August 2, 2010 5:35 pm

Fixed lines weigh heavily on India’s BSNL

  • Share
  • Print
  • Clip
  • Gift Article
  • Comments

Prospects for an initial public offering of Bharat Sanchar Nigam took a heavy blow at the weekend when the Indian state-controlled telecoms company revealed record losses.

In spite of operating in the world’s most rapidly growing telecoms market, BSNL is failing to match the pace of demand growth and is struggling against fierce competition from nimbler mobile operators such as Bharti Airtel and Vodafone.

BSNL’s poor performance highlights the difficulties faced by state-owned companies that are failing to make money when the Indian economy is growing at 8.5 per cent.

It also highlights a dilemma faced by the Congress party-led government, which is unable to stem the deteriorating fortunes of public utilities as it tries to attract the highest price in partial sales of state assets to help reduce the widest fiscal deficit for 20 years.

The largest fixed-line provider in India suffered a net loss of Rs18.2bn ($395m) for the fiscal year 2009/2010. The company blamed reduced revenues and higher expenditure on wages as the reasons behind its dismal performance.

Revenues have fallen on the company’s fixed-line business and management is reluctant to take tough decisions to reduce a high cost base. A highly politicised 300,000-strong workforce makes implementing change difficult.

BSNL revenues dropped 10 per cent last year to Rs320bn. In the coming year, the company forecasts a return to profit and revenues of Rs340bn.

One Mumbai-based analyst said: “Revenues are going down but expenses are going up. BSNL’s employees per line [ratio] is 18 to 20 times higher than Bharti Airtel, and this is a highly unionised workforce.”

In 2008 the government was pushing ahead with listing BSNL in what was billed as the country’s first large privatisation since the Congress party-led government came to power in 2004.

BSNL then wanted to offload a stake of 5-10 per cent in a deal that valued the company at an estimated $100bn. But since then, BSNL has failed to make the best of a head start with 3G services that give users improved access to the internet and allow them to download music, videos and other value-added services.

Remedies were sought but rejected by the government.

One option was to split the fixed-line business from the more rapidly growing service operations, and float the latter on an Indian stock exchange.

Some analysts now predict that BSNL faces a debt crisis similar to the National Aviation Company of India, which runs lossmaking Air India, the national carrier. Nacil, weighed down by high fuel and staff costs, had losses of Rs54bn in 2009.

Mritunjay Kapur, managing director of Protiviti, a telecoms consultants,said: “With more competition and associate services and operators spreading to rural areas where BSNL enjoyed much of the market, there is more competition.

“This loss is a small sign of what lies ahead. BSNL needs to readjust.”

Any commitment to an IPO has weakened. Kuldeep Goyal, BSNL’s outgoing chairman, at the weekend blamed lack of progress towards a listing on employee opposition to a part-privatisation.

BSNL, which has about 100m telephone subscribers, enjoyed a near monopoly in India until the early 1990s.

Alongside MTNL, which services Mumbai and New Delhi, BSNL had a stranglehold on the country’s telecoms. Today, it is the largest fixed line operator, and the second largest mobile telephone network.

Earlier this year, a government telecoms review panel headed by Sam Pitroda, a technology adviser to Manmohan Singh, prime minister , had recommended a strategic stake sale and staff cut by a third to revive the company’s flagging fortunes.

Additional reporting by Girija Shivakumar in New Delhi

Related Topics

Copyright The Financial Times Limited 2015. You may share using our article tools.
Please don't cut articles from FT.com and redistribute by email or post to the web.

  • Share
  • Print
  • Clip
  • Gift Article
  • Comments

NEWS BY EMAIL

Sign up for email briefings to stay up to date on topics you are interested in

SHARE THIS QUOTE