Explained: Will merging BSNL and MTNL pull the two companies out of their problems?https://indianexpress.com/article/explained/explained-bsnl-mtnl-merger-and-revival-plan-ravi-shankar-prasad-6084367/

Explained: Will merging BSNL and MTNL pull the two companies out of their problems?

The revival package for the two PSUs comes at a time when the telecom sector is facing financial stress due to stiff competition and reduction in tariffs.

Explained: BSNL-MTNL to merge, everything you need to know
Both BSNL-MTNL are reeling under the pressure of mounting losses and increasing competition in the sector.

The government on Wednesday approved a merger and revival plan for the state-run telecommunication companies Bharat Sanchar Nigam Ltd (BSNL) and Mahanagar Telecom Nigam Ltd (MTNL).

Both the companies are reeling under the pressure of mounting losses and increasing competition in the sector. MTNL provides telephony services in Delhi and Mumbai, while BSNL is present in the rest of the circles in the country.

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

What is their financial position currently?

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. The loss is estimated to surge to Rs 14,202 crore in 2018-19, according to information presented in Parliament.

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So how will the Cabinet proposal help these ailing companies?

Alongside the merger cleared by the Cabinet, 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), and monetisation of assets.

A Group of Ministers headed by Home Minister Amit Shah had earlier approved the revival plan proposed by the Department of Telecommunications (DoT).

The DoT’s revival plan, officials indicated, involves inputs from restructuring plans submitted by the Indian Institute of Management, Ahmedabad and Deloitte, who were engaged separately to draw up revival roadmaps for BSNL and MTNL respectively.

But how will the merged BSNL-MTNL compete in an increasingly data-centric market?

The Cabinet proposal clears 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 a value of Rs 20,140 crore, alongside the GST impact of Rs 3,674 crore to this spectrum value, which will be borne by the government through budgetary resources.

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

Are their other revenue augmentation/cost cutting measures?

BSNL and MTNL have 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. Around half of the employees fall in the above age bracket.

The proposed 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.