Indian authorities recommend merger between state firms

India’s three major state-owned telecoms firms have been advised by the country’s government to merge. The operators MTNL and BSNL, together with vendor ITI, have been ailing in recent years and a merger of the three would present a means of consolidating funds as a means of withstanding losses.

According to a statement, the Indian Board for Reconstruction of Public Sector Enterprises “strongly recommends the merger of ITI Ltd. with BSNL, or its takeover by the BSNL as a separate subsidiary, thereby ensuring strategic vertical integration.”

The board noted that BSNL would be eligible for tax breaks following a merger with ITI, as the vendor is currently losing money. It also stated that “there is no reason for the MTNL to continue as a separate entity” considering the areas covered by each state-owned operator; while BSNL has operations across 20 of India’s 22 telecom circles, the 2 in which it is not present – Delhi and Mumbai – are covered by MTNL.

Massive competition in India’s mobile market means that consolidation is only likely to increase, but the two state-owned operators are already feeling the pressure from an influx of privately-owned players. The fiscal year of 2009-10 saw BSNL post its first loss since 2000, when it first became an individual company following the corporatisation of India’s Department of Telecom.

The state operator’s net loss for this year was INR18.23 billion; it is unlikely to turn a profit until 2013. MTNL saw a significantly higher loss over the same fiscal year – INR26.11 billion – while INI incurred a net loss of INR4.59 billion.

Having outlined its recommendation, the board has set a four-month deadline by which time BSNL and India’s telecom department must finalise their chosen strategy for improving the firm’s future. If a merger features in their plans, it would require the approval of the Department of Telecoms.

 

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