MTNL, BSNL bleed: Time to hang up?

As the United Progressive Alliance (UPA) government in New Delhi enters the eighth year in office, there are still three more years left to do some real work.

The Left parties have reduced the disinvestment ministry in the previous NDA government to a mere department within the finance ministry in the UPA I. Hence, when the UPA II government assumed office, there was an air of anticipation. However, nothing much has moved with regard to cutting subsidies or selling off state-owned enterprises in the first two years of office.

[caption id=“attachment_10519” align=“alignleft” width=“380” caption=“The central government is likely to throw a lifeline to BSNL and MTNL to pull them out of the abyss. Reuters”] [/caption]

After Air India, state-owned telecom companies need some government support now. MTNL, the telecom major, reported a net loss of Rs 1,099 crore for the quarter ended March 2011. The company’s net loss for the full year stands at Rs 2,828 crore against Rs 2,620 crore in the year-ago period.

The company management expects to report operating profits by March 2012. (See interview ). This is largely on the back of an improvement in revenue for the first time in several years due to 3G operations. It must be understood here that MTNL and BSNL had for long a headstart on 3G over private operators. While in the short term, the state-owned companies could get more revenue, in the long run, competitive pressures could erode the advantage. This has happened in landline and 2G mobile operations. There is no guarantee that it will not happen in 3G as private operators ramp up their 3G networks.

MTNL shares are down 32% over the past one year when BSE 500 index gained 4%. This clearly indicates lack of confidence in the company.

The central government is likely to throw a lifeline to BSNL and MTNL to pull them out of the abyss. As much as Rs 3,000 crore of tax payers money will go to keeping these two struggling companies running, according to a Business Standard report. According to the internal initial estimates by the department, BSNL ran up a loss of around Rs 2,500 crore from its landline business, a big chunk of which is social commitments in rural and far-flung areas. The pension amount for MTNL stands at Rs 300-350 crore annually, the report adds.

The government’s bailout will come with a string of conditions though. Any money injected into these companies now should be with a specific plan for the government’s exit. It’s time the tax payer did not continue to pay for years of mismanagement of state-owned companies.