Saving BSNL

Introduction

Within three years of starting its commercial operations, Reliance Jio has become the country’s largest telecom operator with a subscriber base of 331.3 million (and counting), surpassing Vodafone Idea which has reported a decline in its user base to 320 million in June 2019. As a result of the Jio onslaught, more than 30,000 telecom employees have lost jobs, and companies like Unior, Aircel, Tata Teleservices etc have had to shut their shops.

Just a decade ago, state-run telecom giant BSNL launched a massive ad campaign featuring Deepika Padukone. The ads packed much of BSNL’s core strength-a nationwide 3G network, the largest in the country penetrating urban and rural areas alike- topped off with the tagline ‘Hindustan bol raha hai’.

Bharat Sanchar Nigam Ltd. was incorporated on 15th September 2000 and took over the business of providing of telecom services and network management from the erstwhile Central Government Departments of Telecom Services (DTS) and Telecom Operations (DTO), with effect from 1st October’ 2000 on going concern basis. According to the official website, it is one of the largest & leading public sector units providing comprehensive range of telecom services in India.

The current situation

An average Indian consumer is in no better a situation today than it were two decades ago when it came to getting access to uninterrupted voice calls and reliable Internet connectivity. Call drops, annoying telemarketing calls and splotchy data networks are rampant. On top of that, consumers do not have access to a reliable and neutral complaint redressal mechanism. To illustrate the quality of services, according to data shared by the telecom Minister Ravi Shankar Prasad, a penalty of Rs 1.56 crore was imposed on Vodafone, Rs 50 lakh on Aircel, Rs 29.5 lakh on Tata Teleservices, Rs 13 lakh each on state-run telecom firm BSNL and Telenor from December quarter 2017 to June quarter 2018.

Prasad said that as per the Quarterly Performance Monitoring Report (PMR) of TRAI for cellular services for the quarter ending September 2018, non-compliance was noticed in the network of Tata in 18 telecom circles, Idea in 15 circles, Vodafone in 5 circles, Airtel & BSNL in 3 circles each and RJio in 1 circle.

The Data

Revenues in 2017-18 stood at Rs.27,818 crore, registering a fall of 14% from the previous year. Losses, too, widened from Rs.4,500 crore in 2016-17 to Rs 7,992 crore in 2017-’18. Accumulated operating losses were over a whopping Rs.90,000 crore at the end of December 2018, making it one of India’s top loss-making firms, a recent report by Kotak Institutional Equities said.

Minister Ravi Shankar Prasad held the opinion that government has inherited legacy issues and steps are being taken to make BSNL more competitive. “To ensure stability in the telecom sector, one PSU is very important,” Prasad noted, adding that it must be kept in mind that India has the cheapest mobile and data rates across the world.

Sanjay Dhotre, Minister of state for communications said that BSNL has to spend 75 per cent of its revenues in paying salaries to employees, while private companies incur lower employee cost, and the data agrees – BSNL employs 1.8 lakh people, which is six times the average 25,000 to 30,000 headcount of that of its rivals. To cut costs, the company froze employee benefits in February this year.

In 2018, BSNL had saved Rs 2,500 crore through a similar exercise. So bad is the crunch there have been reported power cuts in many BSNL offices, and around 20% supply of power to its telecom towers is being disrupted.

An employees’ union of state-owned Bharat Sanchar Nigam Ltd (BSNL) has sought an immediate short-term bank loan of Rs. 6,000 crores for operating and capital expenditure and “speedy revival” i.e. Sanchar Nigam Executives’ Association (SNEA)

BSNL expects to get at least Rs. 1,000 crores immediately and Rs. 3,000-4,000 crore in the near future from land monetisation/leasing. According to the union, even after Cabinet approval, it would take at least six months to get money through monetisation.

“If the decision is delayed by another two to three months, it will be too late as BSNL network may deteriorate beyond repair and will make revival impossible,” the letter said.

The mighty downfall

At this point, it is important to lay down why a PSU like BSNL is essential to the telecom sector in a country like India. Sanjay Dhotre claims the following-

  • BSNL has a significant role also because it remains at the forefront in situations of natural calamities and is quick to offer free services to consumers impacted by cyclones or floods.

  • State-owned operators, particularly BSNL, venture into rural and far-flung areas, enabling people to stay digitally connected, whereas private telecoms do not apparently find the business lucrative in those areas

We now aim to understand the factors that contributed to the unfortunate downfall of BSNL:

One reason things could have gotten this bad is because BSNL, as a state-run firm, is simply not nimble enough to contend with private sector players who can focus entirely on their revenues.

Secondly, (because it is a state-run firm) BSNL cannot make self-governing, market-oriented decisions on which spectrum to buy, which markets to enter, which technologies to adopt etc.

