Let’s Get Realistic About BSNL Revival

Ever since the press critiqued the government’s Rs 70,000 crore bailout package for BSNL-MTNL, BSNL supporters have called it ill-informed, and one-sided; it does not, for instance, take into account the tens of thousands of crores of private telecom debt that PSU banks will have to write off. Indeed, if the debt owed by telcos to the government is added, the figure could runs into lakhs of crores; while companies like RCom and Aircel are already in the insolvency courts, many believe Vodafone-Idea is running out of funds to sustain operations. And, after the Supreme Court judgment on AGR, you can add another Rs 1.33 lakh crore to private sector telecom debt. Put that way, the argument is a sound one: why is writing off private sector debt okay, but a bailout for the public sector problematic?

But, before BSNL’s top brass, and the politicians, start trotting this out, a reality check may not be a bad idea. While no one supports private sector telcos reneging on lakhs of crores of debt—the spectrum-payment obligations to the government, of course, will be recovered as the spectrum will revert to it in the event of default—that does not justify losing money in a no-hope bailout. One bad deal in the past cannot possibly justify another one. It is a big risk if, after BSNL’s turnover falling by over a third over the last four years, the turnaround plan projects revenues rising by two-thirds over the next four years. This, in an environment where, thanks to RJio’s pricing, it is not clear if the bloodletting is over.

Nor is it quite correct to look at BSNL’s low debt as a sign of it being healthy relative to the private sector; if BSNL’s debt is low, it is because it has comparatively little capex and spectrum. In fact, once the Rs 60,000 crore bailout package—Rs 70,000 crore if you add MTNL—comes through, its cost needs to be added to the debt since, had BSNL not been a government company, this would have been financed by taking on fresh debt.

There’s more. The revival package allocates Rs 15,000 crore—this money is to be raised by the PSUs based on a government guarantee—for capex. But, while this is to be spent on other things as well, it is unlikely that even a modest 4G network can be set up at less than double this amount. So, for a full pan-India 4G rollout, the government is likely to have to pump in more money.

Interestingly, when MTNL’s 900MHz spectrum expired in April this year, the government extended the licence till January 2021; something similar has been done for BSNL. Fresh renewals would cost MTNL Rs 8,000-9,000 crore, and BSNL Rs 18,000-19,000 crore. While the government justified the extension by arguing that neither PSU got to use its spectrum at the time of allocation due to policy issues, it is unlikely a similar extension would have been afforded to a private player. This renewal will also be paid for by government, and so should be added to BSNL-MTNL’s debt. If it is not renewed, and then used for 4G services, BSNL-MTNL’s 4G spectrum will be much less than that with rivals like RJio, Bharti Airtel, and Vodafone-Idea.

The costs don’t stop here. BSNL-MTNL subscribers will have to increase their monthly-spend considerably if they move to 4G; while it is not clear they can afford to do that, they will also need to buy new handsets since they cannot use their current feature phones on 4G networks. RJio subsidised the 4G handsets (JioPhone) to facilitate the move to 4G; if BSNL is to do the same, it may need to incur similar costs.

The assumptions on revenue growth—a 66% hike over the next four years—we’ve said, is optimistic. But, even if that happens, is that enough to make BSNL profitable? According to the presentation made to the Group of Ministers, BSNL’s wage costs are 60% of its turnover—this is 87% for MTNL; the actual number, though, is 77% for BSNL if you go by the more detailed annexures in the presentation. Even if you accept the lower figure, the wage-to-income ratio is 63% for the combined entity; it is 78% based on the real figure for BSNL. Going by the projected revenue given in the presentation, and assuming (incorrectly) that there is no hike in salary costs, this means staff costs will be 35% of revenue in FY26. Take the most aggressive estimate for staffers taking VRS, and assume the wage bill gets halved as a result—the VRS planned is for 50% of the employees over 50-years of age, so a more aggressive VRS requires greater funding. Even if that happens, BSNL-MTNL’s wage costs will still be over 17% of turnover compared to 3-5% in the case of most of its private sector competitors.

Given how the expenditure in the revival plan seems horribly understated, and the revenues quite overstated, the very least the government needs to do is to make public the exact assumptions made; if the arguments made in this column are incorrect, the government needs to show how that is the case. Indeed, since this is valuable public money that is being spent, both Parliament—through some standing committee—as well as the CAG should be examining the assumptions to see if they hold water. Otherwise, in the grand tradition of all bailout packages, this too will be followed by another, most likely much bigger, one.―Financial Express