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BSNL: Big Losses, But Can India Live Without It?

BSNL: Big Losses, But Can India Live Without It?

620_BSNL

New Delhi: Once India’s leading telecommunication giant and among its most-profitable state-run companies, Bharat Sanchar Nigam Limited (BSNL) has posted a loss for the fifth straight financial year.

 

BSNL lost Rs 3,785

crore during 2014-15, according to provisional data released by the government. The accumulated loss of BSNL has now swelled to about Rs 36,000 crore ($6 billion), with the company making losses since 2009-10.

 

Source: Department of Public Enterprises

 

As the first part of this series explained, BSNL accounts for 35% of the Rs 20,000-crore loss shown by 71 PSUs in 2013-14. If BSNL’s losses can be stemmed, the Indian government will have more money to spend.

 

BSNL’s fortunes declined dramatically because its subscribers moved from landlines to mobile phones (as IndiaSpend reported earlier), and it spent increasing sums of money on salaries for its 2.38 lakh employees, Minister of Communications and Information Technology Ravi Shankar Prasad told Parliament in December 2014.

 

However, a closer look at the data and events in the telecom industry over the last decade reveals how government policies killed its golden goose. The decline in revenue was not foregone but a result of the government’s gradual whittling of promised subsidies, while keeping the company’s “social obligations” intact.

 

Those obligations included expanding a rural landline network that recovered barely a tenth of its costs, compulsory purchase of 3G spectrum–or telecom bandwidth–and bureaucratic delays in buying equipment.

 

Despite repeated reminders over 10 days, BSNL did not respond to IndiaSpend‘s questions, emailed to Chairman and Managing Director Anupam Shrivastava.

 

Let’s examine four reasons that led to BSNL’s decline:

 

1) Rural landline networks: Big push at big loss

 

After 2002, as the mobile-phone revolution spread, BSNL’s landline subscriber-base fell from 33.7 million in 2006-07 to 16 million in 2014-15, according to telecom ministry data compiled from the Parliament website.

 

Source: Rajya Sabha

 

In 2013-14, the landline division posted a loss of Rs 14,979 crore.

 

Source: Rajya Sabha

 

The government says subscribers giving up landlines was a major blow, and it was, but the expansion of a rural network that was already making losses was equally responsible.

 

On an average, BSNL was spending Rs 702 per line per month on rural landline services against a revenue of about Rs 78 per line per month, according to the 2008-09 audited accounts of BSNL.

 

BSNL was tasked with building, expanding and running the rural network at minimal tariffs as part of its social obligation, said P Abhimanyu, General Secretary of BSNL employees union. In 2003-04, the PSU reported a loss of about Rs 9,528 crore in the rural landline segment.

 

Of 593,601 inhabited villages in the country, according to Census 2001, BSNL had installed public telephones in 586, 000 of them by December 2014.

 

Since returns are low, private telecom operators ignore village landline networks, providing no more than 2% of connections in 2010.

 

Source: Rajya Sabha

 

2) Withdrawal of subsidies after being pushed into “social obligations”

 

In view of the “immense rural and social obligations,” as the telecom policy of 1999 described it, the government promised to exempt BSNL from license fees and spectrum charges. The government reneged on that promise in 2006-07, according to this Economic Times report.

 

Between 2001-02 and 2003-04, BSNL was reimbursed licence fees and spectrum charges. That fell to 2/3rd and 1/3rd, before ending in 2006-07.

 

BSNL lost Rs 3000 crore every year since. More was to follow.

 

Source: Annual reports of BSNL

 

To fund rural landline services, the Telecom Regulatory Authority of India (TRAI), in January 2003, imposed an “access deficit charges” (ADC) on all operators to fund subsidies for existing rural telephones.

 

In 2003-04, the ADC subsidy was estimated at Rs 13,000 crore annually, most (around Rs 10,800 crore) for BSNL, which operated 95 per cent of India’s rural telephones. That year, TRAI reduced this amount to Rs 5,200 crore, paring it further to Rs 3,000 crore in 2006-07 and to Rs 2,000 crore in 2007-08.

 

Eventually, the government scrapped the subsidy in 2008, arguing that BSNL received financial assistance in various forms.

 

The ADC was temporary because it would not have been fair to ask private companies to fund it, said Mahesh Uppal, a Delhi-based telecom consultant. Instead, the government promised Rs 2,000 crore every year from the Universal Service Obligation (USO) fund, created by imposing a levy of 5% on the revenue all telecom operators. It did not last: Rs 1,250 crore from the USO fund for 2012-13 to BSNL is still pending.

