When we first looked (in June 2011), state-owned telecom giant BSNL was headed for losses of Rs 2,725 crore for the year ended March 2011. In August, reports suggested unaudited losses had jumped to Rs 6,000 crore, against Rs 1,823 crore in 2009-10. The final loss figure for 2010-11 is Rs 6,384 crore.

Worse, like state-owned Air-India, BSNL too appears to be in terminal decline with sales shrinking at an alarming pace and costs, including a staggering employee bill, still rising. We take a closer look at some of BSNL’s numbers which highlight a problem that is symptomatic of most state-owned organisations, except of course, for an honourable few.

The worrying part is not the financials quoted above but the steps announced by the Government to “reduce BSNL’s losses and to improve its financial health.” Which clearly are not sufficient to do anything significant given how bad things are. Before we give you an insight into the Government’s thinking, here is a snapshot of BSNL’s latest numbers.

Government’s Steps To Remedy Situation

In contrast to BSNL's shrinking revenue, Vodafone declared a 24% jump in revenues for its India business from £3 bn (Rs 23,700 crore) in 2010 to £3.8 bn (Rs 30,002 crore) for 2011 with a total subscriber base of 134 million. As sales numbers go, Vodafone too is bigger than BSNL. As are other private telecom players like Bharti Airtel and Reliance Communications.

Now, having seen the numbers, have a look at what the Department of Telecom has outlined as steps to revive BSNL. We reproduce verbatim.

• Optimize capital and operating expenditure through convergence and consolidation of infrastructure.

• Strengthen stable revenue streams through concerted focus on broadband and enterprise business with major focus on government projects.

• Focus on revenue from top 100 cities 'for monitoring purpose’.

• Sustained operational focus on customer care, service delivery, service assurance, revenue management and asset management.

• Aggressive push on data usage and value added services.

• Clear cut segregation of commercial activities from social obligation to ensure sustainable growth.

• Progressive migration of current network to Next Generation Networks thereby ensuring convergence, consolidation and seamless delivery of various services to end-customers across different technologies.

(Source: Department of Telecom)

The Grim Reality

Now, the first question is what was BSNL doing before all this since this document (except the focus on Next Generation Networks) could have well been written a decade ago. Here go some more of our observations which are most welcome to be challenged and responded to. For instance:

1. Optimising capital and operating expenditure would mean that no more capital expenditure on new equipment and using of existing infrastructure either belonging to BSNL or leasing from other telecom players, who in any case are quite large themselves. In 2009-10, BSNL invested Rs. 28,227 crore ($6.28 bn) in fixed assets. In 2008-09, this figure was Rs 8,613 crore. Technically possible but might call for considerable organisational and political will which may or may not be there.

2. BSNL has 90 million cellular & 5 million Wireless Local Loop (WLL) customers. In basic services, BSNL claims to be miles ahead of its rivals, with 24.58 million wireline phone subscribers or 72% share of India's wireline subscriber base. Though fact is more and more people are turning in their landlines and switching to mobile phones, of which there are more than 850 million in the country.

3. Employee costs are skyrocketing. And this is not to highlight the problem with BSNL as much as with most state-owned public sector undertakings. Imagine medical expenses of Rs 548 crore this year, a figure that was Rs 484 crore last year. Not a very healthy organisation for sure. But on the other hand, with some 357,000 personnel (including 225,522 staff and 56,113 'executives’), you can only expect a large medical bill. And this is not to attack the medical expenses as such since there might be other organisations with equally large if not larger bills, but to take things, in a manner of speaking, out of context as that too helps sometimes. Not to mention, at Rs 1,399 crore, a pretty large pension bill too. Incidentally, there are two sets of figures for employee strength on BSNL's corporate website.

On the other hand, privately run Reliance Communications has approximately 28,000 employees. Vodafone has approximately 84,000 employees but that’s for the global company which turned in revenues of £45 bn (Rs 355,000 crore) last year.

4. Now, look at the break up of revenue. This table gives 2011 figures first so you can see how in the critical areas like landline telephones and cellular, revenue has dropped. The silver lining of course is broadband, leased lines and receipts from other operators, hence the focus on broadband in the Government statement above. Though it’s not clear whether it’s a good idea to force all Government organisations to go with BSNL without the choice. In a non-monopoly consumer business, a move like this fuels and perpetuates inefficiency. As does the policy of ensuring all Government employees mandatorily fly Air-India.

5. Improved customer care, service delivery, service assurance and revenue management are well, not exactly a response from a company in the doldrums.

6. The migration to Next Generation Networks and data usage is where the opportunity is, perhaps. And given that broadband requirements are getting bigger and thus an increased reliance on cable or copper to deliver it, BSNL has some advantage. That does not save an organisation that is reeling under such high costs in an environment where most operators are literally slashing each other’s throats.

The point is that there is nothing in the steps outlined by the Government which suggests that this behemoth can be saved. If anything, there seems little apparent recognition of the mess. Extrapolate this situation to Air-India and you have a similar mess to deal with. To be fair, BSNL has a big chunk of huge gross fixed assets, over Rs 132,243 crore ($26 bn) as of March 2009, that figure could not have not changed much. But like sister company MTNL, converting those assets into anything liquid will be a mighty challenge.