After four consecutive years of reporting losses, Mahanagar Telephone Nigam Limited (MTNL) posted a profit of Rs 78.25 billion in 2013-14. The last time that MTNL was not in the red was in 2008-09 when it reported a profit of Rs 2.12 billion. Since then, the company’s financial performance declined on account of factors like growing competition, decreasing tariffs, significant spectrum-related payouts and high burden of employee remuneration.

While the company posted profits in 2013-14, it is not a major sign of improvement in performance. This one-time profit came after the government provided support in the form of write-back of provisions for pension liabilities and spectrum amortisation costs. A declining user base combined with rising debt had led MTNL to surrender its broadband wireless spectrum (BWA) (acquired in 2010), which it would have used for rolling out 4G services. As a result, in January 2014, the cabinet provided a refund of Rs 45.34 billion for MTNL’s surrendered spectrum in the 2300 MHz band. This was just one of the many measures that were required to be taken to help MTNL on its road to recovery.

Deteriorating health

Although MTNL’s wireline subscriber base has remained stagnant at about 3.54 million subscribers over the past year, its wireless subscriber base has been declining constantly. Its wireless subscriber base declined by 32.5 per cent, from 5 million in March 2013 to 3.37 million in March 2014. Consequently, its market share in the wireless space declined from 0.57 per cent to 0.37 per cent.

The decline in subscriber numbers can be attributed to poor service quality combined with increased competition from private telecom operators, which resulted in subscribers shifting to other operators. For the quarter ended March 2014, MTNL fared the lowest in terms of service provisioning and fault repairs, not only amongst operators in the Delhi and Mumbai circles but also amongst other operators across all circles. The wireless market has already reached near-saturation levels in the metro circles and therefore, it becomes imperative to provide high quality voice and data services to retain market share.

In the internet and broadband segment, MTNL held 2.91 per cent share of the total subscriber base as of the quarter ended March 2014. The company held the third-largest subscriber base of 1.13 million subscribers in the wireline internet service segment. However, its growth in the wireless internet segment suffered owing to competition from other 3G service providers in the Delhi and Mumbai circles and is only likely to worsen with the launch of 4G services by other players.

On the financial front, the company’s losses increased from Rs 28.02 billion to Rs 53.21 billion on account of rising expenses. While its annual revenues stagnated at Rs 34.91 billion between 2010-11 and 2012-13, its total expenditure increased at a compound annual growth rate of 11.39 per cent during the same period. However, the company was able to reduce its expenses from Rs 78.35 billion in 2012-13 to Rs 55.96 billion in 2013-14.

Road to recovery

Encouraged by the one-time profits earned by MTNL, the company’s management has recently announced network upgradation plans to enhance service quality for its customers. The network revamping includes the installation of 3,526 base tower stations (BTSs) for improving 2G and 3G coverage, both in Delhi and Mumbai. It will comprise the deployment of 1,080 Node-Bs and 800 BTSs in the Delhi circle and 1,080 Node-Bs and 566 BTSs in the Mumbai circle. Along with this, MTNL is working on upgrading its 3G network to support high-speed packet access with a download speed of 21.1 Mbps and an upload speed of 5.76 Mbps.

Besides, the Ministry of Communications and IT has proposed a combined investment of Rs 39.45 billion for MTNL and Bharat Sanchar Nigam Limited (BSNL) in the next five years. This investment will be mainly used to reduce the debt of the two companies. As of June 2014, MTNL had a debt of Rs 147.6 billion on its books while BSNL had Rs 64.4 billion. Meanwhile, after having surrendered its BWA spectrum, MTNL has recently sent a proposal to the ministry to return its entire spectrum in the 800 MHz band at the auction-determined price. The total value of this spectrum is about Rs 19.37 billion.

MTNL has also been actively exploring avenues to improve its revenues. It has recently won a five-year contract from Oil and Natural Gas Corporation Limited to provide basic telephony and mobile services, and leased circuits including VSAT services in Mumbai and Delhi. In addition, it has appointed SBI Capital Markets to evaluate the scope for investments in its Nepal-based unit, United Telecom Limited. Going forward, these efforts will be essential in helping MTNL survive in the highly competitive Indian telecom market.