<div><strong>Sandeep Bamzai</strong></div><div> </div><div>For years, one has been hearing about the merger of Indian public sector telecom twins - Bharat Sanchar Nigam Ltd and MTNL. Every once in a while it surfaces like a trial balloon and then is deflated and forgotten. In September, the periscope resurfaced yet again. Now it is believed 'yet again' that the morphing into a single entity process is underway with a timeline attached to it. Effective April 1, 2016, the two state-owned utilities with separate charters - BSNL to serve customers outside of metro Mumbai and Delhi and MTNL with the limited swathe of the two metropolitan cities - are finally likely to become one merged organisation. If this idea fructifies, then one only hopes that the merger is more organised than the infamous Air India- Indian Airlines which after so many years resembles a train wreck. At this juncture, this is the only silver bullet to save the twins.</div><div> </div><div><table align="right" border="1" cellpadding="2" cellspacing="2" style="width: 200px"><tbody><tr><td><img alt="" src="http://bw-image.s3.amazonaws.com/Sandeep-Bamzai1.jpg" style="width: 200px; height: 287px; margin: 1px;"></td></tr><tr><td><strong>Sandeep Bamzai</strong></td></tr></tbody></table>But that is secondary. In the long line of deadlines, the latest of July, 2015 has already been missed despite the PMO asking IIM Bangalore two work on a feasibility study. Remember that this state owned telecom entity will have to compete in the brutal and litigious world where private operators are struggling to cope. Of the many imponderables in the merger path, a major impediment was the fact that MTNL was also listed on the US bourses. It is believed that MTNL will be delisted before the final process of merger with unlisted BSNL and telecom equipment manufacturer ITI Ltd is green lighted. In 2001, MTNL was listed on the NYSE and then in January, 2013, its ADS was listed on the OTCQX. OTCQX provides a listing platform and access to US investors and to non-US companies listed on a qualified stock exchange in their home country. As such, MTNL has to be delisted from both OTCQX and the Bombay bourses. Government owns 56.25 per cent shareholding in MTNL.</div><div> </div><div>Debt is another issue that the owner - Govt of India - has to grapple with other than buying back MTNL shares. Earlier this year, BSNL's debt stood at Rs 4,459 crore, while MTNL's debt was overflowing at Rs 14,120 crore at end of the last financial year. It has been clear as daylight for a long time that the government's telecom twins can't tango anymore.</div><div>BSNL and MTNL have seen rapid erosion in their top line, earnings and brand equity as they struggle to stay afloat in an increasingly competitive environment. </div><div>Realistically speaking, they are both dead in the water due to the competition that is killing them softly. </div><div> </div><div>BSNL reported a net profit of over Rs 10,000 crore in 2005-06. By March 31, 2011, it was deep in the red by Rs 6,384 crore. Its select indicators revealed that it had a turnover of Rs 29,687 crore and a net loss of `6,384 crore based on available financials for March 31, 2011. Since the trajectory was southwards, it only accentuated - BSNL and MTNL incurred losses of Rs 3,785 crore and Rs 1,567 crore, respectively, till September 30 for the 2014-15 financial year. The balance sheet has seen large strokes of red for years now - BSNL had incurred a Rs 7,019 crore loss in 2013-14, Rs 7,884 crore in 2012-13 and Rs 8,850 crore in 2011-12, whereas MTNL had reported a loss of Rs 4,109 crore in 2011-12 and Rs 5,322 crore in 2012-13. MTNL showed a profit of Rs 7,825 crore in 2013-14 mainly due to write back of provisions on account of pensionary liabilities and spectrum amortisation costs after decisions of government taken for revival of MTNL. Bidding for expensive spectrum came as a death blow to these twins, subsequently the government chose to give financial support of Rs 6,724.51 crore to BSNL and Rs 4,533.97 crore to MTNL on surrender of broadband wireless access spectrum.</div><div> </div><div>Worse still is its vast army of employees - as many as 229,447 across the country reminding you of the problems being faced by Air India in rationalising its work force. </div><div> </div><div>A voluntary retirement plan for employees as part of efforts to revive the loss-making company has been in the works forever at BSNL.</div><div> </div><div>It had set an internal target of 99,700 employees - Group A (1,483), Group B (6,262), Group C (76,655) and Group D (15,214). </div><div> </div><div>The VRS has been on the table since 2009 when a panel headed by Sam Pitroda, adviser to the Prime Minister on public information infrastructure and innovations, recommended that BSNL take the VRS route to prune its nearly 2.81 lakhstrong workforce by a third.