 

Source: Annual reports of BSNL

 

BSNL had invested about Rs 25,000 crore in its rural network and before it could recover this money, the ADC was “arbitrarily withdrawn,” said GL Jogi, a senior official with BSNL and General Secretary of Sanchar Nigam Executive Association.

 

Against a loss of almost Rs 10,000 crore a year to meet social obligations, the government paid no more than Rs 1,500 crore to BSNL from in 2011-12.

 

3) Compulsory purchase of 3G spectrum at government-mandated prices

 

In 2010, when private telecom companies purchased spectrum, they bid only for areas–or circles, in official parlance–that were expected to turn profits.

 

BSNL had no such choice.

 

The then telecom minister Kapil Sibal said BSNL was obliged to purchase pan-India broadband wireless access and 3G (third-generation) spectrum (excluding Delhi and Mumbai) for Rs 8,318 crore and Rs 10,187 crore respectively, according to this Business Standard report.

 

“BSNL was allocated infeasible and cost-intensive spectrum in the higher-frequency range (2.6GHz) against lower-frequency radio waves (2.3GHz) given to private players,” said Abhimanyu, a senior employee with BSNL. “Lower frequency means better services and less capital expense on infrastructure.”

 

The government has finally accepted concerns raised by BSNL and in September 2013 it agreed to refund broadband wireless access and spectrum money, according to this report in the Hindu.

 

Since BSNL was not allowed to bid, it was unfair to make the company buy expensive assets it could not use, said Uppal.

 

BSNL paid Rs 18,000 crore for broadband wireless access and 3G spectrum in 2010, while Bharti, Vodafone, Aircel and other operators paid between Rs 2,000 and 6,000 crore,reported The Economic Times.

 

That Rs 18,000 crore decimated BSNL’s cash reserves, from Rs 29,300 crore to Rs 1,700 crore, according to data presented in Parliament.

 

With low cash reserves and growing financial distress, BSNL’s operations faltered, and nearly 800,000 mobile subscribers switched to other operators; its market share declined from 16% to 10%.

 

Source: Rajya Sabha

 

4) How the government fiddled with tenders and orders

 

When BSNL’s fortunes were at a peak in 2006, its expansion plans were delayed by interference from the United Progressive Alliance government.

 

In 2006, a tender for 45.5 million mobile lines was delayed for more than six months; eventually, after a year, then telecom minister A Raja (arrested in February 2011 for the 2G Spectrum Scam), reduced the tender size to 14 million, according to this report.

 

Two years later, in 2008, another tender of 93.3 million mobile lines ran into controversy after Nokia Siemens got disqualified on technical grounds leaving only Ericsson in the fray, and it was cancelled in March 2010. Between 2005 and 2008, BSNL’s market share dropped from 38% to 25% after a delay in equipment purchases.

 

Source: TRAI

 

Does India really need BSNL?

 

India really does need BSNL, its employees argue.

 

BSNL forces private operators to reduce their prices, said Rakesh Sethi, General Secretary of All India BSNL officers’ association. “From free incoming calls, one-rupee one-India plan to the recently launched free-roaming scheme, BSNL has been leading the market,” said Sethi.

 

BSNL is also important to ensure e-governance projects reach rural India. “It is only BSNL that has reached most of the villages and continues to expand its network in rural areas,” said Jogi.

 

Most private companies have not taken mobile services to rural areas (each company is supposed to serve 21,600 tower sites in villages), Business Line reported.

 

BSNL also works in strategically important but likely unprofitable national projects, such as the National Optic Fibre Network, Network for Spectrum for defence and the Left Wing Extremist for areas dominated by India’s Maoist insurgency.

 

Should BSNL be privatised? “Instead of privatising it,” said Uppal, the telecom consultant, “the government should look for a strategic partnership with any private organisation with a proven track record.”

 

This is the second of a three-part series. You can read the first part here.

 

This article has been republished from IndiaSpend.com.



3 Comments

3 Comments

  1. Balamurugan

    September 21 at 1:35 pm

    BSNL is Needed But the failure of BSNL 1. High salary executives of 1960 to 1990 recruitment are not come up to Modern technology – Even many DGM , DE’s are not known to operate android Phones using Landline phones but getting 2 lakhs salary per month. 2. Low grade employees are now sleeping in Home as landline service comes to 30% but getting more than 75000.00 rupees salary — around 90000 Sr.Telecom Operators age 45-60 age now idle since no operator business now a days getting more than 1 lakh salary ( all 8th passed those days) now not adopting to computer ….

