Arshad Shaikh looks at the rise and fall of BSNL – the government-owned telecommunication services provider. BSNL was in the news recently with the government announcing an `1.64 lakh crore bailout plan. While some are lauding the efforts in the resuscitation of the ailing telecom major, many view it as wasteful spending of taxpayers’ money. The story of BSNL is a textbook case of how public sector undertakings fritter away their preeminent status by ignoring the pulse of the market and not responding adequately or quickly enough to retain and expand market share in the face of competition from the private sector. Bailing BSNL out is the easy part; turning it around will always be a tall order.

Bharat Sanchar Nigam Limited (BSNL) is a 22-year-old 100% Government of India owned Public Sector Undertaking (PSU) providing telecom services throughout the country. Once the topmost telecom provider of India, it steadily lost market share and profitability over the years. It was in the news again with the government decision to pump `1.64 trillion (lakh crore) into the beleaguered telco in a bid to revive its fortunes.

The decision surprised many, as the current regime does not believe in bailing out failing government enterprises. In fact, the government had a budgeted target of `1.75 lakh crore of disinvestment for the current financial. Then why is the BSNL being bailed out? How did BSNL become a fringe player in the market from its heady days as a market leader? Was it management failure that led to the downward slide of BSNL or was there other factors in play that did not allow it to take on the competition? Turning around BSNL will not be easy. The whole episode once again brings to the fore the question about the role of PSUs in the market, their management and how to make them useful for nation building.

A BRIEF HISTORY OF BSNL’S RISE AND FALL

As of today, the private sector led by JIO, Airtel, and Vodafone Idea (VI) have a share of around 90% of the telecom market. BSNL and MTNL, the government-owned entities have the remaining 10%. BSNL traces its origins to the pre-independence Post and Telegraph Department which was converted to the Department of Telecommunications (DoT). It was incorporated as a company on 15 September 2000. It has an authorised share capital of `40,000 crores and a total income of `18,595 crores during FY 2020-21.

A common allegation against PSUs is that they have a lot of red tape and are very slow at decision-making. BSNL is no exception. Although it was able to maintain a healthy market share in fixed-line services until 2019, it could not hold its ground in the mobile services market that was quickly captured by private companies who were nimble, able to survive lower tariffs, and were backed by the financial markets to support their expansion.

Moreover, 50-60% of BSNL’s expenditure was due to its huge workforce (BSNL has a workforce of 1.76 lakh compared to around Airtel and VI’s 20,000 odd). Despite its best efforts, it could not lay off surplus staff due to pressure from unions as well as management/government reluctance.

Experts say that the downward slide of BSNL began in 2007-2008 when it was unable to add the much-need network capacity due to delays in its tendering process. With a sub-par network and unfriendly customer service, BSNL was not able to meet the expectations of the fast-changing mobile market that saw customers almost completely switch to mobile phones from landlines.

The launch of JIO by the Reliance Group was the last straw that broke the camel’s back. The financial position of BSNL deteriorated to such an extent that in 2019, for the first time in 18 years, it was not able to pay salaries to its employees. From making a profit of `10,000 crores in 2005, BSNL was recording losses of `8,000 crores in 2018.

UTILITY OF THE BAILOUT

The decision of the government to bail out BSNL with a `1.64 lakh package is bound to provide a much-needed new lease of life for the sick PSU. The government had announced a revival plan for BSNL and MTNL in 2019. Now after three years, our policymakers seem to have realised the importance of BSNL in delivering services at places that the private sector will avoid due to the absence of commercial viability.

BSNL can become a useful tool for the nation to bridge the digital divide and develop a knowledge society. Private telcos will only service an area if they see profits and hence places in the hinterland and the rural belts will be missed out. BSNL has a critical part to play in its ‘social role’ and disaster relief.

In the last few years, BSNL has cut its workforce from 1.75 lakh to less than 65,000, reducing its employee compensation component to 36% of total income. BSNL’s net loss has also reduced significantly to `7,453 crores by March 2021. BSNL plans to utilise the bailout package to deleverage its balance sheet. It will convert a large portion of debt into government equity. BSNL would roll out 4G mobile services and broadband services and raise `40,000 crore through the issuance of long-term bonds. It is hoped that this may revive its sagging fortunes and help restore its erstwhile glory.

THE ROLE OF THE GOVERNMENT IN AN ECONOMY

This once again brings us back to the debate on the role of the government in an economy. Is its job only to govern and regulate the market? Can it be a player in the market by promoting its entities like PSUs and government-owned corporations? Will this massive bailout help BSNL turn around and become profitable again?

John Maynard Keynes, who is considered the founding father of macroeconomics, made some very insightful comments whilst advocating his ideas. He said: “Markets can remain irrational longer than you can remain solvent” and then the famous quip: “In the long run, we are all dead.” 

What he meant was that free-market economics or laissez-faire cannot deliver full employment and welfare to all at all times. Most often than not, there is “market failure” and without government intervention in the market, the economy cannot be brought on track.

The state has an important role to play in the priority sector. Agriculture, MSMEs, education, housing, and renewable energy all require the support of the government in remaining afloat amidst cut-throat competition unleashed by market forces. PSUs are required for meeting the key infrastructure and developmental requirements of the nation. They play a key role in generating employment opportunities as well as developing different regions of the country irrespective of commercial viability.

If BSNL can manage to take the right investment decisions, and control its overheads, overstaffing, and toxic trade unionism; if its management is run by professionals free from bureaucratic controls and red tape, the bailout can become a role model for similar turnarounds.

Verghese Kurien, the creator of Amul and father of the White Revolution in India, said: “Unfortunately, we forgot that the biggest asset of India is its people. Any sensible government must learn to unleash the energy of its people and get them to perform instead of trying to get a bureaucracy to perform.”

BSNL must be allowed to unleash the talent of its people. BSNL can beat the competition if its management is given a free hand to build its own destiny.

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