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BSNL's profit erosion rings alarm bells
Times of India Shalini Singh, TNN 20 July 2009, 12:18am IST
NEW DELHI: Government-owned telecom giant Bharat Sanchar Nigam Ltd (BSNL) appears in need of surgical intervention, with warning signals emerging that a critical 97% erosion in net profit within two years could soon plunge it into the red.
Confirming government anxiety over the issue, telecom minister A Raja told ToI, "I am meeting key officials on Monday to review the overall situation." He chose not to divulge specific details of the proposed review.
BSNL is a top ranking government employer after the Army and Railways. Clearly, ensuring its health is critical to economic growth as it contributes between Rs 24,000 to Rs 30,000 crore every year to the government by way of taxes and levies.
BSNL's profit after tax (PAT or net profit) fell sharply to hit Rs 104 crore at the end of 2008-09 from Rs 3,009 crore in 2007-08, a 96.7% fall. Since 2006, while its mobile subscribers grew by 70%, mobile revenues showed a dismal 11% growth (see chart).
Fixed line revenues were far worse. In the last five years, BSNL's revenues halved from Rs 22,814 crore in 2004-05 to Rs 11,505 crore in 2008-09. BSNL officials say this is a worrying trend that could soon plunge the telcom mejor into negative territory. "Lifetime schemes, millions of sleeping customers, sharp increase in operating expenses and the massive impact of the Sixth Pay Commission are all to blame for BSNL's financials," a senior BSNL official told ToI.
"Its inability to shine in a top-performing sector which has shown itself to be recession-proof is all the more alarming," admitted the official. However, BSNL CMD, Kuldeep Goyal remains optimistic. "We plan to add 100 million subscribers and double turnover in the next three to five years. This through a management restructuring exercise, expansion of mobile and broadband networks and focus on sales, marketing, IT and customer care for customer acquisition," he told ToI.
BSNL has been struggling to expand its network amid multiple controversies, litigations and delays surrounding its mobile equipment tenders. Further, till recently BSNL has carried a disproportionate burden of connecting rural India.
Senior officials at BSNL offer a three-pronged strategy as the only way to save the company from crumbling. First, BSNL needs to push for an IPO as it requires cash to compete with powerful private competitors. However, this may not be easy as the government is yet to outline its disinvestment policy and BSNL's powerful unions are fiercely opposed to this move.
Second, BSNL needs agility with its tendering process to allow its mobile network to keep pace with India's 10 million a month new mobile customer acquisitions.
BSNL needs a major revamp in branding, marketing and distribution network including reorientation and training of its workforce. And, unless goernment allows it a free hand to raise funds either through an IPO or strategic sale, reduce disproportionate burden for rural connectivity and revamp the leadership team to equip it to engage with the unions and take on competition, BSNL's decline will be swift and irreversible, says a senior telecom consultant familiar with the company's working over the last decade. The high-level meeting planned for Monday may prove to be a small but significant step in this direction.
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