New Delhi: India’s biggest telecom firm by revenues, Bharat Sanchar Nigam Ltd, or BSNL, will discontinue expansion of its fixed-line phone business for rural customers if the government decides to pull back around Rs2,000 crore subsidies currently handed to the state-owned firm for running some 12 million phones in villages.
“We are already incurring around Rs8,400 crore in operating expenses towards maintaining our rural landline business, we will have no option but to exit the non-profitable businesses we are currently in,” said a senior BSNL executive who did not want to be named.
The executive made the comments on the sidelines of a public discussion held by the telecom regulator on Tuesday that saw participation of industry bodies Cellular Operators Association of India and the Association of Unified Telecom Service Providers of India, besides firms such as Bharti Airtel Ltd and Reliance Communications Ltd.
The event was held to discuss whether BSNL’s rural phone business should continue to receive support through what is known as access deficit charge (ADC) that is levied on all phone firms in India.
According to the Telecom Regulatory Authority of India (Trai), companies such as Bharti Airtel have contributed a total of Rs12,774 crore since 2003 towards ADC for funding BSNL’s rural wireline expansion.
Capital connection: BSNL’s rural customers account for more than 37% of its total fixed-line subscribers. (Bloomberg)
Last year, BSNL received around Rs2,000 crore from the government.
“Despite that, we had to put an additional Rs6,400 crore because the tariff is not cost-based,” said another BSNL executive who too wanted to be anonymous.
Under Trai-mandated tariffs, this executive added, BSNL or any other phone firm is allowed to charge just Rs50 per month as rent for a fixed-line phone in villages, while operating costs work out at around Rs870 each. “We make revenues of Rs190 on each rural fixed-line (including call charges), which is not at all sufficient,” he claimed.
BSNL, which posted annual revenue of Rs39,715 crore in fiscal 2007, is trying to improve its profitability and declining per subscriber billings, a key operating measure in the industry.
“However, with these proposed measures it would be difficult to remain commercially viable,” the first BSNL official added.
BSNL’s nearly 12 million rural wireline subscribers account for more than 37% of its total fixed-line subscribers.
Independent regulatory experts, such as Mahesh Uppal, say ADC is a wrong instrument for providing incentives. “The worst incentive is when your competition is paying for your losses,” he said, adding that Trai may want to propose an expansion of scope for the Universal Services Obligation (USO) fund to include subsidies for the loss-making wireline business of BSNL.
The regulator, for its part, has already been considering inclusion of ADC within the scope of the USO fund. “There is a view that certain form of assistance would be needed for supporting BSNL in sustaining their non-remunerative rural operations. If considered justified, support can be given from the USO fund for this purpose,” Trai said in its consultation paper on ADC released on 21 January.
Despite support from the government through ADC, the wireline connections in the rural areas have not really been growing.
“Substitution of fixed-lines by mobile connections in rural areas could be a reason for surrender of fixed-lines,” the regulator noted in the consultation paper.