BSNL on life support as Pitroda’s recommendations gather dust

Once a Navratna, the company has accumulated losses of $3 billion

For Frontline: BSNL Logo. Photo: V.Ganesan.

Once India’s leading telecom operator and a Navratna, Bharat Sanchar Nigam Ltd.’s (BSNL) finances now paint a scary picture of a company on critical life support and in the absence of immediate attention, with very little hope of survival.

BSNL’s losses for the last three years already exceed $3 billion at Rs.17,058 crore. This is in spite of the fact that it registered a whopping income of Rs.89,667 crore or $16 billion but outclassed that with an expenditure of Rs.1,07,095 crore or nearly $20 billion, far in excess of this income. [See chart].

Ironically, in the same period that BSNL has seen a steady decline, the telecom sector, in the last decade has gone on to produce several new billionaires. When contacted, Telecom Minister Kapil Sibal told

The Hindu that the main crisis was on account of 45 per cent of BSNL’s income going towards salaries as against a 4-5 per cent-level in the private sector. “We are working on an attractive VRS scheme and will eventually boost incomes by leveraging BSNL’s real estate bank, renting out its telecom towers and fibre optics capacity”.

The perfect prescription for BSNL’s revival remains elusive. Sam Pitroda, Advisor to the Prime Minister, had headed a committee to review BSNL’s operations in 2009-10. The committee had recommended selection of the best professionals from the private sector at market rates, and appointment of an eminent person from the private sector as chairman. It suggested separating the post of Managing Director/CEO from CMD and a change of the board’s composition to seven directors — one internal MD/CEO, one non-executive chairman, two government nominees and three external directors.

Mr. Pitroda had recommended providing three-year contracts with specific targets for all key management team members and establishing four independent business units for Fixed Access, Mobility, Enterprise and New Businesses. On the human resource side, the committee had recommended completing the Indian Telecom Service (ITS) absorption process while inducting significant young talent in technology, IT, marketing and sales. A sharp reduction was also suggested through retirement or transfer of one lakh employees through processes such as voluntary retirement scheme (VRS).

Mr. Pitroda had further recommended disinvesting 30 per cent stake through a strategic Indian investor and an initial public offering (IPO) of which 10 per cent should be returned to the government and 20 per cent used for BSNL’s employee VRS, expansion and operations. He had targeted providing 30 million new high-speed broadband connections in the next three years and significantly, unbundling local loop for public and private companies. He also recommended setting up of two separate subsidiary companies for tower-related infrastructure and land bank and other real estate assets.

No to Sam

The Telecom Commission deliberated these recommendations and then set up an Internal Committee led by Member Services. The Internal Committee submitted its recommendations on October 29, 2010, based on which the Telecom Commission decided that taking 30-50 professionals from the market at market rates, changing the board constitution or separating the posts of chairman and MD may not be feasible in only one public sector undertaking (PSU) as it may simultaneously trigger protests from BSNL and demand for similar treatment by other PSUs.

Further, the Telecom Commission felt this was not the opportune time for listing and disinvestment of BSNL, as the company was on a downward performance path and disinvestment might not realise the true value of the company. In the absence of listing, option of giving stocks as incentive to key management is also not available. On the issue of VRS, the panel said that VRS across the board might not be required; BSNL could examine option of VRS for select categories, examining financial burden and cost/benefit of the company.

On issues of adopting a managed capacity or managed services model — the view of the Internal Committee that the BSNL Board may take a view — was endorsed, while unbundling of the local loop was a commercial decision, which should be decided by BSNL board after critically examining the issue. On all other issues relating to BSNL’s operational and commercial issues, the Committee has left the decision to the BSNL board. The Telecom Commission also said that it might revisit its decisions relating to disinvestment, VRS and unbundling of local loop “if the need arose in the context of any major policy decisions involving restructuring and repositioning of BSNL”.