Distress Call

Close to Connaught Place, in the heart of New Delhi's business district, stands Eastern Court, the colonial building designed by Robert Tor Russell. Once a picture of elegance - a creamy white facade, arcades, huge verandahs and a massive lawn - the sprawling complex is today crumbling with decay and neglect.

Much like the state-run telecom company it houses: Mahanagar Telephone Nigam Ltd (MTNL). The Bharat Sanchar Nigam Ltd (BSNL) office, a stone's throw away, appears swankier, but walk into either of the offices and you find files piled up on desks, the backrest of chairs lined with towels, broken hot cases and too many hands to do each task. A notice at the MTNL reception instructs visitors not to pay bribes and to lodge a complaint if an official asks for one. It's a vintage sarkari set piece, reflecting the archaic ways in which the telecom behemoths carry out their business.

Scores of state-run enterprises in India continue to retain their image as havens of 'safe employment', what if that comes at the cost of professionalism and performance. At BSNL and MTNL, for instance, a driver to a joint secretary-level officer with about two decades of experience earns around Rs 70,000 a month, excluding perks. Until recently, it came with a priceless tag called job guarantee. Not anymore.

MTNL, saddled with a debt of about Rs 20,000 crore, has been delaying salaries since October 2018. January salaries were credited on February 21 while the February salary was paid on March 14. The company is paying Rs 150 crore as monthly interest on its loans while revenue from the lucrative Delhi and Mumbai circles - where it operates - is about Rs 100 crore.

BSNL, India's fourth-largest telco, failed to pay its 176,000 employees their February salaries until mid-March. It was on March 15 that Chairman and Managing Director Anupam Shrivastava informed the media that the salaries had been disbursed. While BSNL's employee expenses as a percentage of total income have more than doubled in the past decade - from 26.4 per cent in FY09 to 53.8 per cent of the total income in FY18 - its market share and revenue have steadily declined. BSNL last posted an operating profit in 2009. Since then, the company has piled up a cumulative loss of Rs 57,113 crore, from fiscal 2010 to 2018. From a net cash position of Rs 37,163 crore in FY08, it slipped to a net debt position of Rs 16,093 crore at the end of fiscal 2018.

Cross Connection

How did the two state-run telcos, which laid India's communication network and still remain the backbone of its telecom infrastructure, fall on such days? One, BSNL and MTNL are seen as examples of 'maximum government', an albatross the Narendra Modi government had promised to rid the country of. Mahesh Uppal, founder of ComFirst India, a consulting firm specialising in technology and telecom policies, explains: "BSNL never could and is still not able to compete commercially because it lacks commercial flexibility and capacity. In the normal course of things, a commercial player would take action, whether it's hiring-firing or adjusting business decisions. But BSNL is government-controlled."

Poor customer service didn't help either, especially when private players were making aggressive efforts to increase their customer base.

Another key reason behind the decline of BSNL and MTNL has been their inability to take on private players, such as Reliance Jio and Bharti Airtel. BSNL has failed to take timely commercial decisions, such as when and what spectrum to bid for. In 2009, the then UPA government pressured the company to go for WiMAX or Worldwide Interoperability for Microwave Access-based services. The WiMAX lobby was strong at that time and had pitched it as a superior technology that could serve the rural areas - an aspect that greatly appealed to BSNL. But, as industry insiders say, WiMAX was an inferior technology and telcos across the world had rejected it for superior options. BSNL became the only Indian telco with WiMAX technology for its broadband wireless access (BWA) spectrum, used for offering 4G services, while private players invested in long-term evolution (LTE).