    So as Ravishankar prasath says 70% of BSNL income swallowed by Employees who sleeping in Home…

    • S Gopal

      September 21 at 5:37 pm

      True, there is a large number of employees recruited from a certain era who are there for perks and perquisites and finding innovative methods to work less and enjoy company privileges and perquisites more. It is a rot that reeks from top to bottom. The malaise is so bad that chauffeurs or dispatch riders don’t want to do their job rather compel the company to engage casual employees or hire cabs to do the running around. They want to sit back and relax as if they all are gallantry award winners or national award winners and for just that sake everyone (the nation) ought to be eternally grateful to them. The less said about Customer Service Centres the better, most employees there are doing service to themselves while honest and earnest driven employees get bogged down doing the work of these lump of lards and bear the brunt of the customers anguish and anxiety.

      Having said that hats off to those few good men and women who in the face of such louts are still able to ensure that the company is functioning and continue to endeavour in making the company better. Pink slips should be handed to cutting edge staff and management especially dealing with customers as the non performers in customer segment bring a bad name and destroy the brand. The morale of the few good men and women will increase if the non-performers are tackled.

      There is a serious need to overhaul the manpower. A blend of measures comprising of pink slips to non-contributors and chilling laggards, retraining redundant but willing to work employees who want to be productive, providing employment to those hard working casual employees or at least ensuring they are paid timely minimum (regularly revised) wages and get the basic contributions of provident fund and health insurance (these we owe to anyone who labours for others)

  2. S Gopal

    September 21 at 5:21 pm

    I must say that it is a well written an analysed article on what ills BSNL and where the fault lies to be repaired.

    There is no doubt that there is a fund crunch in BSNL. Although they have rolled out FTTH for many years and are technically able to provide FTTH to almost each and every telephone exchange in a metropolitan city as well as Tier-II city, financially, they are unable to lay Fibre optic cables to any building which is not a multi-storied building whereby they expect many subscribers per a designated areas. Although many residents in non-multistoried buildings may individually have a purchasing power (and thereby switch to Fibre) more than the resident of a multi-storied building yet it is not available to him/her. I have borne witness to the helplessness of the local customer service technician who rightfully state that their inventory/stores are bereft of essential goods such as even copper wires, let alone fibre and they simply do not have a replacement DSL modem-cum-router, let alone a new one in their stores. These are grave concerns which need to be redressed hand-in-hand with reducing operational costs and increasing efficiency and remain competitive with a brand which is unfortunately associated with antiquate yore. Broadband and telephone remain two services which they are undoubtedly market leaders, they ought to jazz up these operations before they attain the abysmally low mobile subscriber figures (for the amount of money pumped into mobile services).

    On the mobile front, they ought to shed the BSNL Mobile logo and revert to CellOne or another brand name. It is for far too long been associated with Bhai Sab Nahi Lagta and other bad acronyms such as Both Sides Not Listening. Rather than counter it with good acronyms BSNL Mobile should be renamed to another brand named along-with the carrying out the overhauling the network as seen in the past year whereby data speeds have increased and voice clarity has improved from the past half decade of reaching its nadir. Interestingly BSNL’s mobile arm was the market leader when it had the brand name CellOne, their subscriber numbers quite interestingly plummeted after the brand name was changed to BSNL Mobile in 2008. It was not the reason but it no doubt was a contributory factor, who changes a brand name when the going is good.

    Until there is an alternate telecommunications company or companies willing to think that there is one India, that is Bharat whereby the rural folks are, also, provided landline connectivity (on top which broadband can be provided), measures such as monetary compensation for operating this expensive operation should gracefully be borne by other telecommunications companies. On the mobile front, well the looming threat is much more of being a non-player if they do not improve their subscriber numbers and more importantly their average revenue per user. They already have favourable call rates to BSNL Landline and vice versa however, they need ought to package and market it better whereby the customer is attracted to it for being a total communications provider, say their broadband allowance can be used to a certain amount on the mobile or BSNL City level Wifi usage is adjusted with broadband usage which companies across the globe and in India are indulging in. Already in Vodafone India’s Wifi zones, Vodafone mobile allowance can be used on their Wifi thereby decongesting their cellular networks in dense areas and allowing mobile user speeds that they usually get from a home broadband.

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