NEW DELHI :
India will merge its twin state-run telecom companies in an effort to turn around the money-losing firms, which it considers core assets.
The strategy would also see the government look at ways to exploit the vast land assets of the two companies while paring their manpower by offering incentives to employees to avail an early retirement plan.
The ₹56,000 crore merger and revival plan for Bharat Sanchar Nigam Ltd (BSNL) and Mahanagar Telecom Nigam Ltd (MTNL) was approved by the Union cabinet on Wednesday. MTNL operates in Delhi and Mumbai, and BSNL in the rest of India.
The turnaround plan would include the allotment of spectrum for fourth-generation or 4G services at 2016 prices to the two companies with the costs borne by the government and issue of sovereign bonds worth ₹15,000 crore to be serviced by the two companies. In addition, assets worth ₹38,000 crore will be monetised over the next four years and a voluntary retirement scheme (VRS) will be introduced to cut employee costs.
The Modi administration’s aim is to leverage the spectrum allotment to make BSNL and MTNL compete more effectively in the domestic telecom market where a brutal tariff war and rising debt from purchases of airwaves at hefty prices in previous auctions have hurt players. India is planning its first auction of fifth-generation or 5G airwaves this year.
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“The said (4G) spectrum will be funded by the government of India by capital infusion in these PSUs at a value of ₹20,140 crore in addition; the GST (goods and services tax) amount of ₹3,674 crore to this spectrum value will also be borne by the government of India through budgetary resources," said a government statement.
The revival plans come in the backdrop of the Indian economy battling a severe demand slowdown that has led to economic growth slowing to 5% in the quarter ended June.
The government decision also comes at a time when private telecom operators such as Bharti Airtel and Vodafone Idea, are reeling from a fierce price war that started with the entry of Reliance Jio in September 2016. BSNL and MTNL also saw 215,000 and 6,701 users leave their networks in August, respectively.
Telecom minister Ravi Shankar Prasad said MTNL will operate as a unit of BSNL until the merger is completed.
MTNL is listed but its net worth has totally eroded. BSNL is unlisted. As of March 2018, it owned land worth ₹70,000 crore and buildings worth ₹3,760 crore. It also has considerable tower assets. The two companies have a total debt of around ₹40,000 crore.
“BSNL and MTNL will also offer voluntary retirement to their employees, aged 50 years and above through attractive VRS," said the statement. “The ex-gratia component of VRS will require ₹17,169 crore in addition, GoI (Government of India) will be meeting the cost towards pension, gratuity and commutation."
Prasad told reporters that around half of the employees in BSNL and MTNL fit the VRS criteria. BSNL has 176,000 employees, compared with MTNL’s around 22,000 employees. BSNL has been reporting losses continuously since 2009-10 and has been declared “incipient sick". The employee cost of BSNL is 75% and that of MTNL is 87% of total income.
Justifying the government efforts to revive the two companies, Prasad said these are strategic assets and have been playing an important role in coping with natural calamities and managing army networks.