Government approves the merger of BSNL-MTNL; Allocation of 4G Spectrum

by aditi verma 2019-10-30 10:10:40

Just a few days before Diwali, The government has approved a Rs 69,000 crore package for the major telecom companies BSNL and MTNL on Wednesday, 23rd October 2019. This package includes the merger of the BSNL and MTNL as both are making losses for a long time. It will help in monetizing their assets and giving VRS (Voluntary Retirement Scheme) to the employees so as to turn the combined entity profitable within a period of two years.

The plan has been approved by the Union Cabinet that is headed by Prime Minister Narendra Modi. The plan is to combine the two financially stressed companies, the (MTNL)Mahanagar Telephone Nigam Ltd that currently provides its services in the cities of Mumbai and New Delhi - with (BSNL) Bharat Sanchar Nigam Ltd that currently provides its services in the rest of the country, said the Telecom Minister Ravi Shankar Prasad in a statement.

The complete package that was approved includes infusion of Rs 20,140 crore capital for purchase of the 4G spectrum, Rs 3,674 crore for the GST (Goods and Services Tax) that to be paid on the allocation of spectrum, companies that raised Rs 15,000 crore in debt on the sovereign guarantee and the government funding of Rs 17,160 crore for the voluntary retirement scheme (VRS) and Rs 12,768 crore for the retirement liability.

The proceeds of the sovereign bonds issue will be used to restructure debt as well as meet the other expenses. The bond will have to be serviced by the PSUs (Public Sector Units) only. The main liability will be on BSNL as MTNL will be operating as just a subsidiary of BSNL.

Now, as India gears up for the launch of the 5G network services, it may turn out to be very challenging for both BSNL and MTNL to break even on the price that they are going to be expected to pay for the new 4G spectrum, Kumar added.

Both the firms will monetize their respective assets that are worth Rs 37,500 crore in the coming three years, Prasad said in a statement. MTNL has been in a loss in the past nine of the 10 years and BSNL has also been in a loss since the year 2010.

"Neither BSNL nor MTNL will be closed, there will also be no disinvestments. The government will not sell them to any third party," Prasad added. "With all these measures being taken, I'm confident that BSNL will become EBITDA (Earnings before interest, tax, depreciation, and amortization) positive in the coming two years."

Both the companies are under a total debt of Rs 40,000 crore. Out of this, half of the liability is on MTNL only, which has its operations in New Delhi and Mumbai Both MTNL and BSNL have been demanding the spectrum in order to start the 4G services if they are to remain competitive in the market.

Mr. Anshu Prakash, the Telecom Secretary had said in a statement that the spectrum will be allocated to both the companies administratively within a period of one month.

"The allocation of the spectrum to BSNL will be worth Rs 14,115 crore in lieu of the equity shares and around Rs 6,295 crore for MTNL in lieu of the preferential shares," Prakash said in a report.

The government has a plan to monetize the assets of MTNL and BSNL that are worth Rs 37,500 crore over the next three years.

"These assets include the land assets but also the rental and leasing of their buildings as MTNL has about 29 retail outlets in Delhi alone," Prakash added

He also said that BSNL will also require around Rs 10,000 crore to start the 4G services in phases and MTNL will require around Rs 1,100 crore for the same.

"The debt on BSNL is the lowest. They can easily raise the capital expenditure needed for rolling out the 4G network services from the banks. This will bring efficiency in their operations," Prakash said.

Mr. P K Purwar, the chairman and Managing Director of BSNL said in a statement that the company has plans to roll out approx 60,000 mobile sites for 4G network services across the nation. This will need an estimated cost of over Rs 7,200 crore in the next 12-15 months.

On the other hand, Mr. Sunil Kumar, MTNL CMD said that they have the plan to roll out approx 9,750 mobile sites for 4G network services in the whole of Delhi and Mumbai.

"Employees above the age of 53.5 years will get around 125 percent of their salaries which they could have had earned in the balance period of their service," Prakash added.

Employees in the age limit of 50 to 53.5 years who will be opting for the VRS will get the benefits of about 80 to 100 percent of the remuneration to be paid in the balance period of their service.

The Chief Managing Director of MTNL said in a statement that the voluntary retirement scheme that has been approved by the government is very profitable for the employees, and he is expecting that all the 15,000 employees who are eligible for it will take it.

"It is a very good decision by the government. The VRS is very profitable for all the employees eligible for it. This will bring down our employee's cost to around 25 percent of the revenue from 85 percent presently by February 2020. We expect to be EBIDTA positive within the next 2 years because of this step," Kumar added.

The government has decided January 31, 2020, to be the last date for the employees opting for VRS to be in office.

The engineers and account professionals body of BSNL, AIGETOA (All India Graduate Engineer Telecom Officer Association) has shown appreciation for this step taken by the government.

Mr. Ravi Shil Verma, the AIGETOA President said, "We wholeheartedly extend our thanks to Prime Minister Narendra Mod for the important and essential decision that you have taken in the interest of BSNL and India. We will show our support to the revival measures and we assure to give the best services to our customers."

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image source-Swarajya