After Air India, BSNL Should Be Next In Line For Privatisation

While the media remains fixated with Air India’s privatisation, the time has come for the central government to begin planning for the eventual, but early, privatisation of another public-sector white elephant – Bharat Sanchar Nigam Limited (BSNL), and possibly also of its smaller sibling, Mahanagar Telephone Nigam Limited (MTNL).

This is not an attempt at a financial analysis to reason why the public sector undertaking is better off being sold to investors for its reduction of the strain on the government’s finances. Such analyses have been done regularly elsewhere. Rather, this article attempts to make a philosophical argument for why the idea of a state-owned company in highly competitive industries, such as telecommunications, is both anachronistic and a waste of taxpayer money. The amount saved – in annual outage to pay for salary, pensions, infrastructure – is better spent in areas that directly help and improve the quality of life for the citizens.

So, what ails this state organisation?

Frankly, a number of things. Here, I group them into a few categories.

Vision & Mission

As far as I can tell, there isn’t a vision or a sense of purpose to the organisation and its employees, just inane phrases that have no meaning any more. Its vision – to “be the leading telecom service provider in India with global presence” – does not translate to reality – it is hardly a leading telco in the domestic market, let alone having a global presence. BSNL’s tagline, ‘Connecting India’, is spurious.

The PSU today accounts for about 14 per cent market share and is fifth among the various telcos, after Airtel, Vodafone, Idea and Reliance Jio, in terms of the number of active subscribers for its services – landline, mobile and broadband. After the expected merger of Vodafone and Idea is complete, the merged entity would take pole position with about 40 per cent share, followed by Airtel and Reliance Jio. BSNL’s fourth place in this scenario would be misleading – it has seen rapid erosion in its share of the market and it continues to bleed, both in terms of customers and financials. In the second quarter this year, Jio had reportedly crossed the 100-million subscriber number that is expected to double next year, thanks to its 4G VoLTE network and the recently launched free 4G feature phone. All or most of that would be at BSNL’s expense. The organisation has no vision of what it expects to be or how it hopes to recover lost ground.

Customer Last

Granted, lack of customer focus is not just a PSU problem; it has an endemic presence in more companies than not, public or private. It is especially a characteristic of telcos around the world, so it’s unfair to single out BSNL. Yet, one would expect the organisation, given the dire circumstance in which it finds itself, to infuse corporate strategy and decision-making with additional effort and urgency. Sadly, that is absent, and these concepts will never likely have a seat at the table. BSNL’s senior executives, as with all its staff down the line all the way to the lineman, are essentially seat warmers waiting for retirement. They could not be bothered any less with concepts like ‘Customer First’.

Still, aiming for a superior customer experience is the need of the hour for this PSU. Customers are deserting it in droves – even in the segment that forms its core base. Despite low average revenue per user (ARPU), this segment had a very low churn and stuck with it for reasons of loyalty (misplaced as it was), hope, helplessness and ignorance. Those factors are disappearing as the new-age telcos make aggressive moves with novel offers, ease of transition, mobile broadband and number portability (at least for mobile connections).

As it loses customers, BSNL is also severely handicapped in adding new ones as its reputation – or lack thereof – has spread. It takes hard work to build a reputation that can be lost in one fell swoop.

Politicisation for failure

There is a reason why all PSUs are in the doldrums today with the exception of a handful that manage to live off of defence contracts. This Nehruvian socialist experiment of the state having the “commanding heights of the economy” did not anticipate one consequence: that these state-owned entities would eventually become the fiefdom of politicians to secure power and prestige, appoint and transfer key executives, bestow freebies, grant themselves facilities that they don’t have to pay for, use it as a flogging horse for the politics of caste and communalism, and extract patronage.

In the meantime, the reforms of 1991 have transformed India into a still-evolving but increasingly wealthy market economy that now presents politicians with increased means to have a say and be a part of cabinet decisions that are opaque, have hidden interests, on approvals of scarce national resources, concealed quid pro quo payoffs and black money transfers. All these became increasingly evident in the 10-year rule of the United Progressive Alliance government that saw scams in every ministry and department, especially telecom. The net result has been a diabolical game that politicians have played over and over again: ostensibly support the cause of the public sector while on the campaign trail purchase employee-union leadership acquiescence for decisions that erode organisational sustainability, while ensuring the private sector becomes increasingly invincible. The employees at these PSUs, many of them members of unions that have faded in importance, repose touching faith in their union leaders who have already sold their souls to the politicians for filthy lucre and sold their colleagues down the river.

These would not be so bad if the journey towards a market economy also built the institutions that ensure a fair and competitive economy: regulatory agencies that have teeth and willing to enforce, means for swift and summary legal judgments with severe penalties for misbehaviour, a truly level-playing field and absence of constraints that hobble an entity. BSNL has been hobbled; there is no question about that and these have been at the privilege of the new entrants. It has had to bear the burden of unviable landline expansion into the rural hinterland and pan-India spectrum purchases for 3G that is now fast being laid waste by 4G.

