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BSNL: Missed targets, new strategies- BSNL has slipped to fifth position with 87.57 million subscribers

Wednesday, 12 November 2014

 

 

In September 2014, Jammu & Kashmir faced one of the worst floods in decades. Lives were lost and families stranded even as the state lost most of its telecom and network connectivity. For instance, 6,811 of the total 12,306 base transceiver stations (BTSs) in Jammu & Kashmir were submerged and the electronic equipment in these stations severely damaged. Within days, however, Bharat Sanchar Nigam Limited (BSNL) was able to partially restore its mobile coverage in the state, which was a great help to the flood-affected inhabitants. It also distributed 5,000 free SIM cards in parts of the Kashmir Valley without asking for any ID proof so that people could communicate free of cost for a week. A month later, employees of the state-run company are still working to restore broken communication links with the help of the armed forces in different parts of the state.

BSNL has the most widespread telecom network in the circle, with extensive infrastructure being its biggest strength. An integrated telecom operator, it offers a range of services, including wireline, CDMA mobile, GSM mobile, internet and broadband, carrier services, MPLS-VPN, VSAT, VoIP and fibre-to-the-home (FTTH). It has an optic fibre cable (OFC) network of about 650,000 km across the country, which is significantly larger than that of any other pan-Indian player. It also has a wide network of copper wires and tower sites that covers almost all populated villages in the country through public telephones, and GSM services that are available in over 350,000 villages. BSNL also offers connectivity in remote areas like the Siachen Glacier as well as in inaccessible areas of Madhya Pradesh, Himachal Pradesh and the Northeast. Its 3G services are available in more than 2,300 cities and towns of India.

Despite this widespread reach, the PSU has not been able to keep pace with its private sector rivals, with government interference and control often preventing expansion and modernisation. Today, when other operators have raced ahead in upgrading their networks and increasing subscriber numbers, BSNL has struggled with an acute capacity crunch that has led to a steady financial drain. The operator has not posted profits in the past five fiscal years while the revenue from its operations has dropped by 11.67 per cent in the past three years. Its losses for the 2013-14 fiscal stood at Rs 78.84 billion. It is under pressure in all business segments at present, excluding internet and broadband, and rural telephony.

In the mobile segment, BSNL has slipped to fifth position with 87.57 million subscribers as of August 2014, after Bharti Airtel (210.53 million users), Vodafone India (172.49 million), Idea Cellular (141.83 million) and Reliance Communications (109.65 million). In the wireline segment, in which it still has a 65 per cent market share, the news is even more dismal. As of August 2014, it had 17.49 million users, far removed from the figure of 40 million three years ago.

Need to improve

BSNL has been rationalising costs of late and is considering steps like sharing infrastructure with private telecom operators to improve its financials. “BSNL and Mahanagar Telephone Nigam Limited (MTNL) are in financial distress. They are faced with declining revenues because of reducing market shares, increasing expenditure and the inability to invest in network expansion,” said IT and telecom minister Ravi Shankar Prasad in the Rajya Sabha.

In August 2014, admitting the need to revive these ailing PSUs, Prime Minister Narendra Modi announced that fresh investments of Rs 394.58 billion would be made in BSNL and MTNL over the next five years. Besides waiving a loan of Rs 14.11 billion, the government paid Rs 67.24 billion to BSNL for surrendering broadband wireless access (BWA) spectrum.

Apart from these measures, the government is formulating a coordinated revival plan for BSNL and MTNL by addressing issues related to employee expenses and utilisation of assets to enhance the availability of finances for network expansion and improve the quality of service. In September 2014, Prasad also urged the finance ministry to expedite the process of refunding an income tax payment of Rs 70 billion to BSNL.

