BSNL Will Take On Competition After Merger With MTNL, VRS and 4G Spectrum Allocation

BSNL and MTNL's trouble will finally subside as the government has announced a revival package for the two financially troubled telecom operators

Highlights
  • The two companies will be merged
  • There would be Rs 15,000 crore bond issue
  • The telco will also be administratively allocated 4G spectrum
  • The companies will also monetise their assets

Bharat Sanchar Nigam Limited (BSNL) was neck-deep in financial troubles since the last few years. The troubles became even more detrimental as Reliance Jio made its entry to the Indian telecom industry and bruised the sector with the data tariff war, thus hurting the financials of other telecom operators severely including BSNL. However, out of all the telecom operators, BSNL was the most in trouble with heavy debts and payments pending to vendors and its other operational creditors. On top of that, the telco was also dealing with a high churn rate of subscribers, falling revenue, and very high salaries to the employees. With all of this bringing down the financial sheets of BSNL, it was getting hard for the telecom operator to compete in the industry with the private telcos. But, now the government has brought forth a revival package for BSNL which includes VRS, 4G spectrum allocation and more and this is how it will help the ailing telecom company.

bsnl-competition-after-merger-mtnl

BSNL Will First Solve its Cash Problem

As per the decision granted by the Union Cabinet on the fate of BSNL, the government has decided that it would invest a total of Rs 23,937 crore in this revival plan. Not only this, but the companies would be raising sovereigns bonds worth Rs 15,000 crore which would help it in getting its operations back on track. BSNL has a massive debt on its shoulders, which it will need to pare off, in addition to paying off its vendors which have been circling for their pending payments. Another way BSNL will bring cash on the table for its operations would be by monetising its land and fibre assets. Since the two companies would be merged, then the combined assets of BSNL and MTNL worth Rs 38,000 crore would be monetised by the merged entity to raise more capital.

Voluntary Retirement Scheme for Employees

Another major problem that BSNL and MTNL were facing in their operations was the amount of salary which the two companies were giving out. As compared to other telecom operators, who spend 7% to 8% of their revenue in salaries to their employees, BSNL currently shells out more than 70% of its revenue to pay salaries to its 1.75 lakh strong workforce. Now to reduce this cost, BSNL would be giving, Voluntary Retirement Scheme or VRS with attractive benefits to a chunk of its employees. BSNL would be handing out VRS to 60,000 to 70,000 employees so that the costs being gone salaries come down.

4G Spectrum Allocation

Another major point of drawback which BSNL had until now was its lack of 4G network. While the other private telecom operators in the country moved on ahead and deployed 4G network on their respective spectrum, BSNL was left behind as it had to airwaves to deploy a 4G network. This was also one of the reasons of BSNL’s fast decline when the data tariff war started, while the other incumbents had a chance to fight Reliance Jio courtesy of their 4G network, BSNL did not even have the opportunity to do that. Now the government would be providing BSNL with administratively allocated 4G spectrum which the telco would be able to deploy to provide fast internet and other 4G services like VoLTE.

BSNL and MTNL Merger

As per Telecom Minister Ravi Shankar Prasad, MTNL would be a subsidiary of BSNL after the merger. Now, although the merger of BSNL and MTNL has been in talks since a decade, it hasn’t been able to take proper form. But, finally, the cabinet has given it a nod.

All of these measures would help the government led ailing telecom operators in dealing with the competition from private players, and it would also help them in establishing a better stronghold in the market. This year, BSNL has made losses of Rs 14,000 crore, and it is relying on 3G services with 4G services in only very selective areas.

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Arpit spends his day closely following the telecom and tech industry. A music connoisseur and a night owl, he also takes a deep interest in the Indian technology start-up scene and spends rest of his time spilling poetry and stories on paper.

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dragonmonkNikhilCool_chennaitri_visAnonymous Recent comment authors
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Cool_chennai
Cool_chennai

India needs BSNL. I Still have BSNL as my second sim, Because some where BSNL will help us. Only in cities BSNL performs worst. Being a chennai Guy still i respect BSNL for its service during storm and floods in my city. Other private operators will just shut down, inorder to protect their equipment. But only bsnl worked, it didnt cared about the equipments during those times. We need a network service during the emergency and natural calamity period. BSNL is a prey on government officials politics. Yeah employees are not working, I accept. But what does it need to… Read more »

City
Chennai
Operator
airtel
DTH
N/A
dragonmonk
dragonmonk

This article needs to be corrected. Government is not investing any money in BSNL. Here is what the annnoucement is: 1) 20,000 crores worth 4G spectrum will be administratively allotted (BSNL will still owe annual payments for this. This is not free. It just means that BSNL got the spectrum without competing with private player through auction). 2) Debt of BSNL will be offset by raising bonds in the market worth 15,000 crores (Government will only guarantee that BSNL will payback this money in the future to the bond buyers i.e. sovereign guarantee). 3) Assets of BSNL will be sold/leased… Read more »

Aftab
Aftab

@dragonmonk if it is sovereign bond, then who will give money to BSNL to run business??

Banks ??
No there in huge trouble

dragonmonk
dragonmonk

@aftab While we don’t have the details on the actual process yet, the bonds could be offered to public in the open market or could be privately placed to specific investors or investing bodies. Whoever buys the bonds is offering the money in return for an interest. They are essentially debt instruments.

Aftab
Aftab

@chakri please find a reply notifier , I don’t want to come here to check if there is any reply to my comments. @dragonmonk no, I am not arguing about bank loans , unethical practice of jio made private operator to take huge loans to run the company . But now the situation is in dire conditions. Banks are not at all ready to give any new loans to telecom companies , then who will provide loan to BSNL ?? The penalty of 1lak crore is final nail on the coffin of private operator. I m still skeptical about govt… Read more »

dragonmonk
dragonmonk

@aftab When a government guarantees a bond, it is specifically taking the risk on itself i.e. if BSNL for whatever reason will not be able to payback the investors when the bond term ends, government promises to pay the money. So, the risk of buying BSNL bonds is lower compared to, let’s say if Airtel or Vodafone-Idea issue bonds tomorrow (incidentally, this is also why government bonds offer lower interest rates compared to private company bonds. The difference is to account for the payback risk). Having said that, governments also default on their payback obligations at times. But, that’s a… Read more »

dragonmonk
dragonmonk

@aftab Btw, the 15,000 crores is peanuts compared to the debts that all three private telecom players have, running up to lakhs of crores.

Do you want to know who benefits mostly from bank loans? Hint: Arundhati Bhattacharya, the former chairman of State Bank of India (SBI) is currently a board member of…. (drumbeats)…. Reliance Industries!

Nikhil
Nikhil

@dragonmonk: These are things which people hardly know. No point in proving them.

Nikhil
Nikhil

VRS opting scheme last date is 31st January 2020.

Kapil
Kapil

It’s a Trap laid by ministers to sell BSNL property and get rid of employees using vrs scheme. Once that is done…they will allot 4G spectrum…. and then real drama of events will unfold which will lead to BSNL being sold to private player in 2020.

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