BSNL revival: Govt readies Rs 74,000 crore plan for bleeding telco

The department of telecommunications is pushing for a Rs 74,000-crore revival package for the loss-making BSNL and MTNL on the ground that closing them down would cost higher — around Rs 95,000 crore. The assumption behind the revival package, which involves an attractive VRS package to BSNL’s 1.65 lakh employees, reducing the retirement age from the current 60 years to 58 years, will cut the wage bill of the company which in FY19 was 77% of its revenues. Further, if the company is provided 4G spectrum by the government as part of the package, then it would be able to compete in the market and start posting lower losses from FY21 onwards and become profitable from FY24 onwards, according to the DoT.

The components of the revival package drawn up by the DoT are as follows: The VRS payout will entail a cost of Rs 29,182 crore, another Rs 10,993 crore will be the cost in terms of payout of retiral benefits by advancing the retirement age from 60 to 58 years. The allotment of 4G spectrum would cost Rs 20,410 crore and another Rs 13,202 crore will be the capex required to rollout the 4G services.

The government’s logic is that closing down BSNL, which posted a net loss of Rs 13,804 crore on a revenue of Rs 18,865 crore in FY19, would require giving VRS to all its employees plus repayment of its total debts which would cost around Rs 95,000 crore. As opposed to it, a revival package of Rs 74,000 crore will cost less and by reducing its workforce and allocating it 4G spectrum will make the company competitive.

It has also argued that strategic disinvestment of BSNL will not work out as there may not be any takers of it considering the current financial stress in the telecom industry.

However, analysts are not convinced by the plan and the logic behind it. It’s true that BSNL’s has a large number of employees at aroud 1.65 lakh whose wage bill comprises 77% of its revenue. The wage bill to revenue cost for private operators like Bharti Airtel, Vodafone Idea or Reliance Jio is 3-4.5%. Further, while Bharti has a total workforce of around 16,000, Vodafone Idea employes around 9,000.

But merely reducing BSNL’s workforce and therefore its wage bill will not make the company competitive as it lags far behind its private sector peers in terms of network coverage and efficiency. The optimistic projection underlying the revival blueprint is that BSNL, which posted a net loss of Rs 13,804 crore in FY19 will see it widen to Rs 18,231 crore in FY20, but thereon it will start narrowing and come down to a loss of Rs 5,432 crore in FY21. It will post a net loss of Rs 396 crore in FY23 and then break into a profit of Rs 2,235 crore in FY24.