In August 2008, BSNL and MTNL had been provided spectrum ahead of the 3G spectrum auction for private players in 2010. While spectrum was alloted to them two years ahead, both had to pay a price equal to the highest bid in the respective service areas. They paid exorbitant amounts for spectrum they did not get to choose. MTNL paid about Rs 11,198 crore (Rs 6,574 crore for 3G and Rs 4,534 crore for BWA spectrum) while BSNL paid about Rs 18,500 crore (Rs 10,186 crore for 3G and Rs 8,314 crore for BWA spectrum). In 2013, then BSNL Chairman and Managing Director Kuldeep Goyal lamented in a media interview that the company did not get the option of selecting circles for 3G or BWA and that the high spectrum prices had impacted its business model. By then, BSNL was already in the red, having reported losses for the first time in its history in 2009/10.

Both BSNL and MTNL failed to capitalise on their first-mover advantage because the spectrum offered to them in the 2.5 GHz band was of poor quality. Whereas, in 2010, private players successfully negotiated with the government for spectrum in the 2.3 GHz band - considered more efficient. Eventually, BSNL and MTNL surrendered 17 of their 22 circles and sought a refund to the tune of Rs 11,258 crore. The Union Cabinet approved the refund in 2014 on the condition that the money would be transferred over a period of time as part of a 'revival' package.

Ironically, BSNL and MTNL had decided to surrender BWA spectrum at a time the telecom industry was gearing up for data-driven 4G services. "BSNL at one time was one of the best operators in the country. But without 4G spectrum, you don't have subscribers. Who will pay for a redundant service?" asks an industry professional.

Policy interventions, too, hurt the telcos. For instance, the 2017 move by the Telecom Regulatory Authority of India (Trai) to reduce the interconnection usage charge (IUC) by more than half, from 14 paise a minute to six paise, and scrap it by 2020. IUC is the fee a mobile service provider pays another to link calls to the latter's network. While the move was seen as benefitting new entrant Reliance Jio, it came as a big blow to the incumbent operators who had been battling against the cut.

The Rs 1.5 lakh crore Indian telecom market, with 1.16 billion mobile phone subscribers, is in the throes of a churn like never before. The entry of Reliance Jio in 2016, with its opening offer of free calls and rock-bottom rates for data, severely jolted the sector. Within two years, Jio bagged over 250 million subscribers even as several players, such as Telenor and Tata Teleservices, sold off their businesses while Anil Ambani's Reliance Communications sank under debt. In the past two years, the number of telecom players has come down from nine to four, including BSNL. Vodafone India, once number two, posted losses of $4 billion and merged with Idea Cellular in 2018 to create Vodafone Idea - now the largest operator with 422 million subscribers, followed by Jio and Bharti Airtel.

Dialling For Help

What really are the options for BSNL and MTNL? A senior bureaucrat in MTNL says banks have stopped extending credit to the telco since its net worth is negative to the tune of over Rs 6,000 crore. Monetisation of assets is not an option because 90 per cent of these are under the name of the urban development ministry. While a committee was set up in 2000 with the mandate to transfer such assets to BSNL and MTNL by 2005, the process is far from complete.

As of November 30, 2018, BSNL and MTNL had a market share of just 10.1 per cent among wireless subscribers. But BSNL claims its net percentage of subscriber additions in 2017/18 was the highest at 11.5 per cent. Compare this with Airtel (9.5 per cent), Vodafone (3.8 per cent) and Idea (3.2 per cent). BSNL's wireless subscriber base as of March 2018 was 111.7 million.

Set up in 2000, with a large number of employees shifted from the Department of Telecom, the mounting wage bill has been pricking BSNL all the more because of pension and staff benefits. Unlike its mammoth workforce, private telcos have contained their numbers at 30,000-40,000 by outsourcing a lot of operational work. Both BSNL and MTNL are now considering a voluntary retirement scheme for employees over 50 years of age, but no proposal has been approved yet by the Centre and the employee unions.

Adding to the uncertainty is BSNL's wait for a full-scale launch of 4G services even as private operators gear up to roll out 5G. Things came to such a pass last month that the company had to issue a press release on February 15, clarifying that it is not shutting down. But it certainly needs to get its act together before it is too late.

@shwetapunj