Rapidly declining ARPUs, aggressive competition from private players, a huge outgo on account of 3G spectrum charges and a declining user base have taken their toll on Mahanagar Telephone Nigam Limited (MTNL). Nevertheless, the company has been making efforts to curb losses and enhance its brand value. In an interview with tele.net, A.K. Garg, chairman and managing director, MTNL, spoke about the company’s performance in the past year, the challenges facing it and the road ahead. Excerpts…

How has MTNL performed over the past one year?

The company’s performance in 2011-12 was at par with that in the previous year. Its ARPUs declined owing to its rock-bottom tariffs, increasing number of telecom operators in each circle and the rapid advances in technology. Besides, MTNL operates only in Delhi and Mumbai, which have a teledensity of over 150 per cent and are amongst the most competitive markets in India.

Further, the payment of over Rs 110 billion for acquiring 3G and broadband wireless access (BWA) spectrum in these two circles has adversely impacted the company’s financials. This fund requirement was addressed through short-term loans of about Rs 75.63 billion while the remaining amount was paid out of the company’s existing resources.

Having achieved business targets in both the cities, in 2011-12, the company focused on expanding its mobile and broadband services in these circles, besides providing high speed internet, high quality video and next-generation wireless services.

Some of the company’s key achievements during 2011-12:

In 2008, MTNL had commissioned a state-of-the-art internet protocol-multiprotocol label switching (IP-MPLS) core network in Delhi and Mumbai to provide a converged IP network for its services. In 2011-12, the company worked on the expansion of this network to improve service delivery. It deployed around 10 core and 70 edge and aggregate routers in Delhi, and 10 core and 67 edge and aggregate routers in Mumbai. This helped us establish around 50 points of presence both in Delhi and Mumbai.

In order to meet the increasing demand for bandwidth, the company added optical fibre in the access network and deployed fibre-to-the-home (FTTH) based on gigabit-capable passive optical networks (GPONs). This will enable it to offer the FTTH facility to customers who require high bandwidth. The company has already launched data services on FTTH commercially and will launch voice services on the network soon.

The company upgraded its IPv4 networks to IPv6-enabled networks, in compliance with the Department of Telecommunications’ (DoT) directive to all operators. The migration to IPv6-enabled networks was a challenging task, as we have several legacy networks and equipment for various businesses such as broadband, wireless and leased circuits.

In 2011-12, MTNL’s income from operations stood at Rs 33.73 billion as compared to Rs 36.73 billion in 2010-11. Its expenditure (including interest and prior period adjustments) stood at Rs 67.2 billion as against Rs 63.15 billion in 2010-11. Operating losses stood at Rs 33.46 billion for this period, compared to Rs 26.41 billion in 2010-11. The net loss for the year was Rs 41.09 billion, compared to Rs 28.01 billion in 2010-11. MTNL’s authorised capital stood at Rs 8 billion for 2011-12 while the issued, subscribed and paid-up capital was Rs 6.3 billion. Reserves and surplus funds for 2011-12 were Rs 19.06 billion as compared to Rs 60.16 billion for the previous year.

MTNL has two subsidiaries and two joint venture (JV) companies. In 2000, the company established Millennium Telecom Limited (MTL), a wholly owned subsidiary, for providing internet and other value-added services. In 2012, MTL’s board decided to venture into new businesses, and is considering infrastructure sharing, data centre outsourcing applications and providing turnkey solutions to both public and private companies. It is also looking to take a franchisee or distributorship of MTNL’s wireless products and SIM cards of other operators. MTL’s management is currently working on the aforementioned initiatives.

Mahanagar Telephone (Mauritius) Limited (MTML) is another wholly owned subsidiary of MTNL. It provides mobile, international long distance and internet services. During 2011-12, MTML installed a 100,000 line GSM network with support for EDGE to meet customer demand as its existing CDMA capacity has already been fully utilised. The company’s current customer base for CDMA is 106,402 and for GSM is 18,056.

