Can the GoM on MTNL, BSNL chalk out a revival strategy for the loss making telecos?

STATE-owned telecom companies BSNL and MTNL are facing tough time. But a crucial meeting of the group of ministers (GoM) assigned the task of finding the course of profitability for MTNL and BSNL on Wednesday is likely to bring some cheers...
to the once-profitable jewels of the government. Will MTNL be able to cut its workforce? Will there be a proposal to develop its huge land resource in Mumbai and Delhi? Finally, will there be an effective revival strategy for both BSNL and MTNL? These and many other issues will be discussed in the fourth meeting of the GoM headed by finance minister P Chidambaram. BSNL has been incurring losses since 2009-10. BSNL’s profits started dipping after 2004-05, when it had made net gains of Rs 10,183 crore. Its losses stood at Rs 8,198 crore for 2012-13 against Rs 8,851 crore in 2011-12. The company had reported a loss of Rs 1,093.72 crore in the same period a year ago. Likewise, in 2012-13, MTNL recorded a net loss of Rs 5,321.12 crore on annual revenue of Rs 3,428.6 crore. The last time MTNL made a profit was in 2008-09, when it posted a net of Rs 205.9 crore on revenue of Rs 4,496.2 crore. After reporting widening of losses for nine quarters in a row, MTNL reported narrowing of its standalone net loss to Rs 947 crore for the July-September 2013.
The department of telecom (DoT) has put a number of issues for GoM for improving condition of MTNL and BSNL. These include a synergy between the two companies, waiver of one-time spectrum charges which amounting to about Rs 10,000 crore, waive off around Rs 980 crore principal amount of notional loan amount outstanding against BSNL among others.
The last meeting was held on September 12, 2013 when it decided on pension issue. The pension proposal of MTNL was approved by Cabinet recently that would cost the government an estimated Rs 500 crore annually. The decision is likely to bring additional amount of about Rs 1,500 crore (including interest) in the books of MTNL as refund from government for the pension that the PSU paid to its around 43,000 employees.
On January 9, Cabinet will discuss about refund of Rs 12,800 crore to MTNL and BSNL which the telecos had to pay for wireless broadband spectrum in 2010 auctions. This will be the biggest boost to the companies’ balance sheet. BSNL had to pay Rs 8,313.8 crore and MTNL Rs 4,534 crore for these airwaves which put a heavy burden on their books.
Both BSNL and MTNL have offered to surrender their BWA spectrum and sought refunds. The two companies did not have to buy spectrum in the auction but were asked to match the price that a successful bidder had to pay for the airwaves.
MTNL proposes to develop its large land banks in Mumbai and Delhi, where it operates. According to a recent presentation, MTNL has some 230,000 sq m of technical land and 380,000 sq m of residential land in Mumbai and Delhi. Commercial use of these lands will give the PSU a handsome profit. MTNL estimates it can earn as much as Rs 3,600 crore in the next three years by selling the built-up area developed from the land and Rs 400 crore from leasing some of it. MTNL has already earned some rent from some of its built-up space in the two cities—Rs 4 crore in Delhi and Rs 30 crore in Mumbai. It estimates total revenue from renting space at around Rs 66 crore for the full year.
Both BSNL and MTNL have a number of state-mandated social obligations to fulfil. Government interference in the functioning of the PSUs is another reason for its dwindling profits. Moreover, MTNL’s 42,000-employee workforce is three times its required strength. To cut staff, MTNL estimates it will have to spend about Rs 5,000 crore on a voluntary retirement scheme (VRS), making it the biggest such plan that the telco has offered. The current staff cost is around Rs 4,000 crore, including retirement benefits.
On the other hand, Bharti Airtel, India’s largest telecom services provider, has fewer than 18,000 employees across the country and outsources several functions.