Explained | The government package to revive BSNL fortunes

The story so far: The Bharat Sanchar Nigam Ltd. (BSNL) was incorporated in September 2000 as a company to take over the business of providing telephone connectivity from the central government’s Department of Telecom Services. Its operations were meant to service the entire country except New Delhi and Mumbai where MTNL — or Mahanagar Telephone Nigam Ltd — would operate. Last week, the Union Cabinet approved a ₹1.64 lakh crore revival package for BSNL with a cash component of ₹43,964 crore.

What is the plan for recapitalisation?

The non-cash component of ₹1.2 lakh crore, spread over four years, will include administrative allotment of 4G spectrum worth ₹44,993 crore. Capex support of ₹22,471 crore over the next four years to “boost development and deployment of Atmanirbhar 4G stack”, viability gap funding of ₹13,789 crore for commercially unviable rural wireline operations done during 2014-15 to 2019-20, debt structuring by raising of bonds with sovereign guarantee worth ₹40,399 crore and financial support for AGR (Adjusted Gross Revenue) dues worth ₹33,404 crore complete the package.

Previously, in 2019, the Cabinet had cleared a package worth close to ₹70,000 crore for the revival of BSNL and MTNL, mainly to fund the Voluntary Retirement Scheme (VRS) package for the two firms.

How has BSNL’s performance been over the last few years?

BSNL had more than 1.5 lakh employees before the VRS was announced in 2019. About 78,000 had applied to exercise the option. Before the VRS, FY20 numbers showed the loss at ₹15,500 crore, and employee costs at a staggering ₹13,600 crore.

As of June 2021, the employee headcount was 64,000. Note that BSNL spent more than 50% of revenue on employees in FY16. That came down in FY21 to 36%, but compares poorly with, for example, Bharti Airtel whose numbers showed employee expense at about 4% for both FY21 and FY22.

The government, which said that the 2019 package helped BSNL stabilise and the latest bailout would help it become viable, expects BSNL to become profitable in three to four years from now. Recently, Chairman P.K. Purwar has been quoted as saying that FY22 revenue would be a tad lower than the previous year at ₹17,000 crore.

What went wrong with BSNL, which was profitable for much of the first decade of this century?

A report by the Standing Committee on Information Technology presented to Parliament in 2014 under the Demand for Grants quotes a BSNL representative as saying that though private operators started offering mobile services in the late 1990s, BSNL could do so only in 2002. Despite this, it was among one of the top mobile service providers in most circles by 2005-06 when its expansion was going on in full swing. The deposition talks of problems to do with ‘non-procurement of equipment’ beginning at this time.

What was the issue with procuring equipment?

In March 2020, BSNL had floated a tender to procure 4G equipment to help expand its mobile broadband network. The ₹9,000-crore contract included upgradation of 50,000 sites across the country that ‘would position the telecom company to offer high-speed Internet access to its users’. The project was seen as critical for the survival of BSNL as it was already four years behind private firms in unveiling 4G services. 

In April 2020, the Telecom Equipment and Services Export Promotion Council (TEPC) raised objections to the tender being ‘heavily in favour of multinational companies’. The TEPC is an industry association representing domestic telecom equipment manufacturers such as Tejas Networks, Sterlite, HFCL, and Vihaan Networks. They stated that domestic suppliers could not participate in the tender due to stiff conditions, such as the requirement of previous experience of setting up a mobile network for at least 20 million subscribers. The national security angle also came up.

The government asked BSNL to rework the tender, but the question remained — why did private operators not face the same objection when they placed orders for equipment with foreign companies? Airtel, for instance, gave its $1-billion 4G equipment contract to Nokia of Finland that year. While encouraging domestic OE makers was a good idea, why should the entire burden of supporting indigenously developed equipment meant for 4G, and that too which had not been previously tested, fall on BSNL?

By the looks of it, the pattern of BSNL carrying the burden of proving indigenous technology viable on a mass scale may continue. The government has categorically said that one of the reasons BSNL must be supported is to help in the development of indigenous technology.

Problems surrounding BSNL’s access to quality equipment seem to be a recurring issue. In 2008, BSNL came up with an ambitious plan to raise network capacity by 94 million new lines at an investment of $10 billion. This would have made it the world’s largest telecom equipment tender at the time. Allegations of irregularity in the process surfaced and the whole plan was scrapped. Naturally, BSNL slipped in terms of customer preference.

Are skillsets a stumbling block too?

The telecom department was also quoted in the 2014 report by the Standing Committee on IT as saying that BSNL and MTNL are not only beset with a large number of employees, but that the skills of these employees were not suited for rendering services to mobile and broadband customers.

That is surprising because, one, BSNL had no trouble between 2002 and 2005-06 in getting to the top in most circles it operated in, as mentioned. Two, the private operators themselves dipped into the cream of BSNL’s manpower to set up or scale up their operations. Though the private sector did have successful global partners (Airtel-Singapore Telecom, Essar-Hutchison (now Vodafone-Idea), nobody prevented BSNL from getting the best global consultants and knowhow for its operations.

Should profitability be the goal for such an enterprise?

The government needs a telecom arm for help in disaster relief, and two, for telecom penetration in every nook and cranny of the country as a social obligation. The private sector cannot be reasonably expected to offer services in an area that is not profitable for them. BSNL’s merger with the Bharat Broadband Network (BBNL), whose BharatNet optical fibre network of 5.8 lakh km would make for a combined asset of 14 lakh km of optical fibre, is important for socially backward areas where services may not be commercially viable.

But, is it logical to expect the company to turn profitable? After having lost close to two decades in terms of time to compete, is it even feasible to expect the company to become profitable? To boot, BSNL is not a pan-India 4G service provider at a time when more than 98% of the country has 4G coverage. In fact, the latest package for BSNL was announced even as auctions for 5G spectrum were going on.