The Group of Ministers (GoM), headed by Finance Minister P. Chidambaram, on Thursday, decided to refund over Rs.11,000 crore to BSNL and MTNL, the two state-run players, for returning broadband wireless access (BWA) spectrum.
“The Group of Ministers took firm decisions - one in relation to pension of MTNL employees, the second in relation to the spectrum that was allocated both to BSNL and MTNL in the 2.5 GHz band, and one other small issue,” Telecom Minister Kapil Sibal said.
These decisions would now be taken to the Cabinet for approval, he added.
Both the state-run players had requested the government to refund the amount they paid in 2010 for the BWA spectrum after they surrendered the airwaves as this had seriously depleted their cash reserves. BSNL had paid over Rs.6,500 crore, while MTNL had paid about Rs.4,500 crore in 2010. “Both MTNL and BSNL are under significant stress. In a macro perspective, the move makes sense. The government can now auction this spectrum…this will enable some other players to roll out services, while also getting revenue for the exchequer,” Jaideep Ghosh, Partner at KPMG, told The Hindu .
He, however, felt that this would set a precedence, and could result in similar demands from other players.
“It may be appropriate to take these special cases. Whether government will want to take a similar decision as far as private players are concerned, it is difficult to state,” he said.
With regard to the pension liability of MTNL staff, which will cost Rs.570 crore annually, the state-run company will pay Rs.170 crore while the rest will be paid by the government.
High wage costs
High wage costs had been a major reason for these companies running into losses. The employee cost as a percentage of revenue is over 103 per cent for MTNL and 49 per cent for BSNL compared to the industry average of about 5 per cent.
MTNL’s net loss widened to Rs.5,321.12 crore in 2012-13 from Rs.4,109.78 crore in FY’12.
BSNL is expected to run up losses to the tune of Rs.8,198 crore.
“Having resolved these issues, and if the Cabinet approves, I think, both BSNL and MTNL will be on course (to profitability),” Mr. Sibal said.