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MTNL: Can the company turn the corner?

May 25, 2015
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Mahanagar Telephone Nigam Limited (MTNL) has been the subject of discussions since it was recently declared as a sick central PSU by the government. This was due to its obsolete plants and machinery, heavy interest burden, resource crunch, surplus manpower and shortage of working capital. The company’s operational performance has been poor, which, in turn, has impacted its financial situation. The government, however, is not keen to shut down the PSU and is taking vigorous steps to revive it.

A look at the company’s operational and financial performance over the past few quarters, the efforts to turn it around, and the way forward…

Operational and financial highlights

MTNL’s total subscriber base declined from 7.13 million in December 2013 to 6.97 million in December 2014. This decline is a result of heavy competition with private companies, particularly in the wireless segment. In this segment, the company’s subscriber base shrank from 3.59 million in December 2013 to 3.45 million in December 2014. Another key reason for this decline is the poor quality of services offered by the company, which led to its subscribers shifting to other operators. Over the past three years, MTNL has made very limited investments in the network segment, which has affected its ability to provide quality services. MTNL’s poor quality of service has been noted repeatedly, including by the government, which, in November 2014, had set the company a deadline of six months to meet the necessary benchmarks before it took any action. In April this year, the government announced that it is taking measures to address this issue by expanding MTNL’s network. Currently, the company is adding 1,080 3G base transceiver stations (BTSs) each in Delhi and Mumbai, along with 800 2G BTSs in Delhi and 566 2G BTSs in Mumbai. It has secured a loan of Rs 12 billion from IDBI Bank for this purpose. These efforts have helped in improving MTNL’s wireless subscriber base marginally, taking it to 3.51 million as of March 2015.

In the wireline segment, the subscriber base has remained more or less stagnant over the past few quarters to stand at 3.55 million in March 2015. The company, however, holds a large market share in the fixed broadband segment. As of March 2015, MTNL had the third highest number of fixed broadband subscribers (1.14 million) after Bharat Sanchar Nigam Limited (9.96 million) and Bharti Airtel (1.43 million). At present, the share of these services in MTNL’s total revenues is close to 30 per cent. In order to improve the uptake of these services and, in turn boost future revenues, the company is laying an intra-city fibre network in Mumbai and Delhi at a cost of Rs 600,000 to Rs 700,000 per km of fibre.

In terms of financial performance, MTNL reportedly earned revenues of Rs 36 billion in 2014-15, and reported an operating loss of Rs 30 billion. While the company has been in losses for several years now, the situation had worsened since 2011-12 when MTNL reported losses of Rs 41.09 billion. Thereafter, its losses grew to Rs 53.22 billion in 2012-13. In 2013-14, it reported a profit of Rs 78.25 billion; however, that was mainly due to the write-back of provisions on account of pensionary liabilities and spectrum amortisation costs, after the government’s decision to revive MTNL had been made. As similar financial assistance was not provided in the past financial year, the company went back into losses. The company also has a debt burden of about Rs 163.32 billion as on January 2015, which limits its ability to secure funds for investing in infrastructure.

The way forward

According to the revival plan submitted to the Department of Telecommunications, MTNL intends to undertake capital expenditure of Rs 8.05 billion in 2015-16 for upgrading networks and enhancing data services. It is planning to raise around Rs 5 billion through a short-term loan to meet its capex requirements. It has also increased its broadband rates, in April 2015, in order to improve its revenues.

Meanwhile, the company’s present strategy to improve its bad financial situation is to reduce its expenditure in areas that are not profitable or are not contributing to improving revenues. Employee costs account for around 70 per cent of the expenditure undertaken by the company. MTNL has recently stated that close to 27,000 of its employees will retire in the next 10 years, which will ease finances for the company while allowing it to undertake further investments in upgrading its network infrastructure.  The company is also gradually reducing its stake in Nepal-based telecom operator United Telecom on account of the latter’s poor performance and issues faced in meeting operational expenditure such as the licence fees. Such measures can no doubt help reduce expenditure, but in the long run, MTNL will have to improve its networks and provide better quality services in order to hold its ground as an important player in the metro circles.

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