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MTNL: Road to recovery

July 26, 2011
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A profitable venture till December 2008, state-owned Mahanagar Telephone Nigam Limited (MTNL) has been running in losses for the past several quarters. The reasons for this slide have been many. With about 45,000 employees, the company is clearly overstaffed. The operator’s wireline business, in which it once enjoyed a monopoly, has been facing competitive pressure while its revenues have been dwindling in the wake of falling wireless tariffs and the inability to attract high-end users. MTNL has, therefore, been continuously losing

market share to the more nimble-footed, customer-centric private operators, both in the wireless and wireline segments.

However, the operator is leaving no stone unturned to get back on track. MTNL has been taking initiatives like brand revamp, organisational restructuring, and improving its customer care services and the service portfolio.

As a result of these initiatives, MTNL was able to reduce losses by 9.3 per cent in 2010-11. It registered a net loss of about Rs 28 billion in 2010-11, against Rs 30.63 billion in 2009-10. The total income increased from Rs 37.81 billion to Rs 38.41 billion. It also decreased its expenditure by 20 per cent from Rs 84.76 billion in 2009-10 to Rs 67.81 billion in 2010-11.

Following a directive from telecom minister Kapil Sibal to achieve a 25 per cent increase in revenues by March 2012, MTNL has been overhauling its marketing and customer care operations in both the Delhi and Mumbai circles.

“We expect to recover our losses in 2012-13, provided issues relating to pension and the voluntary retirement schemes are sorted out,” said Kuldip Singh, MTNL’s chairman and managing director, in a recent interview to a leading business daily.

Market position 

Standing fourth in terms of subscriber market share in the two circles it operates in – Mumbai and Delhi – MTNL has been adding an average of 15,000 mobile subscribers per month. As of May 2011, its mobile subscriber base stood at 5.23 million.

However, the operator has been losing subscribers following the launch of mobile number portability on January 1, 2011. In the first month, about 10,355 MTNL users shifted to other service providers, while only 4,486 subscribers joined the state-owned operator’s network.

Moreover, the operator has the lowest proportion of visitor location register (VLR) users in its total subscriber base. In contrast to private operators like Idea Cellular, which has the highest share of VLR subscribers in its user base (at 92.33 per cent), and Bharti airtel with 89.1 per cent, MTNL has only 34.39 per cent of VLR subscribers.

In the wireline space, the operator lost over 42,000 subscribers between March 2010 and March 2011. As of May 2011, MTNL had over 3.44 million wireline users, accounting for a market share of about 10 per cent.

On the positive side, MTNL’s ubiquitous wireline network is its strength and has positioned the public sector unit (PSU) to offer extensive broadband coverage. “MTNL has the biggest opportunity in the country because the operator is present in the most lucrative circles of Delhi and Mumbai, and has the highest fixed line density in these cities,” says Kunal Bajaj, director, India, Analysys Mason.

MTNL was the first company to offer broadband services using ADSL 2+ technology. The technology has helped the company garner over a 90 per cent market share in the Delhi and Mumbai circles.

As of December 2010, MTNL accounted for 13 per cent of the total internet and broadband subscriber base (second to Bharat Sanchar Nigam Limited [BSNL]).

Recovery strategy 

With increasing competition in the mobile telephony space, MTNL’s profit from cellular services has been declining drastically. The company’s losses in this segment have increased rapidly as it reported a loss of Rs 3.46 billion in 2010-11 as compared to a profit of Rs 347.3 million in 2009-10.

With revenues from the mobile segment not increasing at a fast pace, MTNL is focusing on the enterprise segment. It expects revenues of Rs 5 billion in the current financial year from this business. In 2010-11, its revenues from the enterprise segment stood at Rs 3.5 billion.

MTNL is likely to commence wholesale business operations as well, wherein it will share a part of its network with private companies. As part of its wholesale business, it had earlier invited expressions of interest (EoIs) for roaming agreements for 3G services. Tata Teleservices Limited and Aircel had applied for the same and a final decision will be taken in a month. The operator is also working on leasing its bandwidth to private players in Delhi and Mumbai.

Another key focus area for the operator has been broadband services. MTNL was the first operator to receive broadband wireless spectrum (BWA) from the Department of Telecommunications (DoT) but its services have failed to generate significant revenues so far.

In 2010, it invited EoIs from private players to form Wi-Max franchises with the operator, but only one company showed interest. MTNL has now appointed PricewaterhouseCoopers (PwC) as its consultant for the Wi-Max project. “PwC will frame the new EoIs and advise us on how to go about the franchise model to rent out BWA spectrum in Delhi and Mumbai,” said Singh in a press statement.

Meanwhile, MTNL, which has been facing a cash crunch, has decided to restructure its Rs 70 billion loan to pay for 3G and BWA spectrum in 2010. The operator is planning to convert about Rs 30 billion of the loan into long-term debt.

Moreover, it has invited EoIs from banks for providing a long-term loan worth Rs 15 billion to repay part of its debt and to meet operational expenses. The seven-year loan with a floating interest rate will be raised in tranches as per requirement at the discretion of MTNL without any penalty and interest to be calculated for such tranches from the date of raising the loan.

The company’s initiatives to reduce its expenditure are also paying off. A few years ago, its staff strength was 60,000, which has come down to less than 45,000. Its wage bill has also reduced despite a revision in wages. MTNL incurred a wage bill of Rs 17.04 billion for the year ended March 2011, against Rs 19.68 billion for the previous financial year. The pension bill increased to Rs 3.4 billion in 2010-11 from Rs 2.61 billion a year ago. Moreover, the company has been providing Rs 12 billion for retirement benefits. However, according to Singh, if the wage bill reduces further, MTNL will not need this provision. From an operational loss of Rs 10.71 billion, if this provision is discounted, there will be practically no operational loss.

Meanwhile, MTNL, which owns real estate at prime locations in both Delhi and Mumbai, expects revenues from its leasing services to grow from Rs 90 million in 2010-11 to Rs 500 million in 2011-12.

These efforts are likely to help the operator improve its bottom line.

Merger talks 

After three years of unsuccessful attempts to merge the operations of BSNL and MTNL, primarily due to MTNL being a listed company and opposition from BSNL employees, the government has decided to revisit the proposal.

As per a draft proposal prepared by DoT in February 2011, “BSNL and MTNL should be merged as they have complementary operations and can combine their strengths for synergies. Increasing competition in the telecom sector has also impacted the performance of the PSUs. The structure of BSNL and MTNL makes it difficult for them to be accountable for their performance. DoT should, therefore, set up a multi-stakeholder committee to develop a restructuring plan for both firms.” According to DoT’s proposal, the committee should comprise members from public enterprises, DoT, the Department of IT and the Ministry of Finance.

To this end, MTNL has proposed to make Millennium Telecom Limited (MTL) a marketing and customer care arm for the enterprise segment of both MTNL and BSNL. MTL is a joint venture between MTNL and BSNL. It offers international long distance services and has set up a submarine cable system. MTL can also offer a window for billing to both MTNL’s and BSNL’s enterprise customers.

However, given the track record, the merger is unlikely to take place in the near term.

Going forward, the company has earmarked a capex of Rs 11.45 billion for 2011-12 and plans to launch new services like IP-based  multimedia acoustic services on its network during the same year. 

MTNL’s leadership concedes that meeting the higher revenue target will not be a cakewalk, given that the loss-making operator is struggling to keep pace with private rivals like Bharti airtel, Vodafone Essar and Idea Cellular in the biggest telecom circles of Delhi and Mumbai. But the operator and the government are trying their best to bring the former back in the black.

 
 
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