As MTNL dies, its expertise must live on

MTNL will become the first state-owned enterprise to  shut down after being out-competed by more nimble private-sector rivals
MTNL will become the first state-owned enterprise to shut down after being out-competed by more nimble private-sector rivals


  • While few will mourn the end of the comatose state-owned telco, the government would be foolish to let go of its top technical minds

Mahanagar Tele​​phone Nigam Ltd (MTNL), the smaller of the two state-owned telecom companies formed out of the Department of Telecommunications, is likely to be wound up, according to an exclusive report in Mint. Its staff and assets are likely to be handed over to the surviving state-owned telco, BSNL. Apart from MTNL unions and leftist intellectuals, whose hearts break a tiny bit every time a state-owned enterprise shuts down, few are likely to shed tears over the delayed end of this company, comatose for a while under the burden of accumulating losses and more than 23,000 crore of debt.

MTNL will become the first state-owned enterprise to down its shutters after being out-competed by more nimble private-sector rivals (others, like Air India, were sold, rather than wound up). In steel, state-owned SAIL and RINL still survive despite all the handicaps of being run by boards on which government nominees pursue goals that are not all about corporate efficiency, and having to deal with employee unions that enjoy degrees of freedom that their private sector counterparts do not. In power, state-owned NTPC thrives, and not just because it has leverage; private companies do not have to be paid by state-level power distributors.

Telecom was an area of focus for Rajiv Gandhi after he became prime minister in 1984. The government set up the Centre for the Development of Telematics (CDoT), which developed electronic exchanges in India for the first time. Two companies were carved out of the Department of Telecommunications in 1986 – MTNL and Videsh Sanchar Nigam Ltd (VSNL). MTNL deployed electronic exchanges, introduced technological innovations such as ISDN, which allowed voice and data signals to travel on the same network, launched Internet services, and was listed on the New York Stock Exchange in 2001.

Telephony was opened up to the private sector in 1994. The Delhi and Mumbai circles were given to Bharti Airtel and Essar on a nomination basis. Bids were invited for other circles. Companies overbid, eliminated potential competitors who had bid more rationally, and then failed to meet revenue targets and pay the licence fees. They lobbied the government to change the licence-fee regime to revenue-sharing.

In 2000, telecom services provided by the Department of Telecom outside the MTNL service area of Mumbai and the National Capital Region were brought under a new corporation, Bharat Sanchar Nigam Ltd. It was a major political feat by then telecom minister Ram Vilas Paswan, who overcame stiff union opposition by offering every employee a free phone connection and free calls.

By then, Reliance had launched its mobile telecom service, initially misusing its licence for limited mobility service (meant for a fixed-line phone to move around the house) to offer full mobility, leveraging the capability of the technology it deployed for limited mobility. Is service was then regularised after it paid the entry fee charged to other telecom players and a penalty. It transformed the telecom business in India from a low-volume, high-margin business to a low-margin, ultra-high-volume one, which made all private telcos enormously profitable. But MTNL remained a straggler.

In 2008, MTNL’s share price was still in triple-digits. It soon dipped below that and has been falling ever since, now giving company to beaten-down Vodafone-Idea shares.

MTNL lacked the managerial nimbleness to compete with private operators and its large army of workers were paid several times what private telcos paid their employees performing similar services. As MTNL customers ported to other service providers, its business shrank to unviable levels.

It is appropriate for the company to be wound up. It serves no social purpose that is not performed better by private telecom service providers. Nevertheless, MTNL contains some fine technical minds and expertise, which the government would be foolish to let go.

Cybersecurity is now an existential concern for security of the state, financial infrastructure and personal integrity. To tackle this threat, the government needs new agencies to conduct research, plan strategies and implement them. The technological capability of MTNL engineers would come in handy for the government in this context.

Another development is the emergence of cyber and space capabilities as integral parts of a nation’s strategic forces. Both the US and China have integrated space and cyber capabilities into their armed forces. India needs to do likewise, and MTNL engineers could find use in this field as well.

Even as MTNL withers away as a company, its brains could be transplanted to vital parts of the nation’s security establishment. That would redeem, to some extent, the company’s commercial failure.

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