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The Complex Layers Of Financial Crisis

The deadline for the service license of Mahanagar Telephone Nigam (MTNL), the telecom company of the public sector, facing a financial crisis, is ending on April 6.

However, MTNL will continue to function even after this period, as the Department of Telecom has assured MTNL that it will allow MTNL’s work to continue uninterrupted even after this period.

MTNL needs about Rs.11,000 crore for the renewal of its license, but due to be  worst financial condition, it is unable to pay the amount to the Department of Telecom. So, it has requested the Department of Telecommunication to forgive the amount. The license period of MTNL was 20 years, which is expiring on April 6. In the case, MTNL also says that the calculation of license deadline has been done wrong, due to which its deadline expires on April 6. According to MTNL, it should have been calculated from January 11, 2001, as MTNL started working from this date in Delhi-NCR. MTNL says that from April 1999 to January 2001 Ghaziabad, Faridabad, Gururgram and Noida were outside the purview of the license agreement.

According to the Department of Telecommunication, all efforts will be made to relieve MTNL. At present, MTNL’s liability is Rs 20,000 crore, which he had taken for paying the legal liabilities of the Central Government. MTNL wants the government to convert this loan into a sovereign guarantee with full liability of principal and interest payments, so that it has not to pay interest of Rs 2,000 crore every year.

MTNL has not been able to fully utilize 3G spectrum, so it wants to return it to the Department of Telecommunication, which is likely to give it Rs.3,500 crore. MTNL wants to use this amount to increase its business. Still, MTNL’s business of landline and fiber services is going on well. It is doing better than other telecom companies, including Bharat Sanchar Nigam Limited (BSNL) in these two areas. If MTNL invests in them, then its business and profits can increase. BSNL’s network is in the entire country, which can be used to increase its revenue. It is worth mentioning that BSNL and MTNL’s debt are very less compared to the private sector units and they also have a lot of fixed assets.

Today, telecom operators have lost the trust of customers, due to the deficiencies in customer service, problems of workers, political interference etc. MTNL has more than 23,000 employees and it is spending a large amount every month over their wages and allowances. Many MTNL employees have also taken advantage of the voluntary retirement scheme, which has cost more than Rs.300 crores to MNNL
There was a need to increase revenue and for this MTNL should had expanded broadband and fiber to home facilities, but it didn’t pay attention towards this aspect. According to an estimate, MTNL can earn Rs.500 crore every year from this business.

Experts say that the merger of BSNL and MTNL can improve their health and integration of MTNL’s Delhi and Mumbai division is the easiest and better option in this regard. It is time to unify BSNL and MTNL to compete with Reliance Jio, Bharti Airtel and Vodafone-Idea.

According to Annie Morris, former member of the DOT (finance), Modi government is in favour of unification. So, MTNL and BSNL should consider this proposal again, because their amalgamation will create a strong telecom unit.

Both have a lot of real estate assets and there will have enough resources to work with the improved spectrums as a team. In the revival application given to the Central Government, MTNL has demanded 4G services, so that it can provide better options and services to the customers. MTNL wants the government to collect revenue by selling its unused or under-utilized real estate. BSNL has also presented similar plans to the government, but has requested the Department of Telecommunication to help it collect revenue from the rental rather than selling the real estate. BSNL has around 7,500 plots in the country, which is worth about Rs 70,000 crore.

MTNL had a loss of Rs 832.26 crore in the quarter of December 2018, whereas BSNL is expected a loss of Rs 7,000 crore in fiscal year 2019, which will have an operating loss of Rs.4,000 crore. The expenditure on MTNL’s employees was 29 percent higher than the operating proceeds of Rs 572.83 crore. For the first time in 18 years, MTNL could not pay the salary of 2 months to its employees recently. Its debt is Rs.13,500 crore, while telecom sector’s total debt is Rs.6.1 lakh crore.

The central government wants to give MTNL and BSNL a bailout package of Rs. 13,000 crore, including voluntary retirement package of Rs 6,365 crore and equity investment of Rs.6,767 crore, allocation of 4G spectrums and monetization of real estate. Today, the financial condition of the whole telecom sector is awful.
Now MTNL and BSNL have also moved on the same path, which is largely due to inefficient management, miserable customer service situation, political interference etc. However, the loss of MTNL and BSNL is very less compared to private companies. On the other hand, both of them may be able to overcome the present state of affairs with better customer service and efficient management.

About the author: Satish Singh is currently working as Chief Manager in State Bank of India’s Economic Research Department, Corporate Centre, Mumbai, and has been writing mainly on financial and banking topics for the last 10 years.―Merinews

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