11th August 2004: The merger of BSNL and MTNL has been recommended by a core group set up by the Department of Telecommunications (DoT) on the restructuring of public sector telecom companies. DoT has said that the merger of the two entities is necessary in view of the new competitive environment in the telecom sector. The merged entity will become the largest company in both wire line and mobile operations. Moreover, the consolidation will ensure availability of requisite funds for capital spending. The core group has also explored various models for the merger of the two companies.
The 10-member core group includes telecom commission member (technology) KL Jain, member (services) AK Saxena and Trai secretary Harsh Vardhan Singh. They have explored the pros and cons of four possible options for consolidation of the two entities — BSNL merged into MTNL, MTNL merged into BSNL, acquisition of BSNL by MTNL and acquisition of MTNL by BSNL.
The core group said, BSNL’s merger into MTNL will involve a lot of stamp duty costs and may violate Sebi norms, envisaging a minimum public float for the listed company. MTNL’s merger into BSNL will require relisting of the company. Moreover, MTNL shareholders will need to satisfy. If BSNL acquires MTNL, then MTNL’s shareholders may seek the exit option fearing erosion of their share value, because of BSNL’s operations in rural areas. The other option is acquisition of BSNL by MTNL. This will be acceptable to MTNL shareholders. However, the trade unions may resist this move.
MTNL is listed in domestic markets and NYSE. In 2003-04, MTNL’s profits grew by 31% to Rs 1,150 crore compared to last financial year and its revenues grew by 11% to Rs 6,700 crore. Earlier, there was a negative growth in both profits and revenues. MTNL’s another achievement is taking calls from private operators and giving them a strong contest. In the past one year, it has implemented projects for development of CDMA, GSM and backbone network expansion in record time. It will also commission its broadband project by December this year in a record period of five months.
BSNL and MTNL together will command over 95% of the fixed line market share. The proposed merged entity will be almost seven times the size of Bharti, going by revenues in financial year ’03-04. The total fixed line subscriber base for the mega entity will be more than 4.2 crore, which is way ahead of its competitors. Last year, BSNL’s revenue was more than Rs 29,000 crore and it had a profit of more than Rs 3,000 crore. MTNL’s annual turnover for the year ending March ’04 was Rs 6,700 crore. BSNL and MTNL share common infrastructure and manpower. Indian Telecom Service (ITS) officers are responsible for managing the two companies.
The two companies also have to work closely to meet the requirements of the clients. For instance, if a client wants a lease line between Delhi, which is under MTNL’s area of operation, and Bangalore, which is under BSNL’s area of operations, then the two PSUs have to work together.