Rational Expectations: Sacrificing BSNL at Atmanirbharta altar

Given that the government cleared a Rs 70,000-crore rescue package for BSNL-MTNL—add another Rs 27,000 crore for the 900MHz spectrum renewal costs—just a year ago, it probably means it is serious about the two telecom PSUs surviving. Never mind that the bailout package is hopelessly ambitious (bit.ly/37RG394) as a result of which there will probably be another few bailout packages later. While BSNL’s revenues fell 45% in four years from FY16 to FY20 (see graphic), the revival packages assumes they will rise 90%, from Rs 18,000 crore in FY20 to Rs 34,270 crore in FY24; indeed, while the revival plan assumed an income of Rs 21,338 crore in FY20, the maximum revenue in that year is likely to be Rs 18,100 crore if you just double the first half’s reported revenue of Rs 9,034 crore. Even more worrying, however, is that even after coming out with such a generous bailout package—BSNL has 165,000 employees and MTNL 22,000—the government seems to be doing its best to ensure the PSUs don’t survive; indeed, no lessons seem to have been learned from the 2000s when BSNL’s lack of mobile phone capacity led to its steady downfall in even rural India.

After the continuing hostilities with China, the government decided that Chinese firms would not be allowed to participate in BSNL’s 4G tender even though they are among the most competitive globally. Whether this was akin to cutting off your nose to spite your face is not clear, but even if the cost was worth bearing—ideally, the government should bear the cost, not BSNL—the government made BSNL cancel its tender; even though it could well have been executed by non-Chinese equipment vendors like Nokia and Ericsson.

And if this wasn’t bad enough, the government then decided to foist its Atmanirbhar Bharat agenda on BSNL. So, instead of issuing a tender for setting up a 4G network to a well-established telecom equipment vendor, a mix-and-match plan was conceived. Rather than giving a turnkey project to a Nokia or an Ericsson, the government felt, why not buy individual parts of the network from different vendors and then put it all together; in the context of a PC, this is akin to not buying a readymade one from a Dell, but instead buying the chip from one firm, the transistors from another, the display unit from someone else, etc. The reason few people assemble their own PCs, of course, is that few of us are computer geeks, we’ve never put together a computer together and, if something goes wrong—as it will—we want to be able to hold someone responsible and, more important, to be able to set things right quickly.

That someone else, according to the new plan, can be a software company, for instance, that has the capability of putting it all together. Theoretically, it is possible that this solution may be cheaper, and it has the added advantage that even smaller Indian firms can now hope to bid for some parts of BSNL’s tender.

The point, however, is that the solution has hardly ever been tried, least of all by a firm of BSNL’s capabilities; and the possibly lower costs of the new method—assuming it works without a glitch—are far outweighed by the likely loss in revenues from BSNL not having equipment to service potential 4G customers.

Unless the whole world is made of stupid people, this is the same reason why firms buy computers from well-established brands instead of trying to put it together themselves.

RJio, it is true, banked on a whole new architecture when it developed its 4G network, but it is a firm that has almost unparalleled technical and execution capability; that is also why RJio is planning on developing its 5G network on its own while even established players like Bharti Airtel and Vodafone Idea are not. Whose grand idea was it to make BSNL a sacrificial lamb for both atmanirbharta and new technologies? If things failed in RJio’s case, its shareholders would have taken the hit, in the case of BSNL, it will be the hapless taxpayer.

BSNL’s torture, as this newspaper has reported (bit.ly/34DHhmk), doesn’t stop even here. The government set up a technical committee on BSNL’s tender—apparently, the PSU is not considered competent enough to do this on its own!—and one of the suggestions made by the committee is that “BSNL should migrate all its subscribers to 4G as 2G service are expected to go down significantly”, to quote from BSNL’s letter of protest. Around 70% of BSNL’s customers are on 2G, and the committee wants the PSU to migrate them all to 4G. Nor is this just a suggestion which BSNL is free to disregard since, as its letter says, “no 2G equipment is being recommended to be purchased by the committee” and “this would put a big revenue stream of BSNL at risk”.

It is true 4G customers pay more—RJio has an average revenue per user (Arpu) of Rs 140 per month—but it is not clear how many 2G customers have the ability to migrate; keep in mind the average BSNL customer spends just `50 per month right now. Indeed that is also why, while RJio’s Mukesh Ambani talks of a 2G-mukt Bharat—Rjio’s entire network is a 4G one—none of the others like Bharti Airtel or Vodafone Idea are looking to shut down their 2G operations in a hurry.

Indeed, if 2G subscribers are to be migrated to 4G—assuming they will be ready to pay the higher monthly bills that 4G networks require to break even is, as yet, an untested proposition—the immediate issue will be the cost of the handset; RJio subsidised the JioPhone and, presumably, will do the same with the low-cost smartphone it is working on with Google. Who is going to do that for BSNL? Even if taxpayers are going to be asked to shell out more, surely the 2G network can’t be shut down overnight?

Given how BSNL’s costs have been underestimated—just Rs 15,000 crore of capex has been assumed for 4G while even a modest network will cost more than double that amount—and revenues over-projected, it is likely that shutting down BSNL is a cheaper solution than keeping it going. But no government would like to be the one to sack 165,000 persons, so the bailout package is understandable. But, at least, let BSNL function, why saddle it with more costs and unproven technology solutions?