Merger fine, but BSNL not out of the woods

The Union Cabinet’s decision to clear a nearly Rs 69,000 crore bailout package, albeit long delayed, for Bharat Sanchar Nigam Ltd (BSNL) and Mahanagar Telephone Nigam Ltd (MTNL) — two loss-making public sector telecom service providers — is a step in the right direction. After two failed attempts to merge MTNL with BSNL in the last 15 years, the government has finally bitten the bullet. MTNL — which was set up 14 years before BSNL in 1986 to cater to two metropolises, New Delhi and Mumbai, that ostensibly required better services than rest of India — has lost its relevance in view of mobile telephony and the internet revolution. Today, Indians living in both metropolises as well as small towns have access to the same content with same quality. The allocation of 4G spectrum to BSNL - though much delayed - could help it compete in a data-driven market, while a handsome voluntary retirement package for 1.9 lakh employees could reduce salary cost that eats away 77 per cent of its profits, leaving virtually nothing
for capital expenditure.

These decisions are positive for ailing BSNL and MTNL. However, the government should be under no illusion that BSNL would have achche din henceforth as the malaise in government-run companies runs deeper. Unless the management structure and work culture of BSNL are reformed, the state-owned telecom company cannot daydream of competing with the highly-focused private telecom trio — Jio, Airtel and Vodafone. Air India is a classic example of how a PSU, bogged down by bureaucratic shortcomings, could go bankrupt despite having the best of equipment — aircraft in case of Air India. BSNL too has been the victim of bureaucratic procedures that had put it at a disadvantage compared to the private companies. After the allocation of 3G, BSNL was still in the process of inviting tenders for telecom gear when the private companies were ready to roll out the service. The telecom PSU must jettison this kind of lethargic decision-making, if it wants to spare itself the ignominy of going to the government seeking a bailout once again. On its part, the government should allow functional autonomy to BSNL.

Speaking about the issues behind cautious lending by government-owned banks, Nobel Laureate Abhijit Banerjee has recently claimed that public sector lenders are scared of the Central Vigilance Commission (CVC). While the mandate of the CVC to control corruption in government-run organisations is important, the government should not lose its sight of the fact that most PSUs - BSNL included — are functioning in a competitive market and not a monopoly. The processes must be, therefore, suitably changed to make them competitive.

For making BSNL market-ready, the government should hive off all the military-related services offered by the public sector telecom company into a new department under the defence ministry. Later, it should divest 51 per cent of its stake in BSNL and list it on stock exchanges. The government should fund all operations that BSNL undertakes to connect areas that are not served or underserved by private companies from the Universal Obligation Fund corpus. If the government lacks the will to take these steps, one should have no doubt that BSNL too would go the Air India way — if not now, a few years later.