The state-owned ‘Telecom Service Providers’, BSNL & MTNL have been in losses for more than a decade now. Multiple reasons have been mentioned for their state of affairs, especially after a decade of phenomenal rise in mobile subscribers. The latest data indicates that their losses have reduced in 2020-21 mainly on account of the VRS implemented last year. Here is a review.
Mahanagar Telephone Nigam Limited (MTNL) is a Public Sector Undertaking of the Government of India under the Ministry of Communications that provides telephony services in Delhi and Mumbai circles. Bharath Sanchar Nigam Limited (BSNL) which is also a Public Sector Undertaking is 100% owned by the Government of India and provides telecom services in the rest of the country excluding Delhi and Mumbai. MTNL was set up in 1986 while BSNL was formed in the year 2000. Both these PSUs have been in news for the last couple of years following the government’s efforts and debates around their revival as both these entities have been making losses for many years now.
BSNL has been in losses for more than a decade
BSNL, which was one of the best performing PSUs in the country at one point of time has lost its sheen in the latter half of the 2000s. It continued to make profits until 2008-09. However, since then, BSNL has continuously recorded losses despite the massive growth in the telecommunication industry. This may be attributed to the emergence of strong private players who are providing better service at a lower cost, thereby providing stiff competition to the state-owned entity. Currently, there are only four players in the Indian mobile communication market including three private players (Airtel, Reliance, and Vodafone Idea) and the government combine of BSNL/MTNL.
BSNL’s loss was Rs. 6,384 crores in 2010-11, according to data presented in the Lok Sabha recently. In the subsequent year 2011-12, the loss further increased to Rs. 8,851 crores and dropped to Rs. 4,793 crores in 2016-17. In 2017-18, the loss reported by BSNL was Rs. 7,993 crores which increased to Rs.14,904 crores in 2018-19 (an increase of 86%) and further rose to Rs.15,500 crores in 2019-20 (increase in losses by 94% as compared to 2017-18).
As of 30 September 2020, BSNL has reported a loss of Rs. 3,607 crores (provisional). However, the expenditure in 2020-21 so far has been only Rs. 12,368 crores in contrast to an average expenditure of Rs. 35,500 crores in the previous years, largely on account of the reduction in the staff numbers following the Voluntary Retirement Scheme (VRS) by which nearly 50% workforce of BSNL and 75% of MTNL were reduced.
Similarly, MTNL has also faced continuous losses. From a loss of Rs. 2,802 crores in 2010-11, the loss increased to Rs. 5,321 crores in 2012-13, the highest reported loss so far during this decade. However, in 2013-14, MTNL reported a profit of Rs. 7,825 crores- the only time it reported a profit in this decade. Since then, MTNL has reported losses that have increased with each year. In 2015-16, MTNL’s loss was Rs. 2,006 crores which increased to Rs. 3,398 crores in 2018-19. Provisional statistics for 2020-21 up to 30 September 2020 reveal a loss of Rs. 1,220 crores for MTNL (for an expenditure of Rs. 2,111 crores).
The government in a recent press release mentioned that the reasons for better performance or reduction in losses in 2020-21 for both BSNL & MTNL include a sharp reduction in wage bill due to Voluntary Retirement Scheme. The government also stated that BSNL was able to maintain its revenue and cut down on other costs.
Poor performance of PSU because of employees lacking required skills
A parliamentary standing committee report of 2015 that reviewed the performance of BSNL & MTNL noted many reasons for the poor financial performance of these organizations. Among other reasons, one of the reasons cited for the poor performance is the skillset of employees. It was stated that the skills of the employees were not suited for rendering services to Mobile and Broadband customers which is quite different than that required for wireline services. The report also mentioned the decline in wirelines business, stiff competition in the mobile sector, legacy systems, and gap in sales & marketing as the reasons for the poor performance of these PSUs.
Revival plan worth Rs. 69,000 crores were approved by Union Cabinet in 2019
In October 2019, the Union Cabinet approved a revival package for BSNL and MTNL worth Rs. 69,000 crores. The plan includes measures to reduce the Staff cost through a Voluntary Retirement Scheme (VRS) for employees of age 50 years and above, administrative allotment of Spectrum for providing 4G services with funding through budgetary allocation, monetisation of Land/Building and Tower/Fibre Assets to generate resources to retire debt, meet CAPEX and other requirements, debt restructuring by raising of Sovereign Guarantee Bonds and in-principle approval for the merger of BSNL and MTNL.
