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BSNL Bailout - Revival plans for the state-owned operator

July 15, 2010
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The government perceives an urgent need to pull up the sliding fortunes of Bharat Sanchar Nigam Limited (BSNL). In this regard, the Telecom Commission has appointed an internal panel comprising members from the communications ministry, which will, by August 2010, review the proposals to revive BSNL's performance and submit its report.

The panel's key focus area is to review the sale and restructuring plans of the state-owned operator. An attempt is also being made to overcome the opposition from staff unions to the Sam Pitroda Committee recommendations announced early this year, which suggested trimming the workforce, allowing 30 per cent disinvestment and hiring professionals from outside the company for key positions.

Though the BSNL board has given its approval to a 10 per cent divestment through listing, the company's unions have strongly opposed the move. The internal panel will naturally have to consider inputs from employee unions while reviewing the proposals.

Reportedly, the government is planning to award BSNL a Rs 180 billion project to improve broadband connectivity in the country. If granted, the project would help revive the company's fortunes, coming as it does at a time when the operator reported losses for the first time in 200910 (BSNL accounts show a loss of Rs 26.1 billion for the year ended March 2010 against a profit of Rs 5.75 billion a year ago). Once enjoying a monopoly in the domestic telephony space, BSNL has tumbled over the past few years as cut-throat competition, along with its own problems like the huge labour force, frequent political interference and the PSU baggage, has pushed the company behind its peers in terms of subscriber additions, both in its landline and mobile businesses.

The Universal Service Obligation (USO) Fund, comprising nearly Rs 250 billion, is expected to be used to finance the project. Currently, the administrator of the USO Fund and independent government auditors are evaluating a detailed project report of cost estimates by BSNL.

The Broadband for All project will involve building Wi-Max networks across rural India by laying a 500,000 km optic fibre cable to provide broadband connectivity to every village panchayat. The project is expected to boost the country's broadband penetration significantly, which currently stands at less than 1 per cent.

Awarding the project to BSNL makes business sense as the company has an extensive fibre and Wi-Max network. It will, therefore, do away with the need for creating an independent company and duplicating infrastructure. According to the contract, BSNL can strengthen and extend its fibre and Wi-Max networks, but it must share this infrastructure with private telecom companies.

Recently, the government rejected BSNL and Mahanagar Telephone Nigam Limited's demand for refunding the Rs 290 billion these companies paid for 3G and broadband wireless access spectrums. In a letter to the Department of Telecommunications (DoT) soon after the close of the 3G auction, BSNL chairman Kuldeep Goyal asked for a refund of Rs 101.87 billion that the company had paid for 3G on the grounds that while private operators were allowed to choose their circles during the bidding process, BSNL was forced to launch 3G services in all circles.

Meanwhile, in another blow to BSNL, DoT has rejected the PSU's request for a level playing field with the private operators on the issue of paying licence fees and spectrum charges. Early in the year, DoT had raised spectrum charges for all operators.However, the private players took up the issue with the Telecom Disputes Settlement Appellate Tribunal (TDSAT) and obtained an exemption from paying the increased charges. BSNL could not, however, be a part of the petition and will, therefore, have to pay the revised charges. Had DoT agreed to BSNL's request, it would have saved around Rs 20 billion annually.

Worried about its financial health, BSNL has also written to the Ministry of Communications seeking a compensation of Rs 158.73 billion per annum from the USO Fund for its loss-making rural operations. The letter states that the company incurs a total annual loss of about Rs 109.8 billion for providing basic telephony services to the public at minimal tariffs.
Though DoT has been providing a Rs 20 billion annual support from the USO Fund to BSNL for the past three years, it has not been enough.

The government is considering the point and is planning to double the subsidy to Rs 40 billion per year to help BSNL sustain its landline business in rural India.

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