Indian telecom sector is perhaps the only bright spot on otherwise mediocre economic growth performance over last one decade. This sector has been rapidly moving forward in terms of investments, regulatory framework, number of private players and technology even when other major sectors like power have faced hiccups in both reforms as well as growth. The public sector telecom companies, Mahanagar Telephone Nigam Limited (MTNL), Bharat Sanchar Nigam Limited (BSNL) and Videsh Sanchar Nigam Limited (VSNL) before its privatization, played significant role in revolutionizing Indian communication services. Unfettered by increasing competition on account of private sector entry in this sector, these public sector enterprises (PSEs) have displayed strong business acumen in not only widening the scope of services that could be provided but also meaningful competition to private players, which ultimately benefited consumers in terms of lower tariff.

The relevance of the public sector telecom companies has been reinstated time and again for their sheer reach, capability of providing complete spectrum of services and benefits of economies of scale to consumers. Their existence is also important for providing vital communication links across the country including rural telephony to serve dual purpose of socio-economic integration of the society as well as improving basic infrastructure facilities for doing business. In other words, the public sector telecom companies are truly fulfilling the role envisaged for them in the Five Year Plans.

These PSEs have advantages of large number of subscribers, existence of large network capacities and ability to provide all the services like basic telephones, cellular, limited mobility, internet etc. These advantages have enabled these PSEs to keep the rent and tariff charges for their various services at lower end, thus forcing their counterparts in the private sector to do the same. The end result has been increasing benefits to consumers. In addition, these PSEs have been meeting village telephony obligations even though private sector has been shying away from doing so for profit consideration despite it being a necessary condition of their licence agreement. This has been putting tremendous pressure on their bottomlines; still they have managed to earn profit year after year.

The recent decision of TRAI to raise rent and tariffs on basic services is likely to give some relief to these PSEs. However, a large part of this increase would be passed on to the consumers and used for rural telephony. It may almost off set cash flows. Nevertheless, it would be another reason for these PSEs to extend larger benefits to the consumers.
Now Mr. Arun Shourie, Minister for Disinvestment, assuming the additional charge of Communication Ministry also, there are speculations that he may start the process of privatizing MTNL, and its big brother BSNL. It is so as Mr. Shourie as Disinvestment Minister earlier, advocated that government has no role to play in the telecom sector and the same should be left to Market forces. Though the new Minister has not commented on the disinvestment of two telecom PSEs, he has, however, indicated that time for handing mammoth organizations has gone and hinted at organization of organic size to be effective and efficient. This certainly indicates that the proposal of merging two PSEs, mooted by his predecessor Mr. Pramod Mahajan, could come up for a review.

The reason and objective for the proposed merging of the two PSEs was very clear that separation between the two was not practical and it was only geographical. There is a logic behind.  MTNL is operational only in two metros of Delhi and Mumbai and both these cities are witnessing hectic competition in all segments of telecom services. If MTNL has to grow further it must look for newer avenues, area and locations. On the other hand, BSNL has been meeting all social obligations without much of financial help and both the organizations coming together can further make the private telecom companies run up for their money.

This also makes strong case for the financial help in the form of budgetary support for BSNL from the government, which was promised to it at the time of its formation by corporatising Department of Telecom services in 2000. Indian Telecom Services Association (ITSA), association of cadre based employees of BSNL and MTNL together have been demanding financial package for BSNL to avoid it getting into debt trap.

TRAI’s decision to revise basic telecom tariffs upward is an attempt to bring them closer to cost based. Though the telecom companies can offer alternate tariff packages but it seems to be difficult for companies, be it private or PSE to survive without raising the tariffs. At the same time there would be tremendous pressure on both the organizations not to lose their market share and, therefore, these may decide to offer lower rates. Both PSEs have been offering basic, cellular, Wireless in Local Loop (WLL) based limited mobile services, internet and host of other value added services, which make them, integrated telcos.

Through levy of access charges to be paid by one operator to another for using others network would increase the cost of the subscriber as the operators would be passing on it to them as these charges are in-built in the tariffs announced by TRAI, but MTNL and BSNL may be in advantageous position for various reasons. One, maximum calls either from cellular phones; WLL phones or other private network would be terminated on the networks of MTNL and BSNL thereby earning good amount of money from them. Whereas within their own networks either for carriage or termination there would not be any transfers of money. This advantage would come to MTNL and BSNL only due to spread of their services to every corner of the country.

Having seen the role played by these two PSEs in the growth of telecom sector in the country, there is every reason to say that this is not the time to even think about privatizing them. Government therefore, must first attain the target if achieving tele-density of upto 15 percent both in urban and rural areas where public sector telecom service alone can play a decisive and effective role apart from ensuring passing of the benefits of competition to consumers.

By arrangement with Kaleidoscope