Concerned about Bharat Sanchar Nigam Limited’s (BSNL) dwindling fortunes over the past few years, minister for telecommunications and IT Kapil Sibal has assured full support from the government to effect a turnaround.

“BSNL’s mobile and landline subscriber bases have been declining for a while. Moreover, its broadband subscriber base has not kept  pace with that of private players. So, it is time for BSNL to tighten its belt. I am committed to turning the organisation around in the next six months,” says Sibal.

Once the largest integrated telecom operator in the country, BSNL has, over the years, lost its edge and market share to its more nimble-footed private sector rivals. Being a PSU has inherent problems. The company faces bureaucratic delays, long tendering processes and frequent governmental interference. It also has to contend with a 300,000-odd labour force and trade union opposition.

Today, most of BSNL’s telecom businesses, including mobile, fixed line, long distance and internet, are under pressure. Financially too, the company faces tough times. It registered a net loss of Rs 18.23 billion in 2009-10 on revenue of Rs 320.46 billion, compared to the net profit of over Rs 100 billion in 2005-06. In its projections to the government for 2010-11, BSNL expects to announce a net loss of Rs 27.25 billion on revenue of Rs 317.38 billion but hopes to narrow this to Rs 6.23 billion on revenue of Rs 365.6 billion in 2011-12.

Anxious to get the operator back on its feet, the government has been contemplating various approaches. Sibal, for one, wants BSNL to operate as a private entity. The minister wants to put a new structure in place, whereby the heads of the PSU’s frontline regional units will be held financially accountable. The nationwide market will be divided into four zones, with a director from BSNL’s board responsible for an individual zone.

With the company’s finances under strain, the focus, according to Sibal, will be on making circle-wise chief general managers responsible for generating business. The circles will be divided into three categories by revenue: revenue of less than Rs 10 billion, Rs 10 billion-Rs 20 billion and more than Rs 20 billion. Under the new system, which is likely to be implemented soon, the performance of each circle head will be evaluated in terms of the gross revenue earned by them. In fact, rewards will be clearly linked to performance. While currently all the heads of circles report to the CMD, in the new regime, they will coordinate with the assigned directors.

A major handicap for BSNL is its absence in two lucrative circles – Delhi and Mumbai. To overcome this, the government has revived talks of a merger with Mahanagar Telephone Nigam Limited (MTNL). The consolidation of the two PSUs is expected to help both companies return to profitability. Following directives from the telecom ministry to synergise their operations, BSNL and MTNL have initiated the process of streamlining their businesses, including enterprise and customer care. The aim is to give subscribers, especially corporate clients, a pan-Indian experience.  The companies will also look at common brands for some services, which could result in cost savings. However, no time frame has been set for the merger.

The government is also considering a strategic stake sale in the company and raising funds from the sale of infrastructure (signal towers and real estate). This makes business sense as BSNL has one of the largest land and network assets in the country after the defence services and the railways. Its properties span 3,500 towns and are valued in billions of rupees.  However, the company has, so far, not been able to cash in on this resource.

Recently, the operator announced its plan to bring in private equity investors, including telecom companies, to pick up stakes in a new company it will float after hiving off its tower business. This is the first time that BSNL has sought private sector investment. It owns over 40,000 towers across the country that have been valued at Rs 160 billion-Rs 200 billion, based on previous deals.

In the past few months, most tower company acquisitions have been undertaken at an average value of Rs 500 million per tower. But since BSNL’s towers are exclusively used by the company, they may fetch a lower value. The company is also in talks with other telecom players to rent out capacity on its towers. BSNL has the advantage of owning towers in remote areas, which can be used by other companies to expand their operations in rural India. “The move, if implemented, will become an additional source of revenue for the company in these difficult times,” notes a company official. 

The state-owned operator will need these and other similar initiatives to stem its losses, recover market share and restore its position in the industry.