The Indian government has thrown a lifeline to two ailing state-owned telecom firms, Bharat Sanchar Nigam Limited (BSNL) and Mahanagar Telephone Nigam Limited.

It has approved the merger of the two entities and proposed a revival package of 687.51 billion rupees (US$9.71 billion), which also includes 4G spectrum allocation and a voluntary retirement scheme.

BSNL’s network crisscrosses the entire country and the company has 168,000 employees, while MTNL caters to two metro cities, New Delhi and Mumbai, and employs 22,000 workers. The two companies had enjoyed monopoly status in the telecom business in the country until the late 1990s, after which private players were allowed entry.

The employees of the two telecom firms were facing uncertainty as their salaries were getting delayed and there was speculation that the government might disinvest or even wind up the two loss-making firms. A few days ago BSNL management assured that the issue of salary would be sorted out before the Diwali festival, which falls on October 27.

Sharing details of the revival package, Telecom Minister Ravi Shankar Prasad said, “BSNL and MTNL are strategic assets of India. Neither will be closed, nor disinvested. We want to make them competitive and bring professionalism.” He also pointed out that the entire network of the country’s armed forces is maintained by BSNL.

Revival package

The revival package includes issuing 150 billion rupees ($2.12 billion) in sovereign bonds to meet the immediate capital requirements of the companies, 4G spectrum allocation worth 201.40 billion rupees ($2.84 billion), 299.37 billion rupees ($4.23 billion) for a retirement scheme covering 50% of their employees and 36.74 billion rupees ($508 million) for goods and services tax that will be levied on allocation of radio waves.

The government also plans to monetize the assets, worth around 380 billion rupees ($5.37 billion), in the coming four years. Until the completion of the merger process, MTNL will operate as a subsidiary of BSNL.

Under the voluntary retirement scheme, employees who are 53-and-half years old and above will get 125% of the income that they would have earned by serving the company up to the age of 60 years.

Employees in the age bracket of 50 to 53.5 years opting for the scheme will get benefits in the range of 80 to 100% of the remuneration that would be paid in their remaining periods of service.

The minister emphasized that the scheme was voluntary and nobody would be coerced to opt for it. It is estimated that 16,000 MTNL employees and 50% of BSNL staff will retire in the next 5-6 years.

The total debt on both the companies stood at 400 billion rupees ($5.65 billion) and half of it was MTNL’s liability.

BSNL has been making losses continuously since 2009-10 and has been categorized as “incipient sick.” According to the information provided to the parliament, BSNL’s loss is estimated to be around 140 billion rupees ($1.98 billion) during 2018-19.

The government will monetize MTNL and BSNL assets worth 375 billion rupees over a period of three years. Those primarily include land assets, rental and leasing of their buildings. BSNL also has tower assets across the country. A new joint venture company will be set up with the objective of monetizing towers.

4G technology

Apart from legacy issue, industry watchers had believed that the two state-owned telecom firms lost out to private players due to slow adoption of technology.

Telecom Secretary Anshu Prakash has said the spectrum for 4G rollout will be allocated to both of the companies administratively within a month.

He said BSNL will also need around 100 billion rupees ($1.41 billion) to roll out 4G services in phases and MTNL around 11 billion rupees ($155 million).

All these measures are expected to boost the functioning of the two state-run companies in the short run, but to survive in an environment of cut-throat competition and predatory pricing, unleashed by Reliance Jio, will be an arduous task.