The lack of executive response, the indifference and the complacence come from a culture that characterises the public sector that is overlaid by political interference.

The similarity with Air India

The similarity between BSNL and Air India that has been hogging the news recently is indeed remarkable. Both organisations have similar revenues – Rs 32,000 crore in the case of BSNL and about Rs 23,000 crore for Air India in 2015-16.

According to BSNL’s annual report, it made a loss of over Rs 3,000 crore in 2016. This compares with Air India’s losses of Rs 5,900 crore in 2014-15; the losses are likely much higher since. Air India’s market share has remained flat at 13 per cent; that of BSNL is 14 per cent. Both organisations have a large employee base as well. Debt on Air India’s balance sheet – amounting to about Rs 55,000 crore, of which about 35 per cent is on account of aircraft acquisitions and the remainder from working capital loans raised from banks representing sequential losses. BSNL’s cumulative losses as of March 2016 stood at Rs 47,000 crore.

Now, what’s so unusual about this for a telecom company? Simply that the loss is not compensated with an increasing customer base that could be attracted to higher and higher value-added services. On the contrary, it has been steadily losing its customers as in the case of Air India. In the eight years from 2006-07, according to the Telecom Ministry’s report submitted to Parliament, BSNL’s landline subscribers fell from almost 34 million to 16 million. Furthermore, just when 4G is taking off in the country, BSNL may be on a weak wicket: it surrendered spectrum in six circles and took in government largess amounting to Rs 6,725 crore. So there you go – cumulative losses, customer desertion and inadequate mobile presence.

Should the government really be in competitive industries?

Indeed, there are pressing issues that need to command a larger share of attention and investment by the government. These are in areas that directly affect citizens and have the potential for an order-of-magnitude improvement in the quality of life. They include healthcare, primary and secondary education, post-secondary job skills training for professional services, urban public transport, sanitation and hygiene, and infrastructure. India ranks poorly in all of these areas.

BSNL spends over Rs 15,000 crore in salaries annually that could, for instance, considerably strengthen the primary care network in the country or help fund the job skills programme.

The amount raised by a divestiture is not as important as its ability to fund worthy public causes that are seriously deficient in investment.

Re-defining the role of the state

India’s public sector is built on the premise that the nation did not have the foundation, expertise or capital for the private sector to perform an adequate role in nation-building in the aftermath of independence. That argument is without basis today. The private sector has giants that are every bit as big or bigger than its public sector counterparts, able to garner capital of a size that PSUs can only dream about, and have built expertise across verticals. Private sector companies now run entities with complex operations in oil refining, steel and aluminium, chemicals and pharmaceuticals, data centres, telecom, automotive design and manufacturing, retail, tertiary care hospitals, airports and airlines. It is no longer the private sector of the 1950s and 1960s characterised by immaturity and a paucity of funds. Contemporary India, it could be said with some confidence, is defined by its private sector and not by the public sector.

Ideally, the state should just restrict itself to the provision of citizen services – identity card, passport, registration of births and deaths, health, education, police, security, regulatory agencies, water and sewage, urban planning, roads and parks – and leave all else of a commercial nature to the private sector. Nearly every one of the state investments in commercial areas, especially ones that do not have a national security or defence angle, have generally bit the dust, unable to confront more nimble players.

The Solution?

There is, in fact, no solution for a boondoggle that is destined for failure. The answer lies in radical redesign of how we as a society see the role of the state.

The government could start with the two most visible PSUs that are a huge drain on the public exchequer, BSNL and Air India. The way it goes about privatisation – not just the methodology of divestment but the onward use of the money garnered from the sale – would tell upon public support for such efforts in the future and in countering opposition.

One possible way is to define a finite number of items, say four to five, of critical importance as a public investment destination. Instead of accounting for the sale of a PSU under the Consolidated Fund, it could be earmarked to a specific purpose, and define the nature and purpose of investment, execution, monitoring mechanism and outcomes. Thus, for instance, the sale proceeds of BSNL could be articulated by the government as solely for the purpose of upgrading and provisioning job skills training for post-secondary youth who have not gone on to higher education. This could comprise upgrading existing artisanal institutes, provision of monthly stipend, certification and guaranteed employment.

Similarly, the sale of Air India could target its proceeds to a visible, marked improvement in the provision of healthcare services in rural areas. Yet another PSU sale could target potable water delivery or public lavatories in villages.

Such a solution that is well-defined, well-articulated, and channelled under the close watch of a regulatory agency set up for the purpose, would ensure the public is supportive of the idea and stands behind the government in its privatisation efforts.

It would also undercut opposition from political parties that stand to gain by maintaining a status quo.