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Baba’s Explainer – Reviving BSNL

  • IASbaba
  • August 1, 2022
  • 0
Economics
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Syllabus

  • GS-3: Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.
  • GS-2: Inclusive growth and issues arising from it. 

Context: In yet another effort to revive the state-owned telecom firm Bharat Sanchar Nigam Limited  (BSNL), the Union Cabinet on July 27 approved a ₹1.64–lakh crore package for its revival.

  • The four-year turnaround plan includes both a cash component and a non-cash component.
  • The revival package was announced with an aim to upgrade the operator’s network to 4G while de-stressing its balance sheet.
What is the history of BSNL?
  • BHARAT SANCHAR NIGAM LIMITED (BSNL) was incorporated on 15th september 2000. It is a 100% Govt. of India owned Public Sector Undertaking.
  • It took over the business of providing of telecom services and network management from the erstwhile Central Government Departments of Telecom Services (DTS).
  • The company provides telecom services throughout the country excluding Delhi & Mumbai.
    • Mahanagar Telephone Nigam Limited (MTNL) was set up on 1st April 1986 by the Government of India for telecom development needs of Delhi, the political capital and Mumbai, the financial capital of India
  • BSNL company has a vast experience in planning, installation, network integration & maintenance of switches & transmission networks. BSNL has a world class ISO 9000 certified Telecom Training Institute.
  • Some of the objectives of the company are:
    • Increase sales revenue with focus on subscriber retention & acquisition by way of strengthening marketing, quality of service and customer delivery.
    • Strengthen company’s finances by gainful utilization of its assets through sharing / monetization of existing infrastructure like land, building and sharing of passive infrastructure like towers etc.
    • Creating Wi-Fi Hot Spots and replacing Legacy wire line exchanges by Next Generation Network.Accelerate the pace of expansion of mobile & data services with up-gradation of technology.
    • To explore opportunities in international telecom in developing markets.
    • To become preferred service provider to the Government for reliable and secure service Network and to serve National security interests.
What financial problems BSNL is facing?
  • BSNL’s revenues were nearly ₹40,000 crore in March 2007, while Airtel’s revenues were only ₹18,420 crore. By 2009, BSNL’s profits had nosedived 81% and revenues fell 6% even as Airtel’s revenues grew by over ₹10,000 crore during 2008-09 and its profits increased to ₹7,859 crore.
  • BSNL has run up losses of ₹50,000 crore over the last five years.
  • The once dominant public sector company has been reduced to a mere footnote, due to years of political interference and typical bureaucratic style functioning.
    • The new paradigm in telecom is data; and here, whoever gives the best experience will emerge the winner.
  • Operators who are quick to understand consumer demands, and nimbly cater to them, will win. BSNL does not have a culture that puts customers at the centre. The demand is driven by device, content, access, application, storage, and security.
  • An essential metric to assess the health of telecom service providers is ARPU, that is, average revenue per user.
    • Bharti Airtel’s ARPU in the March-end quarter increased about 23%, while Reliance Jio’s ARPU increased 27% on a year-on-year basis.
  • BSNL’s social sector duties prompt that all loss on capital assets is met from internal accruals only. Thus, it is unable to promptly respond to technological innovations in the market like its private peers, say a rapid transition from 4G to 5G.
  • BSNL lost wireless subscribers at an average 0.30% each month, whereas Bharti Airtel and Reliance Jio combined had acquired wireless subscribers at an average 0.43% each month.
  • There is also a difference in the number of Base Transceiver Stations (BTSs) held by the three companies. BTS is an equipment that sends and receives radio signals from mobile devices and routes them to other terminals in the network.
    • Reliance Jio and Bharti Airtel held six and five-and-half times more BTSs, respectively, when compared with BSNL.
  • Also, Reliance Jio and Bharti Airtel had almost five times more subscribers in rural areas compared with BSNL.
Have there been attempts earlier to revive this government-owned telecom provider?
  • There have been many attempts earlier to improve BSNL’s operations.
  • For example, a committee headed by Sam Pitroda offered a 15-point plan to turn around the PSU, including
    • trimming staff
    • divesting 30 per cent
    • adopting a managed services model for its various operations,
    • inducting a chief executive from the private sector.
  • The Sam Pitroda plan has not been acted upon.
  • The Centre has also given financial aid to BSNL in the form of refunds on spectrum payments, soft loans, and grants to keep the struggling public sector company afloat.
  • In 2019, the Centre had announced a ₹70,000 crore revival package in a bid to help the PSU survive.
    • The package proposed the merger of Mahanagar Telecom Nigam Ltd (MTNL) and BSNL.
    • It was argued that since the BSNL reaches out to populations in rural areas and MTNL is based in the metro cities of Mumbai and Delhi, combining their synergies would help acquire a pan-India footprint.
    • However, the merger had been delayed owing to financial reasons, including the high debt of MTNL
    • For helping spur operations, the Government had announced a capital infusion of ₹20,140 crore for acquiring spectrum.
    • The overall package which was for MTNL and BSNL combined, paved the way for the two PSUs to raise long term-bonds for which the Centre provided sovereign guarantee.
Why did they fail?
  • No revival plan can succeed by just pumping in money.
  • BSNL’s biggest problem is that it has multiple layers of decision making. This makes it a slow mover in a market which has the likes of Reliance Jio and Airtel.
  • For example, the PSU still buys equipment through tenders where the lowest bidder wins. The best vendors in technology are not the cheapest.
What is the latest package about?