MTNL’s JV, United Telecommunications Limited (UTL), was incorporated in 2001. UTL has a total customer base of over 721,333 and 1,005 public call offices. In 2011-12, the company reported a net profit of Rs 59 million.

MTNL’s other JV, MTNL STPI IT Services Limited was incorporated in 2006. It provides data centre, messaging and business application services.

What are the biggest challenges faced by the company?

The biggest challenge before us is to reduce the interest burden on the loans we raised to pay for 3G and BWA spectrum. While the company has launched 3G services, it has not introduced BWA services as it is an economically unviable proposition for us in the spectrum band we currently hold. MTNL has approached DoT for surrendering its BWA spectrum in the Delhi and Mumbai circles, and getting a refund of the one-time upfront charge paid for it. The company is currently awaiting DoT’s response in this regard.

MTNL did not participate in the recent 2G spectrum auction. What were the reasons behind such a decision?

The company did not participate in the recent 2G spectrum auction as it had adequate spectrum to meet its business requirements.

What are your views on the one-time fee on excess spectrum?

Any kind of fee is never well received by the industry. At present, MTNL is not in a position to pay for excess spectrum or bid for it and has informed the government about the same.

What steps are being taken to reduce the company’s financial losses? What are the future revenue streams for the company?

MTNL has been reeling under losses for a while. We find that we are not able to make up the amount we paid as 3G licence and spectrum fee in revenues. We have taken several steps to address this issue and are in talks with the government with regard to various concerns including the proposed pension scheme. We are also considering sovereign guarantees to raise loans from the market at a slightly lower interest rate.

Apart from this, the company is trying to maximise its revenues by fully utilising its existing assets, by sharing its passive and active infrastructure such as towers and core capacity, as well as by developing and sharing its real estate. MTNL has substantial land and building assets, and has rented out space in its various offices and exchanges in Delhi and Mumbai. In addition, the company has a considerable pool of assets in the form of spare capacity in installed equipment. It intends to rent out this spare capacity to generate additional revenue.

Moreover, MTNL has been looking to enhance its existing user base by providing quality services, better customer care, and introducing new services, schemes and innovative marketing strategies. We have been upgrading our telephone exchanges and external plants as well.

What is the status of the proposed voluntary retirement scheme (VRS)?

At present, MTNL does not have the funds to chalk out a VRS programme. Once it resolves the aforementioned issues with the government, it will take this initiative forward.

What steps is the company taking to check the churn in wireline subscribers?

The tariffs for wireline services are purely market driven. The company offers broadband services on wireline, which has helped increase uptake. Further, it is taking steps to improve its service provision time, after-sales support and service delivery. These parameters are the most vital to increase consumer interest in such services. However, there is no quick fix or shortcut for achieving this.

What are MTNL’s operational and financial plans for 2012-13?

We are looking at enhancing our revenues through various measures. We are also planning to expand services based on latest technologies like IP-MPLS, FTTH based on GPON and access networks. Another priority is improving our after-sales service to retain and net subscribers.

We are also planning to improve our GSM network and will add more sites to enhance network coverage and will shortly be floating a tender in this regard. The company does not have any plans to roll out 4G services with the spectrum it currently holds. We are focusing on other technologies like FTTH and are looking to sign more partnerships. We also want to enhance the penetration of our broadband services via fibre or 3G data cards.

What technology trends do you foresee in the sector over the next two years?

Fibre-based networks will be used more extensively. 4G wireless services may also come into play, but not on a full-coverage basis. However, given the telecom industry’s current cash crunch, it will be difficult to predict which technologies will come to the fore.

What are MTNL’s advantages over its competitors?

We have a state-of-the-art network and believe in complete transparency in terms of the schemes and tariffs we offer. MTNL is a long-term player and will focus on the businesses we think are sustainable in the long run. In this context, we are quite hopeful about our internet services and asymmetric DSL performing well.