Will the BSNL-MTNL merger work?

Finally, it seems to be happening. After a long wait, the two public sector telecom entities, BSNL and MTNL, have been given the nod for a merger.

According to an article in The Hindu Business Line, the Department of Telecom’s proposal to the Parliamentary Standing Committee on Information Technology to merge BSNL and MTNL makes sense.

The merger issue has been put on hold for a long time. Since the last three to four years, the DoT was considering the merger so as to allow the two companies to work as one seamless organisation. However, it was faced with stiff opposition from the unions and other problems such as MTNL being a listed company.

[caption id=“attachment_274245” align=“alignleft” width=“380” caption=“The proposed merger was faced with stiff opposition from the unions and other problems such as MTNL being a listed company.”]  [/caption]

While the merger of these two entities will help both, as it will lead to cost reduction and give their customers a pan-India presence, a peek at their balance-sheet shows that they are not in the pink of health.

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State-run BSNL’s losses have more than tripled to about Rs 6,000 crore during financial year 2010-11 mainly due to hefty outgo for employees’ salaries and expenses borne by the PSU for procuring 3G and BWA spectrum.

MTNL is also not very far behind as it has been posting losses for the last nine quarters. In fact, its losses have increased to Rs 2,656 crore for the nine months ended December 2011 against Rs 1,729 crore in the corresponding period a year ago .

Now while the merger issue seems to have crossed a crucial deadlock, any merger means BSNL will get listed indirectly. The MTNL stock was trading higher by 2.4 percent at Rs 28 per share on Thursday.

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However, the biggest concern for the two companies is that they will have a bloated staff base. While MTNL had almost 43,311 employees, BSNL’s list is almost 6.5 times that size. Its total employee strength is around 2.8 lakh employees.

[caption id="" align=“alignleft” width=“485” caption=“MTNL’s stock fell 43% in the last one year. Chart:Firstpost”][/caption]