Merger talks revived

After years of debating the issue without reaching any conclusion, the Department of Telecommunications (DoT) has set mid-2015 as the deadline for the merger of BSNL and MTNL. While the ailing PSUs together could offer strong competition to private telecom players with combined infrastructure to their advantage, the merger itself is not going to be easy. Their huge workforces and opposing labour unions will pose a serious impediment. BSNL currently has 350,000 employees and MTNL around 40,000; huge numbers compared to Bharti Airtel, which has only 15,563 employees.

The DoT has a worked out a schedule for the proposed merger. It has instructed the human resource (HR) managers of both companies to engage with employees and find solutions to their concerns. As per the DoT’s timelines, the HR departments have to prepare a final report by January 2015 before consultations with employee unions are held in March. Thereafter, a note for the cabinet’s consideration will be drafted by end-April 2015.

Meanwhile, the DoT is reportedly considering either delisting MTNL and then merging it with BSNL, or listing the latter and finalising the merger swap ratio based on the valuation of the two telecom companies. Analysts, however, feel that delisting MTNL is the more likely option.

Plan of action

Towers: To boost revenue flow, BSNL intends to cash in on its countrywide tower assets. The operator has 61,622 mobile towers, the second largest tower portfolio among all telecom companies. A sizeable chunk of its tower assets is also colocated with landline exchanges to meet business needs. However, it currently earns less than Rs 1 billion annually by leasing only 3,000 towers. It, therefore, makes sense to increase this number and share more of its infrastructure with private operators. Keeping this in mind, BSNL has increased its revenue target for the next five years to Rs 16 billion.

Recently, Reliance Jio Infocomm Limited (RJIL) signed a deal with BSNL for leasing around 4,000 mobile towers. According to the deal, BSNL will be offering a base rate of Rs 38,000 per month for ground-based towers and Rs 24,900 per month for rooftop-based towers. Even though BSNL will offer rates at a discount of 5 per cent if RJIL commits to leasing at least 1,500 towers in the first year, it is still a good deal for the operator. The government has also initiated the process of hiving off BSNL’s tower assets into a new company, which will help the operator realise the value of its infrastructure.

Sale of property: The DoT recently sought the approval of a group of ministers (GoM) to monetise a part of BSNL’s land bank, which is valued at Rs 134.39 billion (based on circle rates). The operator has one of the largest land banks among state-owned firms, with properties across 3,500 towns.

The DoT, in its note to the GoM, stated that BSNL had already identified 82 land parcels across the country for monetisation through partnerships with private companies. In the first phase, it requested approval for 10 parcels as a pilot project. According to the note, BSNL is likely to earn Rs 34.25 billion on an absolute basis and Rs 26.09 billion on a net present value basis after applying a discounting factor of 12 per cent, with land being valued at applicable circle rates. However, the actual gain for BSNL is expected to be much higher. The PSU is also hoping to raise Rs 5 billion by offering its telecom factories to contract manufacturers.

Challenges

According to BSNL officials, 2014-15 is a transition year as the company undertakes a major overhaul of its operations and upgrades its networks. The operator is also looking to provide 4G services by March 2015.

Analysts say that this transition has been long overdue. “BSNL needs to revisit its strategies and look for new avenues of operational and revenue growth. Its financial deterioration is a result of poor management,” says a senior telecom analyst at KPMG.

The company’s operations are affected by a bloated workforce, an excessively bureaucratic structure, and a lackadaisical attitude when it comes to making decisions. This has pulled down the operator’s performance significantly from 2006, a high point when it had an 18 per cent market share and a mobile customer base of 26 million.

In order to remain competitive, BSNL needs funds, but it faces the limitations of being a PSU. This has made it incapable of putting up a sustained defence against private telecom operators. For instance, in 2013, the cabinet had cleared a refund of over Rs 110 billion for BSNL and MTNL for their surrendered BWA spectrum but the Telecom Commission refunded only Rs 1 billion in 2014-15.

Market experts say that BSNL needs to focus on improving its customer relationship management and quality of service to be competitive. At the moment, both are relatively poor. While BSNL is trusted for its transparent billing, lack of hidden costs and minimal pesky marketing calls, the operator has not focused much on the sales and marketing aspect of the business, unlike its private peers.

