“Give me one efficiently running PSU and I shall make all private telecom players to run for their money,” boasted Union Communication and IT Minister Mr. Pramod Mahajan at a recent public function of Bharat sanchar Nigam Limited (BSNL). Just days before this, government had proposed merger of BSNL with another State owned Mahanagar Telephone Nigam limited (MTNL) on the pretext that the division between the two was only physical and not practical. The message is very loud and clear that this is not the time to disinvest government stake either in BSNL or MTNL. Rather, the government seems to be in a mood to create an even bigger public sector telecom entity. Reflecting this mood, Mr. Mahajan also said that before taking any decision with regard to disinvestment in either of the two PSUs, the experience of Videsh Sanchar Nigam Limited (VSNL), which was privatized in the last financial year with a clause of two year favoured status to get international traffic from BSNL and MTNL subject to VSNL offering competitive rates should be evaluated.

Department of Telecommunication (DoT) has been asked to prepare comprehensive plan for the merger of BSNL and MTNL. Among other things, one of the crucial issues which needs clarification is the employees absorption of two PSUs. Both BSNL and MTNL have different salary structures and promotion policy. MTNL has about 60,000 employees while BSNL has more than 3 lakh. MTNL is credited with having a better salary structure at all levels for its employees. Government has even indicated that the problem of employees can be amicably resolved by enhancing salary of the staff of BSNL at every level for the smooth merger.  The merger is also seen to benefit BSNL because of MTNL’s strong resource position providing a financial leverage for its proposed yearly investments and also help in bridging the gap in resource generation on account of it shouldering the responsibility of relatively unprofitable ventures like rural telephony.

Once MTNL comes under the BSNL umbrella, the combined operations will have several sustainable advantages such as pan-India footprints, deeper and stronger pockets and greater marketing clout.  These synergies would obviously help BSNL by way of volumes to engage in prolonged tariff wars for a whole range of value-added services and give private telecom companies a run- for- their money.

BSNL with its country wide presence in virtually all telecom services - basic, cellular and national long distance, would depend mainly on the volume based business especially for its new cellular services.  BSNL has already announced its cellular services under the brand name “Cell One” which will have the flexibility to take on the private players like Sunil Mittal owned Bharti Group which has presence in as many as 16 states besides offering basic telecom services in various States.  The BSNL is planning to come out with aggressive pricing for its cellular mobile services. In fact, one of the BSNL official, when asked about the tariff, said, “you tell us what kind of tariff you want from us.”  In other words, the subscribers may have the advantage of choosing most viable option of cellular service.

BSNL will also have an advantage over private players because of its presence in the limited mobile services called Wireless in Local Loop (WLL), which is being offered as an extension of basic telecom services.  Recently, the company announced different tariff packages for its WLL based mobile services.  As per the standard tariff package, monthly rental for WLL based – mobile service is Rs.200 and free incoming calls and the outgoing calls cost just Rs.1.20 for a three minute call.  Though the WLL based limited mobile services and the GSM based cellular services are different due to their range as well as quality, but certainly the former could make a dent on the economics of cellular operators. Perceiving serious threat and competition to their cellular business, the private cellular operators have challenged the government policy of allowing basic telephone operators to offer WLL based limited mobile services in the Supreme Court.

Despite all these advantages, BSNL has one big drag on its resource generation for future investments, namely, responsibility of providing telephone services in the rural areas.  Lack of profit generation from rural telephony has resulted in the six private companies defaulting on their obligation of providing rural telephone connectivity.  The six private companies had signed a contract with the government in 1994 to provide village private telephones (VPTs) in three years time.  However, this is yet to be fulfilled as the private companies have cited lack of resources to fulfill this obligation.