</div><div> </div><div>The rapidity of its fall can be best explained through its annual revenue figures - BSNL saw its overall revenue fall from Rs 39,715 crore in 2006- 07 to Rs 38,053 crore in 2007-08 and further to Rs 35,812 crore in 2008-09, before dipping to Rs 32,046 in 2009-10. For 2014-15, revenues were down to Rs 27,996 crore. It is actually a most piquant situation for a combined BSNL and MTNL separation scheme involving 1.21 lakh workmen will cost the government an additional Rs 17,445 crore.</div><div> </div><div>Former telecom secretary and NASSCOM boss R. Chandrasekhar once made a very telling point to this writer, "DoT needs to take proactive and pre-emptive measures to salvage and save these two companies. Remember, there is a public interest which is being served by public sector companies. If they are left unattended and a business-as-usual approach is applied, then they could run into severe problems.Drastic measures are the need of the hour and we are alive to this." Yes, BSNL in particular serves a public interest purpose by going deep into the innards of the country through its rural telephony mandate and by hooking up telecom infrastructure which is commendable because private operators have been loathe to doing this for it is not lucrative enough. </div><div> </div><div>MTNL is an abomination. It has a market capitalisation, as of Wednesday closing, of Rs 1,165 crore on an end of day price of Rs 18.50 and 34,391 employees as of December 31, 2014.</div><div> </div><div>For the quarter ending June 30, 2012, its losses had overtaken its revenues - Rs 1,059 crore and Rs 833 crore, respectively. For the full year ended March 31, 2012, the story was exactly the same - revenues of Rs 3,368 crore against losses of Rs 4,018 crore. </div><div> </div><div>The total debt on its books for 2011-12 was Rs 9,647 crore and its staggering wage bill was Rs 1,740 crore. </div><div> </div><div>Throw in a pension bill of Rs 340 crore and you can't begin to imagine the financial burden that the running of this company places on the government. its financials for 2012-13 were a total income of Rs 3783 crore squared off against a net loss of Rs 5322 crore. For 2013-14, total income stood at Rs 3872 crore and a net profit of Rs 7820 crore for reasons explained above.</div><div> </div><div>Stock broker Ramesh Damani appalled at the state of play had told me, "They are basket cases. Obviously, they have been bypassed by the telecom revolution. Both have to be sold off; there is no business case anymore for the Government to stay in the telecom sector.</div><div> </div><div>"In a competitive set-up, they have seen erosion in their market share. MTNL's market cap is less than its payroll cost." </div><div> </div><div>Both companies went belly up primarily because they were asked to match the top bids made private telecoms in the 2010 3G and BWA auctions. This was the inflection point for the twins whose financial condition had already begun to worsen due to tough competition. The matching of bids broken their backs.</div><div> </div><div>MTNL had to shell out Rs 6,564 crore for the 3G spectrum and another Rs 4,534 crore for the BWA spectrum in the Delhi and Mumbai circles. </div><div> </div><div>At the start of the previous financial year, the company had a net cash position of around Rs 6,300 crore. </div><div> </div><div>After the spectrum payments and the operational losses incurred in 2010, it ended fiscal 2011 with a net debt of nearly Rs 11,000 crore. </div><div> </div><div>The company's high level of indebtedness further weakened its financial performance. Staff costs, excluding expenses for retirement benefits, fell marginally to Rs 423 crore, while the actual payout for retirement benefits climbed by 22 per cent to Rs 124 crore. </div><div> </div><div>Besides, provisions for retirement benefits rose to Rs 254 crore. </div><div> </div><div>"There is a clear business case for a merger," Chandrasekhar had said to me, adding, "There is no ambiguity about this and, in fact, it is now increasingly being driven by compulsions; this is the only way to go." </div><div> </div><div>Public interest is all very good, but market forces determine the future of commercial entities. Relics of socialism cannot be allowed to continue if they don't bring any value to the economy. </div><div> </div><div>Somewhere this realisation eludes those who dot the corridors of power in this country. </div><div> </div><div>Sadly, the mandate with which these companies were seeded has been overtaken by free market policies, leaving them in a shocking state of disrepair. Saving them through a merger and a rationalisation of workforce may be a reform that will make headlines, for one has waited endlessly for its actualisation. My concern is that October is almost over and the process of buying back MTNL shares hasn't even begun...</div><div> </div>