VRS offered for employees aged 50 years and above in BSNL and MTNL for reducing salary burden
Through the VRS option offered to the employees, both BSNL & MTNL aimed to reduce the number of employees that in turn would help reduce their yearly salary burden. Those opting for VRS are provided a lumpsum compensation along with an applicable pension. As per a press release of the government in January 2021, a total of 92,956 employees of both PSUs (BSNL – 78,569 and MTNL – 14,387) who opted for VRS have retired on 31 January 2020.
As a result of the VRS, the total number of employees under BSNL and MTNL have both reduced by 71% and 89% respectively compared to the numbers in 2014. As of 31 March 2014, BSNL had a total of 2.38 lakh employees including executives and non-executives. Over the years, the total number of employees reduced to reach nearly 1.67 lakhs in 2019 (as of 31 March 2019). As of 31 March 2020, the number of employees was just 69,824- a decline of over 58% in one year, because of the VRS. Likewise, the total number of employees under MTNL dropped from around 36,000 odd persons as of 31 March 2014 to about 21,000 as on the same day in 2019. As of 31 March 2020, the number of employees was only 4,185- a reduction of 81% in one year on account of the VRS.
The reduction in non-executive employees was more than their executive counterparts
The reduction in employees was more evident among non-executives than executives. Since 2014, the number of non-executive employees dropped by over 10,000 persons each year until 2019 while the number of executive employees did not show any such decreasing trend. In 2020 after the VRS, the number of executive employees dropped to two-thirds while the number of non-executives dropped to one-third of the numbers in 2019. In the case of MTNL employees, the numbers for both types have been declining over the years. However, in 2020 after VRS, the number of executive employees dropped by 68% while the number of non-executive employees dropped by 84% as compared to 2019.
Salary burden reduced by 50% in BSNL and 75% in MTNL
According to another Lok Sabha response provided on 10 March 2021, VRS has been successfully implemented in BSNL with a total of 78,569 employees opting for VRS. As a result, the salary expenditure of BSNL had reduced by approximately 50%. The salary expenditure had dropped by 75% in MTNL with 14,387 employees opting for VRS.
Government has allocated funds for 4G and expansion of BSNL’s services to MTNL circles
With respect to the other measures, the government has stated that it has made a fund allocation of Rs. 24,084 crores for 4G spectrum services for BSNL. It is also stated that BSNL has taken steps to monetise its core and non-core assets. In Phase-I, 4 (four) properties of BSNL have been identified for bidding through the Department of Investment and Public Asset Management (DIPAM).
Delhi and Mumbai circles are where the MTNL functions. On 21 December 2020, the government has also approved the allotment of spectrum to BSNL for Delhi and Mumbai for 4G services. This is a step towards merging the two PSUs which is one of the measures cited in the revival plan. But on 10 March 2020, the Minister of Communications stated that the plans to merge the two have been deferred due to financial reasons including the high debt of MTNL. However, close co-operation and service integration between BSNL and MTNL has been undertaken, as per the government’s statement.
BSNL’s performance has improved
Since the implementation of the revival plan, BSNL’s growth in income and ability to contain expenditure in salary, administrative, employee remuneration, and other benefits, has helped in growing EBITDA from minus Rs. 3596 crores for the half-year ended in September 2019 to positive Rs. 602 crores for the half-year ended in September 2020, which is a positive sign. EBITDA stands for ‘earnings before interest, tax, depreciation, and amortization’.
BSNL expected to become profitable in 2023-24
According to a Parliamentary Standing Committee report presented in March 2021, BSNL is expected to turn profitable from the financial year 2023-24 provided the measures under the revival plan are undertaken. Revenue growth has been hindered mainly due to the non-commencement of 4G services as per this report. With the commencement of 4G services by BSNL, the revenue of BSNL in the wireless segment is expected to increase. The committee also added that it was unfortunate to note that 4G services were yet to be commenced by BSNL when other private ‘Telecom Service Providers’ (TSPs) were preparing to roll out 5G services in the country and called for the allocation of 4G spectrum to BSNL without delay. It is also reported that the government has identified several assets of BSNL & MTNL for sale in the next financial year starting April 2021.
Featured Image: BSNL & MTNL losses