The Bharat Sanchar Nigam Limited [BSNL] – a jewel among the most profitable public sector undertakings [PSUs] of the union government and an entity that virtually monopolized the telecommunication sector over two decades ago – is reported to have sent an SOS to the department of telecommunication [DoT] – its nodal ministry – seeking immediate release of funds to enable it pay salaries to its employees for the month of June, 2019.
This has led to consternation in industry circles with many commentators even questioning the very need to continue operations of this highest loss making PSUs [during 2018-19, it posted loss of Rs 13,804 crore] besides Mahanagar Telephone Nigam Limited [MTNL] – another one time jewel in the portfolio of GOI which posted a loss of Rs 3,398 crore during 2018-19. Some even go that far to say that it makes no sense to throw tax payers’ money merely to keep these undertakings on the ventilator.
But, the government has a different view. Forget about closing these undertakings or their divestment, it is seriously pursuing their revival. In fact, already a note has been prepared for consideration by the union cabinet any time.
Estimated to cost Rs 74,000-crore, the bailout plan involves offering an attractive exit package for thousands of employees including an additional 5% compensation [ex-gratia] to make the VRS [voluntary retirement scheme] attractive while providing for 4G spectrum and funds for capital expenditure on its roll out.
While, 4G spectrum [to be allotted to the PSUs for free] is valued at over Rs 20,000 crore, the expenditure on its roll-out [the bill to be foot by union government] will be around Rs 13,000 crore. Add to this the cost of shedding excess manpower of over Rs 40,000 crore [this includes about Rs 29,000 crore towards the VRS package and Rs 11,000 crore for early retirement benefits], implementation of the plan will cost the exchequer about Rs 74,000 crore.
The revival package is also being justified on the ground that the alternative of closing these undertakings would cost much higher at about Rs 120,000 crore.
To assess whether the government is proceeding on the right track or otherwise, it is necessary to know the reasons behind their current sorry state. These have to do with (i) excessive manpower leading to unsustainable high expenditure on wages and salaries; (ii) slow pace of technology up-gradation and (iii) poor management and misdirected and unwanted government intervention.
First, the salaries and wages alone guzzle about 77% of the revenue in case of BSNL whereas, for MTNL, this is even higher at 87% [the corresponding figure for private companies such as Airtel, Idea-Vodafone, Reliance Jio etc is less than 10%]. This imposes a severe limitation on their ability to break-even forget having the wherewithal to survive an intensely competitive environment.
Second, these undertakings have failed to keep pace with the technological advancements in the sector. Whereas, their private counter-parts are fast migrating to 4G and are even preparing for 5G, BSNL and MTNL remain glued to 2G/3G. As a consequence, the latter have progressively lost market share to the former. Furthermore, their ARPU [average revenue per user] is Rs 38 against Rs 70 for private companies.
The above infirmities are mainly due to too much of interference by bureaucrats and political brass and total lack of autonomy to the managements not just in formulating strategies but also in running the day-to-day affairs. At one level, corrupt politicians and bureaucrats in the ruling dispensation [during the relevant period] took decisions granting undue favors to private companies at the cost of BSNL/MTNL.
At another level, they have used these undertakings as a platform to provide jobs on a scale totally unrelated to the requirement of the business – very often by way of extending favors in exchange for monetary consideration. Or else, how does one explain the disproportionately high employees in BSNL/MTNL vis-à-vis private companies for comparable through-put.
Thanks to these ‘inequitable’ and ‘discriminatory’ actions of the ruling establishment, while on one hand, BSNL/MTNL experienced a precipitous fall in their high profitability in the 90s to losses in the 2000s and even greater losses in recent years, on the other, private companies [Airtel, Vodafone etc] attained dizzy heights in terms of revenue and profitability within a few years of start of their operations
The package under consideration by the government seeks to address the first two factors. The VRS/incentive for early retirement and making 4G spectrum available for free besides footing the bill for roll-out may help in trimming the losses. But, unless the third factor viz. excessive government intervention in their working is addressed, it will be impossible to ensure their continued viability.
Under Modi, these undertakings may be allowed to run independently and on professional lines. But, what is the guarantee that his government will continue in the future. What if, there is change of guards come 2024?
In that scenario, there will be every possibility of political and bureaucratic interference perhaps, with greater intensity. This could mean even return of the excess manpower and failure of the undertakings to keep up technological advances. Yet again, the government will have to come up with another package costing thousands of crore. The vicious cycle will continue.
The way forward is for the government to relinquish its majority ownership and control. The present may not be the right time to do it as given their precarious financial health, it may not find buyers. For now, it needs to think through some out-of-box solutions such as monetizing their assets particularly land and real estate and use the proceeds for reducing their debt. Thereafter [say 1922-23], it can kick off divestment of majority equity.
Hope, Team Modi-2 is listening.