Mahanagar Telephone Nigam Limited (MTNL) has been going through a rough phase. Declining ARPUs, increased competition from private players coupled with a huge outgo on account of 3G spectrum fee have led to an increase in the operator’s losses. MTNL recorded a loss of Rs 19.86 billion during the quarter ended March 2013. Its total loss for 2012-13 stood at Rs 53.21 billion, 30 per cent higher than that recorded during 2011-12.

A key issue faced by the operator is high employee costs. For MTNL, which had a workforce of over 45,000 people as of December 2012, employee costs as a percentage of revenue are over 103 per cent as against the industry average of less than 5 per cent. MTNL has been struggling for some time to reduce its surplus staff. However, the lack of funds has affected its voluntary retirement scheme.

MTNL has also been facing high interest costs especially since the payment of over Rs 110 billion in 2010 for acquiring 3G and broadband wireless access spectrum in the Delhi and Mumbai circles. It met this funds requirement through short-term loans of about Rs 75.63 billion and paid the remaining amount out of its existing resources. In April 2013, the operator raised another Rs 10.05 billion through bonds backed by a sovereign guarantee from institutional investors. These factors, coupled with intense competition from private players and a decline in the quality of service, have led to the operator losing its customers.

MTNL offers services in Delhi and Mumbai – the country’s most lucrative circles in terms of average per capita income and therefore ARPUs. As of March 2013, the operator had mobile subscriber base of 2.59 million and 2.40 million in the Delhi and Mumbai circles, a decline of 10.07 per cent and 22.50 per cent from 2.88 million and 2.94 million respectively in March 2012. Its combined mobile subscriber market share in both the circles declined from 0.63 per cent in March 2012 to 0.58 per cent in March 2013.

In comparison, its foothold in the wireline segment is still strong. MTNL’s combined market share in both the circles stood at 11.45 per cent in March 2013 as against 10.75 per cent in March 2012. Further, MTNL is one of the top five internet service providers with a total subscriber base of 1.08 million and a market share of 7.2 per cent.

Planning ahead

With a view to revive the loss-making operator, the Department of Telecommunications (DoT) is proposing a merger of MTNL with Bharat Sanchar Nigam Limited (BSNL). In a communication to the empowered group of ministers on telecom headed by finance minister

P. Chidambaram, DoT has stated that both the public sector units face competition from pan-Indian operators, which are in a position to extend benefits to subscribers, particularly to enterprise and business customers.

DoT has recently extended a one-time amount of Rs 59.25 billion to MTNL for settling its pension liabilities. At present, pension accounts for 86 per cent of the operator’s employee costs and is expected to exceed salary costs by 2014-15.

To arrest the decline in its subscriber base, the operator is focusing on improving its service quality. It is taking steps to reduce service provision time, and improve after-sales support and service delivery. It is also introducing new services and innovative marketing strategies to attract new customers. MTNL is upgrading its telephone exchanges and is planning to strengthen its GSM network by adding more telecom sites to increase network coverage.

Given its strong position in the broadband segment, MTNL is working towards increasing the penetration of these services through fibre and 3G data cards. The operator plans to expand services based on popular technologies like IP-MPLS and fibre-to-the-home (FTTH) based on gigabit passive optical network and access networks. The company has already launched data services on FTTH commercially and is exploring partnership opportunities with other stakeholders.

MTNL’s key strength is its infrastructure. Thus, the operator is looking to leverage its existing assets through infrastructure sharing. It has started sharing its passive and active infrastructure such as towers and core capacity with private players. It is leasing out its tower sites to other operators looking for additional capacity. MTNL has a large pool of assets in the form of spare installed equipment capacity, which it intends to rent out to generate additional revenues.

The company is also exploring ways to develop and share its real estate as it owns vast tracts of surplus land and buildings. The operator is also evaluating several enterprise ventures related to surveillance and cyber highway projects in Delhi and Mumbai.

Further, in its efforts to improve its revenues and brand image, MTNL has hired consultancy firm Deloitte Touche Tohmatsu Limited for developing a future road map. The consultancy firm is preparing a report recommending measures to be taken for improving the operator’s performance. It is expected to submit the report by July 2013. Based on the observations of the consultancy firm, MTNL is expected to take remedial measures to cut its losses and transform itself into a profit-making entity.