The company needs to step up its marketing efforts. To begin with, it should at least have a user-friendly, up-to-date website. Though the main website has now been revamped, its circle websites have a dated look. It also needs to use social media accounts for brand-building through web advertisements, newspaper advertisements, etc.

As a telecom analyst from Anand Rathi points out, “BSNL’s services are as good or bad as any private player’s. However, it is probably the only operator with the lowest density of retailer network. This makes it difficult for users to get a top-up or recharge done. On the other hand, recharges for private operators can be done at almost every corner shop. BSNL needs to strengthen its dealer and franchisee network.”

Experts believe that BSNL should leverage its extensive infrastructure better, particularly its wireline network. It has a large fibre-based network covering every block headquarters at the gram panchayat level across villages. Plus, unlike other players, the operator has access to right of way for rolling out telecom services covering major parts of the country, and it should make this available on a commercial basis to private operators.

Analysts also recommend the establishment of separate subsidiaries for telecom network infrastructure and land development. That way, BSNL can continue operating as a services and marketing company, while the infrastructure firm can take over operations related to towers, networks and technology. Likewise, the land development arm can manage and monetise land assets in phases. This would enable BSNL to operate as a leaner organisation and focus on its core competency of being a telecom service provider. The government is currently considering separating BSNL’s tower assets into another company.

According to Harish Bijoor, brand expert and CEO, Harish Bijoor Consults, “BSNL should look at completely reinventing its landline business. Although the company has been operating a strong OFC network for years, it only recently started providing high speed broadband services through this infrastructure. This, though, is set to change. Over the next two years, BSNL is planning to convert over 100,000 BSNL landline exchanges into IP-enabled next-gen variants for supporting high speed broadband services. The thrust on wired broadband is aimed at leveraging BSNL’s landline assets to boost data services and, in turn, offset a portion of the losses suffered by its landline business.”

Current operations and the way forward

For the year 2014-15, BSNL is planning a capex of Rs 51.32 billion. It is targeting the addition of 10 million GSM lines, 3 million broadband connections and 20,000 route km of optical fibre.

BSNL will also be enhancing the capacity and coverage of mobile services by adding about 28,300 new mobile sites. According to Prasad, “To improve coverage and data speeds, BSNL is augmenting its network by adding 10,502 IP-based new Node Bs (3G antenna) and 14,263 BTSs (generally for 2G) in the network as part of the Phase 7 expansion plan.”

BSNL is also incorporating changes in its network to enhance 3G download speeds by about six times. “It is committed to providing 3G coverage to additional towns this year,” notes A.N. Rai, chairman and managing director (additional charge), BSNL.

Broadband is to be the company’s key thrust area going forward. During the current financial year, BSNL expects to increase its broadband connections across the country by 25 per cent. The operator already has a comfortable lead in the broadband segment with a 65.6 per cent market share as of June 2013. It has set up a world-class, multi-gigabit, multiprotocol convergent IP infrastructure that supports convergent services like voice, data and video. This fits in well with the government’s agenda as broadband connectivity is an important aspect of infrastructure development, particularly in transforming education, health, governance and trade.

BSNL’s presence in the rural broadband space will increase with the implementation of the National Optical Fibre Network (NOFN) project, under which it plans to focus on providing WiFi hotspots and mobile wallet and mobile governance services. NOFN is a priority project for the government and will connect 0.25 million gram panchayats across the country with optical fibre for offering 100 Mbps broadband services. The DoT has asked the three PSUs, BSNL, RailTel and Power Grid Corporation of India Limited, to expedite work and complete the project by March 2016.

The government’s bailout efforts are good for the operator. BSNL needs to focus on long-term sustainability by increasing revenue potential, identifying business opportunities and restructuring the organisation. However, it will need to grow into a customer-centric company with expertise in marketing and customer services delivery to beat the competition.

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