The 2022 package has three broad components.

  1. Infusing fresh capital for upgrading the state-owned operator’s services.
  • Starting with the endeavour to upscale its services, BSNL would be allocated spectrum in 900/1800 MHz band administratively at the cost of ₹44,993 crore via equity infusion.
    • Spectrum can be defined as invisible radio frequencies on which wireless signals travel, facilitating phone calls and internet usage
  • The allocation would help BSNL increase as well as consolidate its serviceable bandwidth
  • Thus, it would be able to provide high speed data utilising a vaster network presence, more importantly, in rural areas.
  • Other than spectrum, in order to pursue its social objectives, the Government would provision ₹13,789 crore to the company to fund its operational viability gap in the commercially unviable rural wireline operations that it had undertaken between 2014-15 and 2019-20.
  1. Strengthening its stressed balance sheet
  • The telecom department said the Centre will provide sovereign guarantee to BSNL and MTNL for raising long-term loans. They will be able to raise long-term bonds for an amount of Rs 40,399 crore.
  • To further improve the balance sheet, AGR dues of BSNL amounting to Rs 33,404 crore will be settled by conversion into equity, and the government will provide funds to BSNL for settling the AGR/GST dues.
    • The AGR refers to the fee-sharing mechanism that computes the share in revenues that the telecom service providers (TSPs) are required to pay the government as annual licence fee and spectrum usage charges.
  • Further, BSNL will re-issue preference share of Rs 7,500 crore to the government.
  1. Augmenting its fibre network by merging Bharat Broadband Nigam Limited (BBNL) and BSNL.
Why has the government decided to infuse money into a loss-making company?

While the move to further support BSNL and not monetise it like Air India is in deviation from the government’s laid down privatisation policy, the case to keep the telecom company afloat has its genesis in three main strategies of the government.

  • Rural Broadband Agenda: Nearly 36 per cent of BSNL’s optical fibre customers are in rural areas, and the operator assists the government in expanding to far-flung areas with low-income consumers for operations that are typically non-viable commercially.
  • Boost Domestic Component Industry: Two, unlike private telecom operators, BSNL has had a heavy dependence on domestic component manufacturers — something that also helps foster a vendor base in the country. With BSNL launching 4G services and subsequently 5G, this will also take the domestic component industry along with it.
  • Strategic Need in challenging areas: Lastly, the presence of BSNL’s network assets in border areas and left-wing extremism affected areas means that the government considers it a strategically important company for it to be privatised.
Will the latest attempt involving a massive fund infusion of 1.64 lakh crore work? Is funding the only issue here?
  • With these measures, the Centre expects that BSNL will be able to improve the quality of existing services, roll out 4G services, and become financially viable. It also expects that with the implementation of this revival plan, BSNL will turn-around and earn profit in 2026-27 (April-March).
  • However, if BSNL wants to succeed, then it needs leaders with integrity who can establish transparent and effective governance policies. The Centre should also allow such leaders to be independent and take strategic decisions to transform the company.
  • Employees who cannot align with the new realities of the telecom world need to exit.
  • Marketing executives who cannot think of a customer-centric approach, technicians and engineers who cannot innovate for the future, staff who are occupying redundant positions, and top executives who cannot steer the company’s turnaround plan should be allowed to exit.
  • The Centre has promised to hold BSNL accountable for improving revenues and changing the mindset to become customer focussed.

BSNL has partnered with a training firm to ensure that 30,000 staff are geared towards making its customers happy.

Is it important for BSNL to revive and thrive?
  • India’s telecom consumers need BSNL as an effective counter to the fast-emerging duopoly in the telecom sector.
  • A strong public sector telecom company will not only prevent the private players from increasing tariffs as an easy means to wriggle out of the ongoing financial stress but also ensure that even rural consumers access digital services.
  • BSNL is also strategic for providing secure communications services to highly sensitive segments like the defence establishment and along the international border.

Mains Practice Question – In the era of Privatisation, do you think it is prudent to provide financial packages to revive BSNL? Comment.

Note: Write answers to this question in the comment section.


 

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