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The offices of Bharat Sanchar Nigam, India’s state-run fixed-line operator, bear all the physical hallmarks of a slow-moving public-sector monopoly.

The shabby furniture, desks in disarray, threadbare carpeting, and employees who appear to have no discernible duties, give a visitor the impression that the century-old telecoms behemoth has no intention of venturing beyond its stronghold in the fixed-line market, in which it has an 85 per cent share.

The perception would be misplaced. BSNL, formed by the corporatisation of the Department of Telecom Operations in 2000, may not have the slick panache of private-sector telecom operators, such as Reliance Infocomm or Bharti Tele-ventures_which recently received a high-profile investment from the UK-based Vodafone. But BSNL is seriously challenging them in the cellular and broadband sectors.

Realising that fixed-line growth has come to a standstill, BSNL has begun aggressively courting wireless and broadband customers. It hopes to add 60m mobile phone lines over the next few years, and has signed up 310,000 broadband users less than a year after launching the service. This compares with Bharti’s estimated 250,000 household subscribers.

This year the company has spent US$3.3bn across its service areas.

“BSNL came in as the underdog. They started on a pan-India basis, and didn’t start in the big cities,” said Kobita Desai, a senior analyst with Gartner Research. “Fantastic coverage is what they did.”

One of India’s largest public-sector companies, BSNL generated revenues of US$7.9bn in the fiscal year ended March 31, 2005, a 6 per cent increase over the previous year. Net profit was US$2.2bn. The company expects revenue to grow 2-3 per cent.

BSNL operates throughout the country except for New Delhi and Mumbai. It could have comfortably continued to focus only on its fixed line business - with its marginal net subscriber growth of about half a million users each year - particularly since as a 100 per cent government-owned company it would be fulfilling its social mandate of expanding coverage into rural areas.

Instead, the telecom operator introduced its mobile phone service in 2002 and has become the country’s number three cellular operator with 13.3m subscribers. Bharti’s Airtel platform and Reliance Infocomm each have about 15.5m customers.

“The whole world is moving towards mobile telephony,” Anil K Sinha, BSNL chairman and managing director, says. “The requirement of the day is that we increase revenues by entering fields which will be the future.”

Two years ago, the company’s fixed-line business made up about 95 per cent of its revenues and the cellular component 5 per cent.

The wireless portion doubled to 10 per cent in the 2004-2005 fiscal year. The company expects mobile phone revenue to grow to 14 per cent of the total for the 2005-2006 fiscal year, and about 20 per cent for the following year.

BSNL is issuing a US$4.5bn tender for 60m GSM mobile phone lines, one-quarter of which will be reserved for its coming 3G service. The move, which would nearly double the number of mobile phone lines, seems ambitious even by Indian standards.

India is the world’s fastest-growing cellular market. There are some 67m subscribers, with more than 2m being added each month.

Mr Sinha says he is not worried BSNL will trigger a price war by adding the new lines, as average revenue per user (Arpu) is already on a downward trajectory. It fell to Rs390 (US$8.50) in June from Rs411 in March, a 3 per cent decline.

“Once penetration trickles toward the rural side, Arpus will fall,” Mr Sinha says. “It’s a numbers game. We will increase the numbers and revenues will rise.”

For an Indian public sector enterprise, BSNL is also showing uncharacteristic competitiveness in its plans to launch a fibre-to-the-home broadband service. The move should allow BSNL to hold its leadership position in residential high-speed internet services. State-run Mahanagar Telephone Nigam, which operates exclusively in Delhi and Mumbai, has about the same number of subscribers as BSNL.

BSNL’s success is not entirely due to its own initiative. As a state-owned company, it has had access to a government fund, to which other telecom operators must contribute, aimed at improving services in the rural areas.

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