To illustrate the fact, in 2009, BSNL was faced with the choice of which technology to use to provide its wireless broadband services. Options included WiMAX (Worldwide Interoperability for Microwave Access) and LTE (Long-Term Evolution), which is today used by most operators, including Airtel, Vodafone and Jio. BSNL chose WiMAX. Why BSNL chose a technology like WiMAX that was considered inferior by its competitors is a matter of debate, but it does go on to show how BSNLs decisions require political approval and how strong lobbying might work against them.

Coming to the matters of spectrum-In 2008, before the spectrum auction for private sector players, BSNL and MTNL were provided telecommunications spectrum in the 2.5GHz band. BSNL, reportedly, paid about Rs 18,500 crores for the rights. However, it did not get to choose which parts of the country those rights would apply to, a point later regretted by the then-BSNL chairman and managing director Kuldeep Goyal in an interview. By the time the spectrum auction for private sector players rolled around, business houses had managed to lobby the government to allow purchases in the more-efficient 2.3GHz band, rather than the 2.5GHz that BSNL and MTNL had been allocated. Issues like these-using non-standard technology and transmitting in a less-efficient spectrum-meant that BSNL could not capitalize on its first-mover advantage. Notably, both issues came about as a result of business decisions taken in a highly political environment. And 2009, the year following the spectrum allocation, was the first year in its history that BSNL ever reported a loss.

By 2016, NITI Aayog added BSNL to the list of loss-making Public Sector Undertakings. It had also proposed the closure of BSNL.

To make matters worse, BSNL, to cut its losses, was forced to surrender its spectrum rights to the government and had to ask for a refund. In 2014, the Union cabinet approved this deal, on the condition that the money would be returned over a period of time as part of a ‘revival’ package. Unfortunately, BSNL had to make this decision of reducing its technological assets at a crucial time- when the industry was gearing up for 4G services. Reliance Jio, Bharti Airtel and Vodafone Idea together account for 80% of the sector’s spectrum holdings.

The Blame Game

Are only political decisions to blame for the deplorable condition of BSNL? Perhaps not.

BSNL itself does not operate like a business rebelling for survival. It does not prioritise market share, customer numbers and profit/loss figures in the same way as its competitors from the private sector. Being state-run, it can accumulate losses, perhaps well over, Rs 90,000 crore before reforms are even considered.

State-owned telecom companies are incurring losses even in providing high-speed Wi-Fi connections to members of Parliament, Union Minister for Communications and Electronics and Information Technology Ravi Shankar Prasad said.

As per data available with the Telecom Ministry till May 2019, Mahanagar Telephone Nigam Limited (MTNL) and Bharat Sanchar Nigam Limited (BSNL) have provided an aggregate of 757 Internet connections to members of Parliament. The BSNL said each FTTH connection to MPs cost the company Rs 25,000, but it could charge them only Rs 2,200 per month, exclusive of GST for the services

Customer Loyalty to BSNL

In order to sustain its present growth rate in the telecom sector, BSNL the pioneer public sector mobile service provider in India, need to take drastic steps not only to retain its customers but also to attract new customers. Customer’s loyalty in the case of mobile phones is determined to an extent by its geographical coverage and the ease with which calls can be made in peak hours. BSNL customers found that their service provider gives them reliable coverage and the lines are less congested. Trustworthiness is a component that BSNL needs to highlight in their marketing strategy. In order to improve the trustworthiness, they need to work upon their marketing strategy to further improve their network quality. Another factor that was found to influence loyalty is the relationship it has with the customer which is determined by the promptness with which the complaints were resolved the warmth shown by customer care department and the convenience with which the bill can be paid. Effective customer service is a component that can magnetize the attention and loyalty of customers. Customers of BSNL remained loyal because of their personal preference and image about the company was influenced by the affordable call rate. note that customers of BSNL continued to be loyal irrespective of the certain flaws in its services just because the number held by them was good and because of the inconvenience involved in switching numbers.

The way forward

Right off the bat, I’d like to state that, in my humble opinion, BSNL should not be privatized, and here’s why-

Private sector players already control most of India’s communications infrastructure, and it’s imperative for the government maintaining some presence in the industry, even if only to fulfil civic agendas-like internet access for India’s villages, also not forgetting the rock bottom prices at which the services are being provided (which has mostly been countered by the likes of private players like, of course, Reliance Jio).

Nonetheless, with BSNL remaining an arm of government (being run by the Department of Telecommunications, with most of its assets held by the Ministry for Urban Development) it will not be able to make better business decisions, which could result in another Rs 90,000 crore in accumulated losses a decade from now. On the brighter side, BSNL is still an asset-heavy company. It has the most expansive installed infrastructure in terms of fixed lines-36.42 million lines basic telephone capacity, with 102 satellite stations. Media reports estimate that the land it owns-around 11,000 acres across the country-is worth about Rs 65,000 crore, while its outstanding debt at the end of 2018-19 stood at about Rs 14,000 crore.

