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Corporate Jan 1, 2013

Telecom PSUs want to sell Rs 11,000 cr spectrum back to govt

By Sindhu Bhattacharya

New Delhi: The finance minister wants to earn more from spectrum auctions, but there are some players who think they should return the excess spectrum they hold and obtain a refund.

Bharat Sanchar Nigam Ltd (BSNL) and Mahanagar Telephone Nigam Ltd (MTNL), the two loss-making public sector telecom companies,are encouraged by the fact that Air India has been given Rs 30,000 crore of bailout funds.

They have sought a refund of a little over Rs 11,000 crore in lieu of the broadband wireless access (BWA) spectrum they have been unable to use. BSNL is seeking Rs 6,725 crore as refund while MTNL wants Rs 4,534 crore back. They got the spectrum in 2010 at the highest prices bid in the auctions.

Last week, the the Department of Telecom (DoT) began circulating a draft Cabinet note on this issue. Reuters

According to a written reply by Minister of State for Telecom Milind Deora in the Lok Sabha, BSNL and MTNL paid Rs 18,500 crore and Rs 11,098 crore respectively as upfront spectrum charges for 3G and BWA spectrum.

Neither company wanted to acquire BWA spectrum in the first place, but the government forced their hand and now both are saddled with debt which was taken to complete spectrum payments.

Last week, the the Department of Telecom (DoT) began circulating a draft Cabinet note on this issue. Earlier, the issue was put up for consideration before the Empowered Group of Ministers (EGoM) but the issue was referred to the Cabinet.

Official sources told Firstpost that there have been some misgivings on the issue within DoT. "What if private telecom operators take this as a precedent and similarly seek money by returning spectrum which they don't want. We don't want to set a precedent. But then, we have to support telecom PSUs since these two companies conduct crucial functions......some formula (for return of their investments in spectrum) needs to be worked out. We are seeking comments from all stakeholders right now," sources said.

BSNL and MTNL are frontrunners in implementing the government's Bharat Broadband Scheme and in offering connectivity to remote areas. Besides, the government itself has been partly responsible for their slide into the red.

BSNL declared Rs 10,183 crore in profits in 2004-05 but profits began to slide thereafter and it reported a loss of Rs 1,823 crore in 2009-10. The net loss widened to Rs 8,851 crore during 2011-12. During 2010-11, losses rose to Rs 6,384 crore mainly due to hefty outgo on employees' salary and expenses borne by the PSU for procuring 3G and BWA spectrum. In 2011-12, combined losses of BSNL and MTNL stood at Rs 12,960 crore; MTNL's loss stood at Rs 2,611 crore in 2009-10 and Rs 2,802 crore in 2010-11.

But will returning spectrum money be enough? The sources pointed out that both PSUs have huge, unsustainable manpower costs which need to be trimmed. "BSNL uses up more than 50 percent of its revenues in paying salaries when the industry average is just 7 percent. The percentage for MTNL is even higher, close to 70. There is an urgent need for these PSUs to shed flab".

A Voluntary Retirement Scheme (VRS) is not a viable option at present since it will require a large lumpsum - anywhere between Rs 20,000 to Rs 30,000 crore - which the government is unwilling to fund and the PSUs unable to generate. The sources said the linesmen comprise the largest chunk of non-productive workforce at these PSUs since landline services have been declining across the country.

Now BSNL has been asked to first conduct a study on how many employees in which category can be offered VRS by speaking to employee unions. "We have asked them to explore the possibility of taking bank loans to complete a VRS process. Besides, a large chunk of manpower would retire in the next few years," sources said.

On their own too, both PSUs have lined up several initiatives such as selling surplus land, using existing telecom infrastructure better and providing broadband connectivity to schools, etc, to generate more revenue.

But unless the government, PSUs and their employees all work towards efficiency and increase revenue generation, profitability may remain a distant dream for BSNL and MTNL. In its presentations before DoT recently, BSNL has said it would return to the black in the next five to six years whereas MTNL says profitability may be achieved by March 2013! But official sources quoted earlier said the two companies have made a number of assumptions while making profit projections and need to tread cautiously.

Coming back to the Air India story, the airline has seen a remarkable turnaround in the last six-eight months when government equity infusion and a determined effort to cut off loss-making routes helped the airline become the second largest in India in terms of market share. This, despite fierce competition from private airlines.

Perhaps the same model needs to be followed by BSNL and MTNL too.

by Sindhu Bhattacharya

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