BSNL rescue package is too little, too late

Print edition : November 22, 2019

A BSNL worker repairing the disconnected landline cables in Bengaluru. Photo: Sudhakara Jain

A Bharti Airtel Limited. Photo: Bloomberg

Reliance Jio. The telecom industry is now entering a phase of oligopolistic control in which Bharti Airtel, Reliance Jio and Vodafone control the pan-Indian market. Photo: REUTERS

The Vodafone office in Mumbai. The telecom industry is now entering a phase of oligopolistic control in which Bharti Airtel, Reliance Jio and Vodafone control the pan-Indian market. Photo: PAUL NORONHA

The rescue package for BSNL and MTNL, the fall guys of the Indian mobile telephony boom, hides more than it reveals.

THE nearly two lakh employees of the two premier telecom public sector undertakings (PSUs) must have heaved a sigh of relief when the government announced on October 23 a long-delayed rescue package of sorts. In the weeks preceding the announcement, a swirl of rumours spread indicating the imminent shutdown of the debt-laden Bharat Sanchar Nigam Ltd (BSNL) and Mahanagar Telephone Nigam Ltd (MTNL). Neither the Communications and Information Technology Minister Ravishankar Prasad nor senior heads of the two companies cared to reassure worried subscribers who had been receiving vaguely worded text messages assuring them that the two service providers were there to stay. MTNL ought not to have been established in the first place. The decline of the two companies is the story of how they were made the fall guys in what is now termed the Indian mobile telephony revolution.

Announcing a five-point revival plan, the government said it would initiate a merger of the two companies; help them mobilise funds through issue of long-term bonds backed by sovereign guarantee to the tune of Rs.15,000 crore; allocate 4G spectrum to them at government expense amounting to Rs.23,814 crore (inclusive of goods and services tax); help the two entities mobilise Rs.37,500 crore through the sale of their real estate assets; and provide funds to the tune of Rs.17,169 crore for a “generous” voluntary retirement scheme (VRS) package for eligible employees. How generous are these measures? Do they reveal a sincere intention to revive the companies? These are serious questions considering that the telecom industry is now entering a phase of oligopolistic control in which Reliance Jio, Bharti Airtel and Vodafone control the pan-Indian market. The cost of the package, pegged at Rs.93,483 crore, is grossly exaggerated, suggesting that this is a less-than-sincere attempt at revival. For one, more than 40 per cent of the cost is to come from the sale of the two companies’ real estate assets. The Communications Ministry would not have to part with any funds. The promised allotment of additional 4G spectrum is fraught with problems, the most significant one being the shortage of spectrum. Experts have suggested that the 2,100 MHz band, which is most suitable for 4G services and essential for transmission of high-speed video-based services is in short supply. The government has already sold 700-2,100 MHz bands to private competitors.

Although overstaffing is a serious issue facing the two PSUs, which hampers their ability to compete with private players in the mobile telephony space, it is a problem that has been aggravated by successive governments. The proportion of staff costs to total expenditure in the case of BSNL and MTNL is about 77 per cent and 87 per cent compared with 5 per cent in the case of private operators. This legacy of high staff costs has a long history, going back to 2000 when BSNL was formed. When mobile telephony operations commenced, largely by private players, in the mid 1990s, the large technical workforce engaged by the Department of Telecommunications (DoT) became suddenly redundant. The newly established private companies ate into the subscriber base of the two PSUs. The DoT could not use its vast technical staff, including engineers, linemen and auxiliary staff. It bullied MTNL and BSNL into agreeing to take on their rolls the DoT staff who became redundant because of its policy-induced bias towards private players. At the time, unions in BSNL had raised a furore, but both the company managements were bullied into accepting a deal that was bound to be unviable in the long run. In 2018-19, BSNL made a loss of Rs.14,000 crore, implying accumulated losses of Rs.90,000 crore.

Frauds galore

For those fond of celebrating the Indian telecom revolution, often misleadingly made synonymous with the rapid rise of mobile telecommunications, a dose of history may be in order. This is necessary to establish that the telecommunications sector in India may have resulted in the mobile phone becoming ubiquitous. But the surprising aspect of the story is how this happened despite the industry being a can of worms. Right from the beginning of the launch of mobile services, the industry has been rocked by scandals at every step it took. Private players indulged in practices that came to be termed grossly fraudulent: they abused the newly categorised service of “limited mobility” to actually launch full-scale mobile services; Reliance (in its first avatar) fraudulently routed international calls masquerading them as calls from India for which it agreed to pay a fine; DoT (later BSNL) was not allowed to enter telecom circles until private operators had established their hold; even after BSNL was allowed to operate, it managed to become the second largest operator in most circles by the early 2000s, largely because of its perceived “billing integrity”, which was in contrast to the private operators’ billing methods; BSNL was unable to expand capacity quickly in order to meet subscriber demand because of the government’s “slow decision-making”. The same story was repeated when 3G and 4G services were launched by private operators.

In both cases BSNL was the last to establish operations in most circles—barring Jammu and Kashmir where the state had invoked the national security factor to keep the only operator willing to serve there. Even BSNL’s late adoption of 3G was, in hindsight, a mistake because it was a much delayed move. To make matters worse, the government again bullied BSNL to bid for BWA (broadband wireless access) spectrum, using the company’s limited funds to plug the hole in its revenues. In fact, the investment in BWA is a recurring liability for the company to this day.

In 1986, when the first wave of neoliberal thinking was making significant inroads in India, the Rajiv Gandhi government decided to let the DoT hive off operations in the two most lucrative Indian markets—Delhi and Mumbai—into a separate company. That is how MTNL came into being, spurred by the idea that corporatisation was the way to go. The DoT, even at that time, was initiating what can be only described as the first revolution in Indian telephony when it made significant advances in electronic switching, when groups such as the C-DoT (Centre for Development of Telematics) managed to beat multinationals at their own game. This paved the way for rapid deployment of telecommunications in India. The mobile revolution was more than a decade away.

It is obvious that the workforce at BSNL (1.7 lakh employees) and MTNL (16,000) is going to face the burden of the restructuring. It is estimated that even a 40 per cent reduction in the workforce, that is, through a VRS for about 74,000 employees, would result in the wage bill declining by about 30 per cent. Clearly, this is not enough to keep the merged entity going.

It is unlikely that the government will completely relinquish its hold over the merged entity, especially because the space is largely in private control. The half-hearted efforts at revival suggest that the Narendra Modi regime is perfectly happy to let the two companies continue to bleed. Nothing illustrates the government’s egregiousness better than its two-faced conduct in the context of the recent happenings in the Indian telecom industry. Within days of the Supreme Court ordering the three main private telecom companies to clear their dues amounting to over Rs.90,000 crore, the government, with great alacrity, offered them relief by allowing them to make staggered payments. The reality of the boom in the Indian telecom industry hides more than it reveals. It shows a staggering level of duplicity in the way “knowledgeable” observers measure “success”. While BSNL and MTNL are regarded as slow and inefficient, the reckless debt accumulation by the leading private operators is considered a hallmark of success.

With the economy in the throes of a slowdown and prospects of job creation appearing bleak, especially for the technical staff on the PSUs’ rolls, the revival package offers too little and too late to companies that carry the burden thrust on them.