News

MERGER OF BSNL AND MTNL

Written by Talent KAS

Related Topics: Mergers and Acquisitions, Telecom Sector

News

  • Union Cabinet approved a package worth nearly ₹70,000 crore in an effort to revive the state-owned telecommunication companies Bharat Sanchar Nigam Ltd (BSNL) and Mahanagar Telecom Nigam Ltd (MTNL).
  • The Cabinet, chaired by Prime Minister also gave an in-principle nod for the merger of the two entities.
  • Both the companies are reeling under the pressure of mounting losses and increasing competition in the sector.
  • MTNL provides telephony services in Delhi and Mumbai, while BSNL is present in the rest of the circles in the country.

Package approved by the Cabinet

Administrative allotment of spectrum for 4G services to BSNL and MTNL

  • The Spectrum will be funded by the Government of India by capital infusion in these PSUs at a value of Rs 20,140 Cr.
  • In addition, the GST amount of Rs 3,674 Cr to this spectrum value will also be borne by the Government of India through Budgetary resources.
  • By using this spectrum allotment, BSNL and MTNL will be able to deliver 4G services, compete in the market and provide high speed data using their vast network including in rural areas.

Debt restructuring by raising of bonds with sovereign guarantee

  • BSNL and MTNL will raise long-term bonds of Rs 15,000 Cr for which sovereign guarantee will be provided by the Government of India (GoI).
  • With the said resources, BSNL and MTNL will restructure their existing debt and also partly meet CAPEX, OPEX and other requirements.

Reducing employee costs

  • BSNL and MTNL will offer Voluntary Retirement to their employees, aged 50 years and above through attractive Voluntary Retirement Scheme (VRS), the cost of which will be borne by the Government of India through budgetary support.
  • The ex-gratia component of VRS is expected to entail an additional Rs 17,169 crore, and the details of the scheme will be finalised by the two companies shortly.
  • BSNL and MTNL put together have employee base of around 90 lakh employees (1.68 lakh and 22,000), and around 50 per cent of the total employees are eligible for the VRS.

Monetisation of assets

The two companies will monetise their assets worth Rs 38,000 crore so as to raise resources for retiring debt, servicing of bonds, network upgradation, expansion and meeting the operational fund requirements.

In-principle approval of merger of BSNL & MTNL

  • An immediate merger will not be feasible, given that MTNL is a listed entity.
  • Till the time the process is completed, MTNL will work as a subsidiary of BSNL.

Current Financial Position

Significance

  • BSNL and MTNL are strategic assets of India.
  • They are most cooperative in situations of natural calamities and disasters.
  • The entire Army network is managed by BSNL.
  • Most of the bank networks are also managed by BSNL.
  • They are neither being closed or disinvested or hived off to a third party. By merger, the government intends to make these companies competitive and bring in professionalism.

Background

  • The revival package for the two PSUs comes at a time when the telecom sector is facing financial stress due to stiff competition and reduction in tariffs.
  • The competition in the mobile segment, high employee costs and absence of 4G services (except in a few circles for BSNL) in the data-centric telecom market has progressively eroded the competitive strength of BSNL and MTNL.
  • BSNL has been reporting losses continuously since 2009-10. The loss is estimated to surge to Rs 14,202 crore in 2018-19, according to information presented in Parliament.

[Source: PIB, The Hindu, Indian Express]

 

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Talent KAS