The possibility of a merger between BSNL and MTNL, India's government-owned telcos, has once again set tongues wagging in the national market.
The speculation is unsurprising. The two service providers have been struggling to defend their respective turfs against players from the private sector. At the end of last year, they together held just 9% of a wireless market comprising about 1.2 billion customers, according to data published by the Telecom Regulatory Authority of India (TRAI).
A key reason for the decline of the two companies is poor marketing. As government-backed organizations, Bharat Sanchar Nigam Ltd. (BSNL) and Mahanagar Telephone Nigam Ltd. (MTNL) have also been extremely slow when it comes to decision-making, and their tender processes have generated controversy. Nor have they been able to turn their ownership of tower and other assets across the country into a commercial advantage. Despite receiving 3G and broadband wireless access spectrum before other Indian operators, they have fallen a long way behind rivals in the market for mobile data services.
With India's market currently in the throes of major consolidation, a tie-up between BSNL and MTNL must seem like a potential answer to their problems. (See Vodafone, Idea Strike $23B Deal to Form India's Biggest Telco, Tata Teleservices Explores Merger with RCom-Aircel-MTS and Airtel to Acquire Telenor in India.)
In some ways, such a merger would make perfect sense. BSNL and MTNL operate largely in complementary service areas, with MTNL serving the two metro cities of Delhi and Mumbai and BSNL active across the rest of the country. Having a pan-India footprint will be essential if the companies are to flourish in the enterprise services market, which currently accounts for about 35% of revenues at BSNL even though it lacks a presence in Delhi and Mumbai, where most enterprises are based. Working together to address the enterprise segment would be a logical step.
A merger could also open up fresh opportunities to serve India's private sector telcos. With its unparalleled reach in India's hinterland, BSNL is already in a strong position to lease out networks to operators that have tended to focus on the country's Tier 2 and 3 cities, and which lack infrastructure in rural communities. Following a merger, BSNL and MTNL could offer consolidated infrastructure-sharing agreements to other telcos. Moreover, with their combined footprint, the two public sector operators will be in a strong position to address government targets for broadband growth through the Digital India initiative.
On top of that, while BSNL's share of the mobile market has continued to fall, it remains the market leader in the fixed-line sector, with 56% of the market at the end of last year, according to regulatory data. Those fixed-line networks can obviously be used to support higher-speed Internet connectivity, and a merged entity could take advantage of this capability.
But any merger would face a number of hurdles -- not least resistance from trade unions. Although both companies are government-owned entities, they differ markedly when it comes to employee remuneration, which could be a problem for any deal.
Both players are also in poor financial health. MTNL's net debt was close to $3 billion at the end of last year, up from $1.76 billion in 2012/13. In 2015/16, the company reported revenues of 31.9 billion Indian rupees ($480 million) and a net loss of IR20.05 billion ($300 million). Because of its debt situation, it has been slow to upgrade its network in the last four to five years. And it maintains a substantial workforce of about 40,000 employees despite operating in just two circles. This puts huge pressure on the company's finances.
BSNL is also unprofitable, reporting a net loss of INR38.8 billion ($590 million) in the 2015/16 fiscal year. That could make absorbing MTNL's debts very tricky. For all the attractions of a merger, the prospect of a deal remains as uncertain as ever.
— Gagandeep Kaur, contributing editor, special to Light Reading