DNA Money Edit: Govt action is key to telecom PSUs’ survival

Once the jewels of India's telecom story, state-run telecom firms BSNL and MTNL are struggling to meet their day-to-day expenses, including the main cost of their employees, which run into huge numbers compared to their private sector peers. The hyper-competitive intensity in the telecom sector has changed the dynamics and overall structure of the industry. From 12 players, the industry is now reduced to three private players along with BSNL/MTNL.

The public sector telecom firms' woes mainly stem from the fact that they were unable to shed the employee flab, despite rapid changes in technologies that made the work profile of many of its people redundant. Besides their unwillingness to adjust with the changing times, where a quick response to the customers became a norm, lack of network expansion also needs to be blamed. Both the companies are incurring losses since 2009-10.

The mounting problems have not occurred overnight. The government was well aware of the difficulties. The proposal for voluntary retirement scheme (VRS) and a possible merger between the two has been hanging fire for the last seven-eight years. A VRS scheme – around Rs 8,000 crore for both -- will be critical to the functioning of both as employee expenditure stands at around 99% of revenues of MTNL and 50-55% of revenues of BSNL.

The PSUs also lag their peers in 4G services, despite mobile users latching on to the new technology rapidly. Both the firms do not have any 4G spectrum and are awaiting government nod for allotment via an equity infusion. This would mean another Rs 12,000-13,000 crore infusion of funds for both firms through bonds.

Unless immediate corrective steps are taken, the survival of both PSUs is a big question mark. It remains to be seen whether the new government will be willing to pump a huge amount of funds for their revival, without any returns.