MTNL, BSNL to be merged, revival plan gets go-aheadhttps://indianexpress.com/article/business/companies/mtnl-bsnl-to-be-merged-revival-plan-gets-go-ahead-6084911/

MTNL, BSNL to be merged, revival plan gets go-ahead

MTNL provides telephony services in Delhi and Mumbai, while BSNL is present across the rest of the circles in the country.

Top decisions taken by Cabinet Committee today
Briefing reporters after the Union Cabinet meeting, Communications and IT Minister Ravi Shankar Prasad said that prior to the merger, MTNL will operate as a subsidiary of BSNL and that the government is hopeful of the companies turning “profitable” over the next two years. (PTI Photo/Subhav Shukla)

The Union Cabinet Wednesday approved a merger and revival plan for state-run telecommunication companies Bharat Sanchar Nigam Ltd (BSNL) and Mahanagar Telecom Nigam Ltd (MTNL) which are reeling under the pressure of mounting losses and competition in the sector.

Alongside the merger, the revival proposal for the merged entity entails a four-pronged strategy — administrative allotment of spectrum for 4G services, debt restructuring by raising of bonds with sovereign guarantee extended by the Centre, reducing employee costs through a voluntary retirement scheme (VRS) scheme, and monetisation of assets.

MTNL provides telephony services in Delhi and Mumbai, while BSNL is present across the rest of the circles in the country.

EXPLAINED | Will merging BSNL and MTNL pull the two companies out of their problems?

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A group of ministers headed by Union Home Minister Amit Shah had earlier approved the revival plan proposed by the Department of Telecommunications (DoT). The DoT’s revival plan, officials indicated, involved inputs from restructuring plans submitted by the Indian Institute of Management, Ahmedabad, and Deloitte, engaged separately to lay down a revival roadmap for BSNL and MTNL respectively.

Briefing reporters after the Union Cabinet meeting, Communications and IT Minister Ravi Shankar Prasad said that prior to the merger, MTNL will operate as a subsidiary of BSNL and that the government is hopeful of the companies turning “profitable” over the next two years.

Alongside Air India, the BSNL and MTNL are the worst performing PSUs for the government. The Public Enterprises Survey 2017-18, which mapped the performance of central public sector units, reported that BSNL, MTNL and Air India contributed 52.15 per cent of the total loss incurred by central public sector enterprises in 2017-18.

The merger proposal for the two PSUs comes at a time when the telecom sector is facing financial stress due to stiff competition and reduction in tariff. For BSNL and MTNL, the competition in the mobile segment, high employee cost and absence of 4G services (except in few circles for BSNL) in the data-centric telecom market has progressively eroded their competitive strength.

Prasad said the Cabinet proposes to address that by clearing the way for the administrative allotment of spectrum for 4G services to BSNL and MTNL to enable them to provide broadband and other data services. This spectrum will be funded by the Centre by way of capital infusion in these PSUs at an estimated value of Rs 20,140 crore, alongside a GST impact of Rs 3,674 crore to be also borne by the government and funded through budgetary resources.

Officials said by leveraging this spectrum allotment, the telecom companies will be able to deliver 4G services and compete in the market.

BSNL and MTNL have also been cleared to raise long-term bonds of Rs 15,000 crore, for which sovereign guarantee will be provided by the Centre. The PSUs will restructure their existing debt and also partly meet their capacity expansion obligations.

Alongside this, the VRS scheme that the two companies would offer to their employees, aged 50 years and above, is proposed to be funded by the Centre through budgetary support. The ex-gratia component of VRS is expected to entail an additional Rs 17,169 crore and the details of the scheme will be finalised by the two companies shortly. According to Prasad, around half of the employees fall in this age bracket.

The asset monetisation plan is expected to generate an additional revenue stream. As of March 2018, BSNL owned land worth Rs 70,000 crore and buildings worth Rs 3,760 crore.

Prasad said these (the two companies) are “strategic assets of India” and have been playing an important role in coping with natural calamities and managing Army networks. He said neither BSNL or MTNL is being closed, or government’s stake divested or the firms being hived off to a third party.

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BSNL has been reporting losses continuously since 2009-10. The company has over 1.65 lakh employees across India and MTNL has another 22,000. BSNL’s provisional loss was Rs 4,859 crore in 2015-16, Rs 4,793 crore in 2016-17, Rs 7,993 crore in 2017-18 and is estimated to surge to Rs 14,202 crore in 2018-19, according to information presented by the administrative ministry in Parliament.