DNA Money Exclusive: Govt makes last-ditch effort to save BSNL, MTNL

Aiming to revive loss-making telecom companies BSNL and MTNL, the telecom ministry has proposed a plan comprising an early retirement of staff, capital infusion and monetisation of assets to keep them afloat in a highly competitive market.

An in-principle approval for a potential merger of the two state-run companies is also part of the proposals, according to a senior official from the ministry. To facilitate a merger, creation of a special purpose vehicle has been suggested to hive off MTNL's debt along with equivalent assets. Besides, it also envisages monetisation of the companies' towers and fibre assets via an infrastructure investment trust, or InVIT, according to the draft proposals for the Cabinet.

The reduction in the retirement age from 60 years to 58 years and a voluntary retirement scheme (VRS) will bring down the employee strength of BSNL by 74,000 and MTNL by 12,500. Currently, BSNL has 1.65 lakh employees while MTNL has 21,679. About 60% of BSNL's revenues go towards managing employee expenses, while for MTNL it is around 87%.

The VRS proposal will be funded with long-term bonds with sovereign guarantee and will be paid ex- gratia on the Gujarat model.

The reduction in retirement age will have a financial implication of Rs 10,993 crore. For cash outgo on pensionary benefits a Budgetary provision will be required, according to a presentation given to the telecom minister Ravi Shankar Prasad before moving the Cabinet note on the revival of BSNL and MTNL.

The VRS proposal will entail an ex-gratia amount of Rs 11,363 crore and leave encashment of Rs 3,491 crore to be borne by PSUs while the advancing of pensionary benefits of Rs 14,328 crore will have to come from the government.

A Cabinet note is expected to be floated in the next few weeks, the official said.

Except for the pensionary benefits, which will be advanced, there will no outgo from the government.

The capital infusion for allotment of 4G spectrum will have a financial impact of Rs 20,410 crore and another Rs 13,000 crore capital expenditure for rolling out 4G network. The funds will come through institutional borrowings.

With the proposed measures, it is expected that BSNL will come out of losses by 2023-24 while MTNL will be back in profits in 2025-26, according to estimates. Both the PSUs have a debt of around Rs 20,000 crore.

Due to hyper-competition in the telecom sector, both the firms have been incurring losses for several years. The situation has worsened because of a huge employee cost due to which expenditure has hit the roof while revenues have nosedived.

Both the firms have been asking for allotment of 4G spectrum without paying an auction price as they are unable to compete with private telecom players who are rapidly expanding their 4G network and services. The new player Reliance Jio, which shook the telecom industry with its disruptive pricing, has a pan-India 4G network. The data consumption on mobile devices has gone up substantially since the advent of 4G in late 2016 with Reliance Jio.

Though the data consumption on mobiles grew substantially, the financials of the incumbents took a hit after the debut of RJio, which also led to consolidation in the telecom sector. Now, only three private players are left, apart from the two telecom PSUs – BSNL and MTNL.