India’s regulators and ministers have spent over a year considering the future of the two lossmaking state-owned telcos, BSNL and MTNL. Options under review have included bail-out, partial privatization or merger, but now the government may take a more extreme line, and shut down the two operators altogether.
The country’s cabinet secretary has called a meeting with top officials to discuss the future of 10 state-run companies in various sectors, which are creating the biggest losses and hitting the national balance sheet. BSNL and MTNL are among these, and are major contributors to a total of $4bn in net losses, generated in the 2013 fiscal year by the 10 culprits.
Other options will be explored, including management reform, capital infusions or joint ventures, but insiders indicate that closure is a very real choice too.
If one or both of the carriers does survive, it is likely to be as a merged entity. Officials have been exploring the merger route for years, but various proposals have run up against issues of company structure, trade union opposition – and the question of whether tying two rocks together can really make them float.
BSNL is India’s fifth largest operator with almost 90m connections, but this figure is down from 96m at the end of last year and in the fiscal year to March 31 2014, the company reported a net loss of INR80.8bn ($1.2bn). MTNL is far smaller, with 3.4m connections as of June 2014 (it is only permitted to offer services in the two largest cities, Delhi and Mumbai, while BSNL operates everywhere else). MTNL made a net loss of over INR7.3bn in the June quarter this year.
A merger – via a share swap or by delisting MTNL and integrating it with its larger stablemate – even has a deadline now. In the event that this option is chosen, the Department of Telecommunications has imposed a final date of July 31 2015 for completion. According to the Economic Times, the ministry favors the merger option and is lobbying for cabinet approval by June 30 next year. Consultations are already underway with the unions.
In a related but separate plan to improve the finances of the state telcos, the DoT has set a deadline of December 31 2014 to spin out BSNL’s 600,000 mobile towers as an autonomous business. The ministry also proposes leasing out BSNL’s and MTNL’s property holdings by the end of this year, to generate more cash and reduce losses.
There could be an even bigger shake-up in the structure of Indian telecoms if the government succeeds in its plan to replace the regulator, TRAI, with a ‘super regulator’ which would cover the entire communications sector, not just telecoms.
This is a move which has been taken in other countries such as the US, UK, Hong Kong and Australia, in response to the convergence of IT, telecoms and media. India’s plan would establish a Communication Commission, with the same powers as TRAI, but extended to the other related sectors. The regulators in media and IT would be merged into the new body. A bill to introduce a super-regulator was first introduced, though not passed, in 2003.