Revival kitty could transform BSNL into a new challenger
The government’s decision to revive Bharat Sanchar Nigam (BSNL) with a ~70,000-crore package could unleash a new challenger into the telecom sweepstakes at a time when a debate is already underway on whether India will soon move from a three-player to a two-player market.
The package includes money for voluntary retirement, the issuance of 4G spectrum, raising long term bonds, and monetising the company’s real estate assets.
With a subscriber base of 8.79 million wired broadband subscribers, BSNL is already by far the largest player in the business — nearly three-anda-half times bigger than its nearest rival Bharti Airtel with 2.41 million subscribers.
What’s more, BSNL, along with Mahanagar Telephone Nigam Ltd (MTNL), has over 13 million subscribers who use fixed line phones and it has a 65 per cent share of this market, not to mention the fact that it has the potential of converting all of them to broadband customers.
When trying to arrange last mile connectivity to these phones, the company does not face the difficulties that private telcos face in getting Right of Way permission to reach households. This does not mean it is all going to be smooth sailing for BSNL. It has to watch out for the fact that Bharti Airtel is converting the last mile from copper to fibre and offering fibreto -the-home (FTTH). In the next three years, Bharti Airtel will target over 20 million addressable homes (only 25-30 per cent get converted into subscribers) for FTTH.
Even if Bharti Airtel succeeds, its numbers will only be close to what BSNL already has.
Reliance Jio has also joined the party but its ambition is to reach 25 million households in the first phase. Currently it has over 0.5 million wired households.
For BSNL to become a significant player in the FTTH space, it has to upgrade the backbone by converting its copper last mile to fibre. This requires identifying potential cities and areas where there is a market. It also has to invest money in fibre but it is fortunate in that the capital costs are not likely to be too high because it has the advantage of being able to use the fibre laid down by competitors now that telecom infrastructure sharing is a reality.
Another thing it has to do is offer faster and reliable speeds. Finally, it has to tie up with content creators and Over the Top players such as Bharti Airtel to compete with Jio offering bundled packages to its consumers — and do this at a competitive price.
The other opportunity for a revived BSNL lies in the mobile business itself. With a stable 10 per cent mobile subscriber share of the market — despite the Jio blitzkrieg — it has over 150 million predominantly 2G and some 3G customers.
BSNL can move its loyal customer base up to 4G (as the government will give it 4G spectrum), allowing it to push up its ARPUS. This in turn will help it increase its revenue market share, currently pegged at 10 per cent based on this year’s June quarter.
While still on the subject of 2G customers, BSNL can also try to win over the more than 300 million 2G customers from competing incumbent operators as they increasingly shift to 4G. Financially distressed Vodafone Idea has a substantial portion of these 2G subscribers. The latest Supreme Court ruling saying telecom companies have to pay out over ~29,000 crore to the government as AGR with interest and penalties is only going to add to Vodafone’s tribulations. With its strong presence in rural markets, BSNL is in a good position to lure these 2G subscribers of Vodafone-india and other operators into its fold. That said, even if BSNL has all its strategies in place, it will take it over a year to lay down a reasonable 4G network across key parts of the country.
Equipment manufacturers estimate it needs an investment of $1 billion for this. If the figure seems low, it is primarily because BSNL does not have to make any major investments in tower infrastructure. It already has 68,000 towers (though some need to be upgraded). Alternatively, it could copy its rivals by spinning off the towers into a separate business and monetising the assets while remaining a tenant. With many telcos shutting down, there are a lot of tower tenancies up for grabs at very reasonable rates.
Yet another area BSNL can pursue is new subscribers. Rura mobile density in India is still only 56 per cent. The company can capitalise on its strong network to attract new customers.
The dead weight that may hold BSNL back is its bloated workforce. With over 198,000 employees, its salary costs account for over 70 per cent of its income. Aware of this issue, the government has provided ~29,937 crore for a voluntary retirement scheme which could bring the number of employees down by half.
Yet even that happens, its workforce will still be far higher than competitors like Bharti Airtel and other telcos. Estimates suggest they spend only five per cent of their income on wages.
The voluntary retirement scheme is a step in the right direction but BSNL will have to continue reducing its costs if it wants to offer competitive tariffs without losing money.