In the telecom sector, BSNL has the least liability or loans of less than Rs. 20,000 crores, it said, comparing with Vodafone Idea’s liabilities of Rs. 1.18-lakh crore, Bharti Airtel’s Rs. 1.08-lakh crore and Reliance Jio Infocomm’s Rs. 1.12-lakh crore. BSNL has land assets at prime locations with a market value of more than Rs. 3-lakh crore, optical fibre network of more than 7.5-lakh route km and more than 66,000 towers.

In 2011, a committee headed by Sam Pitroda, then advisor to the Prime Minister, offered a 15-point plan to revive BSNL which included the following-

1) retiring or transferring 100k staff by voluntary retirement scheme.

2) installing 30 million new high-speed broadband connections in the next 3 years

3) divesting 30 per cent equity

4) adopting a managed services model for its various operations

5) offering to share its passive and active infrastructure with other operators

6) establishing a BSNL venture fund to invest and/ or acquire small tech firms

7) inducting a chief executive from the private sector.

This plan has not been acted upon.

According to the Hindu Business Line, divesting all the real estate land parcels owned by the company and investing the proceeds into buying all the technology BSNL needs to be at par with private players could prove to be a good starting point. Secondly, implementing the proposals of the Pitroda panel, especially those related to cutting down staff costs and hiving off various businesses into different verticals. Here, the Centre can study how British Telecom, once a struggling PSU in the UK, was turned around. Finally, removing all political interference and appointing a strong, independent management to run the company should be enough to get the PSU back on its feet.

National Digital Communications Policy 2018 should be implemented without further delay. On top priority should be the measures proposed to lower fees and levies on operators. Mobile operators pay almost 30 per cent of their revenues in the form of spectrum charges and other annual fees. These levies were introduced when spectrum was allocated on a subscriber-based criterion. Since 2010, the Centre has shifted to auction of spectrum wherein winning operators pay an upfront fee to acquire the airwaves. Therefore, some of these levies can be easily waived off without any major revenue impact for the exchequer. Infrastructure creation, especially the much-delayed optical fibre network, should be taken up on a mission mode so that it can complement the huge investments being made in rolling out the wireless networks

Conclusion

The battle for survival is far from over- BSNL Director – Finance, S K Gupta has shot off a letter to all Chief General Managers of telecom circles, flagging the “fiercest ever competition” being faced by the telecom sector and said “predatory tariff offerings by the competitors” has triggered a sharp decline in revenue from services.

“The BSNL management is making all out efforts to ease the pressure on liquidity. It is expected that in near future, the liquidity position of the company will start improving,” Gupta said in the letter dated May 16.

He asserted that normalcy in liquidity position is expected to be restored by the next quarter. BSNL has been able to sustain its customer base, despite the persistent pressure of competition on its revenue.

Bibliography

https://economictimes.indiatimes.com/industry/telecom/telecom-news/telecom-firms-slapped-rs-2-6-crore-fine-in-3-quarters-for-call-drops/articleshow/70381203.cms

2 https://economictimes.indiatimes.com/industry/telecom/telecom-news/govt-considering-capital-infusion-in-bsnl/articleshow/70278186.cms

3 https://www.dnaindia.com/business/report-bsnl-may-cut-54000-workforce-report-2719576

4 https://www.moneycontrol.com/news/trends/bsnl-freezes-employee-benefits-to-cut-down-expenses-report-3513171.html

5 https://trak.in/tags/business/2019/03/25/bsnl-has-no-money-to-pay-power-bills-govt-pleads-with-states-not-to-cut-electricity/

6 https://www.dnaindia.com/business/report-sick-and-loss-making-psus-being-analysed-by-niti-aayog-2237018

7 https://www.livemint.com/Industry/sKTluyzdULWgyWIms5z3UP/Airtel-Reliance-Jio-or-Vodafone-Idea-No-clear-winner-in-In.html

8 https://www.ndtv.com/india-news/bsnl-mtnl-reeling-under-wifi-burden-of-parliamentarians-2075733

9 -An analysis on the customer loyalty in telecom sector: Special reference to Bharath Sanchar Nigam limited, India Jessy John Maharshi Arvind Institute of Science and Management, Jaipur, India. E-mail: jessyjohn03@gmail.com. Accepted 14 December, 2010

https://timesofindia.indiatimes.com/business/india-business/nearly-impossible-to-run-operations-bsnl/articleshow/69920159.cms

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s