MTNL: Survival strategies

Company Stories , March 01, 2012

Stiff competition from private players, low brand perception, mounting operational costs, losses on the financial front and a dwindling wireline business have stripped state-owned telecom operator Mahanagar Telephone Nigam Limited (MTNL) of its earlier monopoly status. For the better part of the past year, the public sector undertaking (PSU) was in the news for being plagued with various issues and for its attempts at revival.

Developments like the launch of 3G, the grant of broadband wireless access (BWA) spectrum and mobile number portability (MNP), which were welcomed by other players in the industry, have only added to MTNL’s difficulties. While the payouts for 3G, BWA spectrum and licences have impacted the company’s balance sheet, it has contributed little in terms of subscribers or revenues. MTNL, along with its sister concern Bharat Sanchar Nigam Limited (BSNL), has been one of the worst-hit operators in terms of subscriber churn following the launch of MNP.

Both the government and MTNL spent last year chalking out strategies to contain the damages. From monetary relief to restructuring exercises, they left no stone unturned. However, the company’s woes are far from over.

Key issues

The biggest issue for MTNL is its low brand value. The operator serves the lucrative metro circles of Delhi and Mumbai, and coverage has never been an issue as it owns a robust network. However, its service quality as well as customer care have not been up to standard and are amongst the major reasons behind the operator losing out on high-end customers.

That subscribers are not satisfied with its services is evident from the fact that within the first three months of MNP launch, the operator had lost 21,153 subscribers. In the same period, only 5,255 subscribers joined its network.

The operator had a first-mover advantage in 3G and BWA as the government allotted it spectrum a year ahead of the auction held for private players. However, MTNL failed to capitalise on this opportunity. On the contrary, the payouts for matching the winning bids of the private players post the May 2010 auctions have increased its debt burden. It took a short-term loan of Rs 70 billion for acquiring 3G and BWA spectrum in Delhi and Mumbai. High operating costs and steep payouts for employee salaries, retirement benefits and pensions are other expenses being incurred by the company.

The numbers in terms of subscriber market share are not too promising either. As of December 2011, the company had 2.78 million and 2.88 million wireless subscribers in Delhi and Mumbai respectively. This places it fifth in the pecking order in terms of subscriber market share in both the circles.

Some basic services like online recharge, bill payment and customer care assistance, which have become important for metro subscribers, are still missing from MTNL’s service offering in Delhi. This is a major disadvantage in the metros, where internet penetration is high and people are accustomed to paying their utility bills online.

Another key concern is the company’s financial position. In the quarter ended September 2011, MTNL’s total income stood at Rs 8.96 billion as compared to Rs 10.63 billion for the quarter ended September 2010, a year-on-year decrease of 15.71 per cent. Further, MTNL recorded a net loss of Rs 8.64 billion, up from the Rs 6.04 billion losses posted in the quarter ended September 2010.

Attempts at revival

MTNL is now in damage control mode. The company, with the government’s assistance, is taking steps to restore its position in the telecom industry.

One of the key areas it is looking at is downsizing its employee strength, which stood at 45,000 as of end-December 2011. To this end, it had asked the Department of Telecommunications (DoT) to clear a voluntary retirement scheme to be offered to 15,000 employees. The scheme will require MTNL to make a one-time payment of Rs 20-Rs 30 billion. The company has asked DoT to help it financially to implement the scheme.

MTNL also announced an overhaul of its marketing and customer care operations in Delhi and Mumbai in 2011. The move followed a directive from Minister of Communications and IT Kapil Sibal to MTNL’s management to achieve a 25 per cent increase in revenues by March 2012. The marketing and customer care units in Delhi and Mumbai have been asked to focus more on the lucrative enterprise business segment and target a significant improvement in call completion rates on MTNL’s GSM networks. The company aims at a double-digit improvement in call completion rates across its landline and mobile networks in the two metros.

Faced with a cash crunch and mounting financial losses, MTNL decided to go in for revenue-sharing arrangements with other companies to launch new services. For instance, it has invited expressions of interest for outsourcing its BWA business and has hired global consultancy firm PricewaterhouseCoopers to scout for franchisees for BWA services. In 2011, a panel headed by Sam Pitroda was appointed to devise a restoration plan for both MTNL and BSNL. As part of the plan, the government attempted to bring in private sector professional managerial talent. However, this attempt failed as three key people from the private sector whom the government had approached for the position turned down the offer.

Following in BSNL’s footsteps, MTNL took a tough stand regarding its employees’ performance. The operator, under DoT’s guidance, is planning a performance review of top MTNL officials on a monthly basis to keep a check on non-performing officials. Moreover, the company’s top management has warned its employees that there could be a cut in pay in future if they fail to improve their performance as per the company’s expectations. The government has directed MTNL’s management to take tough calls and make the Mumbai and Delhi circle heads financially accountable. Future budget allocations for these circles would reportedly be linked to the revenues achieved.

The management is also eyeing alternative revenue streams to improve the company’s financial position. MTNL, which has land resources in the metro circles, is planning to rent out space for commercial usage and is also making efforts to vacate space for this purpose. Property rates in Delhi and Mumbai are very high and hence, this property can generate significant rent revenues for MTNL.

The operator also explored the possibility of entering into roaming arrangements with private operators for 3G services. As many private operators do not have spectrum and licences for the two coveted circles, this could have been a key revenue source for MTNL. Tata Teleservices Limited and Aircel were two operators keen on entering into intra-circle roaming arrangements with MTNL. However, the deals were put on hold as DoT is opposing such agreements.

To manage its mounting debt situation, MTNL is in the process of  restructuring the Rs 70 billion loan it took for buying 3G and BWA spectrum. The company plans to convert Rs 30 billion of loans into a long-term debt. In July 2011, MTNL had invited expressions of interest from banks for providing long-term loans of Rs 15 billion with a floating interest rate for a seven-year tenor. The company had already restructured Rs 35 billion of debt by repaying Rs 5 billion and tying up with two banks for the remaining Rs 30 billion.

The way forward

Going forward, broadband will be a key thrust area for MTNL. Despite the fact that the company provides broadband services in only two circles Delhi and Mumbai, it is the third largest broadband service provider in the country, with 2.47 million broadband subscribers.

This year, the company is likely to float a tender, worth around Rs 2 billion, for the expansion of its 2G and 3G network services. Further, MTNL is looking to offer 2G, 3G and broadband services at competitive prices. The operator has also extended the date for submission of bids for the rollout of BWA services by franchisees in the Delhi and Mumbai circles so as to get the best deals.

The going, no doubt, is tough for MTNL. Nevertheless, with several measures being taken to resolve the issues, the company is hopeful of positive outcomes from its efforts in the coming year.


Copyright © 2010, All Rights Reserved