In today's Finshots we ask the most pressing question – Why does the government need BSNL?

The Story

Last week, the government rolled out a new revival package worth a whopping ₹1,64,000 crores for state-owned telco BSNL. They want to breathe new life into the loss-making, debt-riddled, almost comatose company. And they hope that this will help BSNL pare down debt and build out its 4G network so that existing subscribers don’t flock to its rivals.

But the government did something very similar just a couple of years ago, no?

Back in 2019, they announced a revival plan with a massive investment of about ₹69,000 crores (for both BSNL and MTNL). So before we unpack the new program, maybe it makes sense to take stock of progress from last time around, right?

Well, let me be blunt in that case. There’s some good news and there’s some bad news. The good news is that BSNL’s financial performance has improved considerably with the added financial support. During the financial year 2020–2021, the company cut down its losses by about 50% and turned EBITDA positive after a gap of 3 years.

What does that actually mean?

Well, during 2019–2020, the company posted a loss of nearly ₹15,500 crores. During the subsequent year, however, i.e. FY 2020–2021, they posted a loss of just ~₹7400 crores. They cut down their losses by half.

But there’s more. If you took the revenue and the operational expenses but ignored everything else, like interest cost, taxes, and depreciation of assets, then you’d see that they actually turned a profit i.e. BSNL was EBITDA positive.

But that’s where the good news ends.

Everything else you read from here on is a bit bleak.

For starters, let’s look at how BSNL actually managed to cut down its loss in half. In exchange for financial support, BSNL had to cut down on its massive wage bill. The company spent around 70% of its expenses only on salaries while other telcos spent only around 5%. So the plan was to reduce this wage burden by getting people to retire early — a voluntary retirement scheme if you will.

And it worked. Nearly 50% of BSNL’s staff signed up for the scheme and the wage bill dropped — from ₹13,600 crores to nearly ₹6,600 crores. Unfortunately, BSNL overplayed its hand. They soon found out that they had a staffing issue. There weren’t enough people to man telephone exchanges and manage operations. So they had to hire a few employees back on a contractual basis to keep the ship running.

Second, there was a plan to monetise a few company assets — primarily land parcels. To this end, they offered 13 land parcels in Phase-I and 24 land parcels in Phase-II at an estimated value of ~₹23,800 crores.

But here’s the thing. BSNL didn’t own some of this land at all. The land belonged to the Department of Telecommunications. Granted, you could argue that the central government could somehow still make the sale happen, but state governments also have some say in the matter. In one instance, BSNL identified 8 prime locations in Chennai as part of the monetisation program. However, the state government objected to the scheme citing that BSNL did not have the legal authority to sell the land since it was only offered to the company for a very specific purpose.

So there’s that.

Third, the financial improvements were primarily in the profit and loss accounts. Revenues meanwhile have dipped — from ₹17,880 crores to ₹17,450 crores.

Why did this happen?

Well, because of a visible dip in income from broadband and fixed line revenues. See, the company has been lagging behind its competitors for some time now. While Jio and Airtel were making massive strides in offering 4G services, BSNL was still stuck in the 2G era. So the government had to do something. And they intervened by promising to give away the 4G spectrum license. BSNL did not have to pay a penny. Unfortunately, despite this act of benevolence, BSNL 4G hasn't taken off.

Why?

Well, for starters the government delayed the 4G allocation program. They never got around to it. And BSNL meanwhile was dealing with its own issues. Since they had to build out the necessary infrastructure to enable 4G,  they opened tenders for companies to participate in this program. However, they set such lofty parameters for companies to qualify, that barely anybody made the cut. This delayed progress some more.

And finally, the financial performance would have looked pretty grim if you didn’t include all the financial support that the government has extended so far.

They bankrolled the voluntary retirement scheme, because BSNL didn't have the money for it. They gave away (or promised to give away) spectrum licenses worth billions. If they transfer land and other buildings to BSNL, that’ll show up as a profit, but it isn’t BSNL’s own doing.

So you have to ask — “Why is the government spending all this money to keep BSNL alive?”

Well, because it’s necessary. BSNL connects the most remote parts of India. It powers many government-run facilities. And it’s the telecom operator of last resort. If private companies flounder, BSNL is the only alternative there is. The government can’t let it sink. And in some ways, they believe that this is a cost that they must bear for national security reasons.

And that means the only way to optimize outcomes here is to move onwards — somehow get BSNL to stay competitive amongst the likes of Airtel and Jio.

So that’s why the government had to set aside another ₹1.64 lakh crores to revive the company.

Until next time…

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