ADC was reduced by 37 per cent, from Rs.3,200 crore to Rs.2,000 crore. In April 2008, TRAI abolished the ADC, a move which negatively impacted BSNL.

TRAI had at the same time recommended that Rs.2,000 crore be provided per annum to BSNL from the Universal Service Obligation Fund (USOF) for a period of three years to sustain wirelines installed before April 2002. The USOF was provided for by the National Telecom Policy, 1999, as a fund to be raised through a “universal access levy”, which would be a percentage of revenue earned by operators to be decided in consultation with TRAI. The fund would then be used to reimburse service providers rolling out services in rural and remote areas. The policy came into effect in 2002 and the rules for the administration of the fund were notified in 2004. At present, the levy has been fixed at 5 per cent of the adjusted gross revenues (AGR) of all telecom service providers except those providing pure value-added services such as Internet, voice mail and email.

In July 2011, TRAI recommended a continuation of support for rural wireline connections installed before April 2002 for two more years. The support was calculated at Rs.1,500 crore for the first year and Rs.1,250 crore for the second year. However, the amount of Rs.1,500 crore for 2011-12 was not disbursed owing to the lack of availability of funds. For the support of Rs.1,250 crore for 2012-13, the Telecom Commission has directed the DoT to submit a detailed note after the evaluation of the availability and reliability of rural wireline connections.

BSNL continues to maintain telegraph services, especially to meet the needs of the armed forces, which cause an estimated loss of about Rs.500 crore a year. Also, BSNL continues to pay interest to the government at an annual rate of 14.5 per cent on a notional loan of Rs.7,500 crore. This 15-year loan was shown in the financial statements of BSNL at the time of its corporatisation in October 2000. Apart from the interest, an amount of Rs.983.18 crore as principal is outstanding at present.

Proposal for VRS In the proposal to restructure BSNL, the DoT has emphasised that the employee costs of the company need to be drastically reduced through a voluntary retirement scheme and other similar measures. The note to the EGoM states that salary and pension expenses form 103 per cent of the overall revenues in MTNL and 49 per cent of the overall revenues of BSNL. In comparison, industry-wise salary costs as a percentage of the revenue is around 5-10 per cent. This is being used as a plea to push for a voluntary retirement scheme for about one lakh employees in BSNL and 20,000 employees in MTNL.

The DoT note states: “The PSUs can be viable only if they are able to reduce their employee costs in the short run.” However, what is ignored in this discussion of the staff costs is the fact that a large section of this staff is recruited in the rural areas. In addition to its regular employees, BSNL is also forced to employ about 50,000 contract workers to maintain landline services in rural areas.

Intra-circle roaming In another instance where discriminatory policy decisions weighed against BSNL, three private mobile operators—Bharti Airtel, Vodafone India and Idea Cellular—provided intra-circle roaming services illegally in areas where they did not hold the 3G spectrum, whereas BSNL had invested a much larger amount of money for the spectrum in all zones.

G.L. Jogi, president of the Sanchar Nigam Executives Association, said: “BSNL had invested Rs.10,800 crore in the 3G auction to get hold of the spectrum in all 22 circles across India. The total investment of the private operators was about Rs.4,000 crore, yet they were illegally forming pacts among themselves to provide intra-circle roaming facilities.” Intra-circle roaming entails providing services to subscribers outside of the telecom operator’s licensed zone of operation by entering into agreements at mutually acceptable fee between partner operators.

ITS absorption The most conspicuous instance of the manner in which the autonomy of the company has been undermined is the delay in the integration of officers of the Indian Telecom Services (ITS) into the company. After the formation of BSNL in 2000, the erstwhile employees of the DoT, who were officers on deputation from the ITS, were to be absorbed into the newly formed public sector company. This was a policy decision taken to avoid a potential conflict of interest as the DoT was the licence-awarding authority and its employees could not at the same time be working in one of the companies in the telecom sector.

While nearly three lakh officers from Groups B, C and D were absorbed in the newly formed company in 2000, about 1,600 ITS officers were allowed to continue on deputation for five years until 2005. The grievance of a large section of the staff is that the ITS officers, who continued to be officials of the DoT, held top management posts in the company. This deepened the gulf between the top management and the employees of the company at large. The BSNL management continued to hold on to the ITS officers despite the completion of their term of deputation.

Responding to a writ petition filed by BSNL employees’ associations, the Delhi High Court ordered in April 17, 2012, that the ITS officers either revert to the government or opt for permanent absorption in BSNL or MTNL, as the case may be. BSNL was directed to relieve the officers who reverted to government service within two weeks of the receipt of options from them. BSNL asked for an extension of the deadline to September 30 for relieving its employees. Despite this order, there was an undue delay in the repatriation of ITS officers as the management kept seeking extensions. A final order was issued by the Delhi High Court on February 15, granting a period of six weeks to complete the process of repatriation.

The issue remains unresolved as the DoT wants the process to be carried out gradually. On February 13, the Cabinet decided that the ITS officers would be deployed in BSNL and MTNL on a temporary and year-to-year diminishing basis for a period of 10 years, keeping in mind the present requirements of the companies. This is still a bone of contention between the employee unions and the management.

The DoT has also sought the creation of a separate company for telecommunications infrastructure and another for the management and monetisation of land assets of BSNL and MTNL. This was one of the suggestions of the Sam Pitroda Committee report in 2010. The proposal also talks about the merger of BSNL and MTNL into a national telecommunication services company. However, the key issues of balancing the social objectives of the companies with the need to bolster their financial health have not been adequately addressed. If the government continues to use BSNL only as an instrument to provide connectivity in loss-making avenues which the private operators do not want to explore, it will be difficult to revive the company.