Two major Indian service providers are to merge in the hope of returning to profitability within two years.
Amid all the recent talk of the issues facing India’s big three mobile operators, the problems of fixed and mobile service providers Mahanagar Telephone Nigam Ltd (MTNL) and Bharat Sanchar Nigam Ltd (BSNL) may have been seen as less newsworthy.
Not any more. The Indian government has approved a massive revival package estimated at about $9.7bn for BSNL and MTNL. It includes merging the two loss-making firms, monetising their assets and offering a voluntary retirement scheme to employees. The hope is that the new company will be profitable within two years.
MTNL has reported losses in nine of the past 10 years. BSNL has been loss-making since 2010. MTNL provides services in Mumbai and New Delhi. BSNL serves the rest of the nation.
Both the companies have requested spectrum to start 4G services in order to remain competitive in the market. This will be allocated soon.
The voluntary retirement scheme is clearly an important part of the restructuring plans. It is estimated that it will bring employee costs down from 85 per cent to 25 per cent of revenue in a few months, assuming that most of the 15,000 employees eligible for the scheme actually take it.
Additional revenue will come from a number of MTNL and BSNL land and other assets that will be monetised over three years.