How BSNL can turn around its fortune post Rs 1.64-trn govt package

The company must overcome poor technology decisions imposed on it and bridge the gap with private sector competitors

Just a few weeks ago, Communications Minister Ashwini Vaishnaw did some tough talking with the senior managers of Bharat Sanchar Nigam Ltd, the ailing state-owned telecom service provider. The message was clear: They had to perform, quit by taking the voluntary retirement package or be compulsorily retired from service.

The terse message from an otherwise polite and soft-spoken minister came just days after he announced a second and bigger package of Rs 1.64 trillion as part of a four-year turnaround plan for BSNL. Vaishnaw has made a big bet, some would say a risky one, with a company saddled with losses of over Rs 50,000 crore.

The package, which includes a cash component of Rs 44,000 crore, includes converting aggregate adjusted gross revenue (AGR) dues to equity, issuance of long-term bonds with sovereign guarantees, administrative allocation of 4G spectrum, viability gap funding, and financial support for the deployment of a 4G stack.

This package comes three years after the government shelled out Rs 69,000 crore focused on VRS, asset monetisation and fresh equity infusion and money for 4G service (Rs 24,000 crore was earmarked but not used). The VRS helped in as much as BSNL was able to cut its wage bill by almost half.

At a press conference after the cabinet approved the package, Vaishnaw defended the decision. He described BSNL as a “big turnaround story” — it has made an operating profit, customer attrition has stopped, and it has a stable 10 per cent market share. Net profit would follow once revenue improved and the balance sheet was restructured. He predicted that the company would become profitable by 2026-27.

The question is whether the minister’s prognosis is correct or those of industry analysts, who suggest that like Air India, the government is throwing good money after bad. Eventually, they say, the government will have no choice but to sell at rock-bottom rates.

So, is BSNL going the Air India way? A large part of the problem lies with the government. First, it crucially delayed BSNL’s tryst with 4G by not giving the company a choice to decide on the best available technology. Instead, many competing telcos say it used the company as a lab to experiment with “indigenous technology” despite opposition from BSNL.

The result was a delay of over two years (a firm date for a limited launch eludes it still) when tougher and more savvy competitors are preparing for a 5G launch in a few weeks.

Indigenous technology is not necessarily a bad choice in itself. Reliance and Bharti Airtel (with TCS) are doing the same by developing their own 4G and 5G core and radios on open radio access network (ORAN). Bharti executives said they think it will take another two years for the technology to mature and they will continue to test the waters.

But for the 5G launch the telcos have relied initially on incumbent time-tested global gear makers such as Ericsson, Samsung and Nokia to build the networks. Once the ORAN technology stabilises, the two will explore a hybrid model. That is what BSNL should have done for 4G, analysts pointed out. Yet Vaishnaw has clearly told the BSNL top brass that they should forget about foreign telecom gear makers.

This apart, he has also set some stiff targets: doubling BSNL’s subscriber base by offering 4G and 5G services to 200 million.

But BSNL’s visitor location register (VLR) — which reflects the percentage of active subscribers — is a mere 51.81 per cent, the lowest in the industry (the average is over 88 per cent). That means it has only 58 million active subscribers or just over 5 per cent share of the total active mobile subscriber base in the country. Its share of revenue is also pegged at similar levels. While all other players have cleaned up subscribers who do not pay, BSNL has carried them on in their books, impacting average revenue per user (ARPU).

Two, to double subscriber numbers is a tall order, especially when the competition is launching 5G services to upgrade their 4G users soon. And the overall market is maturing, so it’s growing marginally.

Of course, BSNL can woo the 400 million 2G customers and Vaishnaw is right in saying that despite 5G, 4G will still be the mainstay for some time to come. But as analysts point out, there is little reason for subscribers to junk their existing service providers unless BSNL offers a winning proposition. Besides, it is not as though BSNL can leverage a large rural subscriber base either — its market share here is just 7.38 per cent (as of December 2021), the lowest among competitors.

In a business where technology gives the competitive edge and any delay could be a killer, BSNL suffers exactly from this problem. And for this one, you cannot blame only company officials. In March 2020, BSNL floated a tender for 50,000 4G base transceiver stations (BTS) after its proposal to upgrade its existing BTSs to 4G was shot down. If things had happened on time it would have had a vibrant 4G network up and running and would not have seen the erosion of its revenues.

But the story did not end there. Almost immediately after, BSNL found itself facing a controversy. After the Telecom Equipment and Services Export Promotion Council complained that there was nothing in the contract for domestic manufacturers, the government cancelled the contract.

What followed was a series of twists and turns — the country’s top think tank NITI Aayog advised the telecom company to go for an indigenously designed, developed and manufactured 4G network despite opposition from BSNL that it does not have the money and time for experimenting and the products should be ready for use since no one had proven technology. Various Indian companies such as Tech Mahindra and TCS also joined in and the Centre for Development of Telematics (C-DoT) said it had its core 4G technology ready for transfer.

In January this year, after many trials and tribulations, an e-tender was floated for planning, testing, deployment and annual maintenance in four operational zones apart from Delhi and Mumbai circles. Four operators had shown initial interest to undertake the proof of concept, but all backed out except one. In April this year, a consortium led by TCS got the Rs 550-crore order to deploy 4G gear in only 6,000 sites.

But the problem isn’t over: Now, there are reports of a dispute on price. On the other hand, the three private operators are planning to launch 5G in six to eight months to be available in at least top 10 cities with reasonable cover powered by 30,000 sites.

Many experts say that a more sensible approach would have been for the government to push BSNL to focus on 5G, and work closely with an indigenous ecosystem around that rather than spend effort on 4G technology, which is available off the shelf.

That might be a contrarian view. But Vaishnaw has said that the company should roll out both 4G and 5G in parallel. And whenever the technology by C-DoT for 5G is ready, it should start integrating these radios with 4G. So BSNL has to bridge the technology gap with its competitors at warp speed — or perish.