Sug­ges­tions by IIM-A for re­struc­tur­ing BSNL

Financial Chronicle - - IN -

While not com­pletely within the purview of the IIMA MOU for this project, our anal­y­sis sug­gests that the gov­ern­ment and DoT need a more re­fined pol­icy on the sec­tor struc­ture and merg­ers in the sec­tor. This is more rel­e­vant when num­ber of ef­fec­tive op­er­a­tors re­duce from 4 to 3. Other key ini­tia­tives in­clude re­view of MTNL and its re­la­tion­ship to BSNL and ar­tic­u­lat­ing the role of a pub­lic telecom­mu­ni­ca­tion ser­vice provider in the cur­rent con­text. The key ar­eas for trans­for­ma­tion of BSNL.

1. Ac­cel­er­ate as­set trans­fers:

DoT should work closely with BSNL to iden­tify all lands and build­ings that have not yet been trans­ferred to BSNL. Though the land valu­a­tion as has been done so far and as in 2015 was around Rs 6,000 crores (may be 7,000-8,000 crores at most), the land and real es­tate not re­quired by BSNLMTNL for tele­com op­er­a­tions need to be not only mon­e­tized to fi­nance re­vival of BSNL but also will put this real es­tate for more ef­fi­cient usage. This needs to be done within a six month pe­riod. Max­i­miz­ing value of the re­leased real es­tate may not only re­quire sup­port from the gov­ern­ment for land use change but also an in­de­pen­dent en­tity spe­cials­ing in real es­tate de­vel­op­ment. The amount as­sessed as of now, how­ever, does not look sig­nif­i­cant enough to help fi­nance BSNL re­vival com­pletely.

2. Ac­cel­er­ate the op­er­a­tion of BTCL:

This com­pany is not to­tally op­er­a­tional as BSNL has not trans­ferred all the tow­ers to it. While hav­ing a sep­a­rate com­pany will bring in the re­quired ef­fi­cien­cies, it also gives BSNL an op­por­tu­nity to do a va­ri­ety of projects un­der it. Since this is an in­fra­struc­ture com­pany, it is not sub­ject to the 8 per cent rev­enue share charges.

This is a flex­i­bil­ity that could be eas­ily ex­ploited by BSNL. We rec­om­mend BSNL should com­plete the trans­fer of tow­ers from BSNL to BTCL within six months.

3. Cre­ate a sep­a­rate fi­bre in­fra­struc­ture divi­sion:

This should be a part of the BTCL, given that in spirit it is a net­work in­fra­struc­ture com­pany. There could be a ra­tio­nale for set­ting up this as a sep­a­rate com­pany, but given the time it would take to set up the com­pany, for the short term, we are sug­gest­ing, cre­ation of a Fi­bre In­fra­struc­ture Divi­sion un­der BTCL. Given the pro­jected growth of Broad­band, op­ti­cal fi­bre net­work is a valu­able as­set for any tele­com ser­vice com­pany. In­creas­ingly, FTTH is an im­por­tant source of new ser­vices, as homes start to use mo­bile broad­band, smart TVs and other de­vices.

How­ever, BSNL has not been able to lever­age this as­set to its full po­ten­tial. In or­der to re­lease this po­ten­tial, BSNL should cre­ate a sep­a­rate fi­bre in­fra­struc­ture divi­sion.

This should be done with fo­cus and ef­fi­ciently and not al­lowed to lan­guish as was the case for the tower com­pany. This divi­sion, like the tower com­pany should work with third par­ties, in­clud­ing state gov­ern­ments. This should be done over a time frame of six months..

4. Cre­ate a project divi­sion:

This should be a part of the BTCL. There could be a ra­tio­nale for set­ting up this as a sep­a­rate com­pany, but given the time it would take to set up the com­pany, for the short term, we are sug­gest­ing, cre­ation of a This or­gan­i­sa­tion should un­der­take projects of strate­gic im­por­tance to the na­tion such as de­ploy­ing ru­ral ser­vices, cre­at­ing a net­work for armed forces, con­nect­ing hilly ar­eas. The projects would be funded by the or­ga­ni­za­tions that re­quire such ser­vices. Rel­e­vant staff from BSNL should be trans­ferred to this divi­sion. This will fur­ther bring down the hu­man re­source costs to BSNL.

Hav­ing a sep­a­rate divi­sion will bring in the trans­parency of ef­fi­cien­cies in project ex­e­cu­tion, costs and out­puts. This would also al­low BSNL project bids to be more com­pet­i­tive as the projects un­der this divi­sion would not be sub­ject to the 8 per cent rev­enue share.

5. Fa­cil­i­tate 4G spec­trum al­lo­ca­tion:

5MHz of 2100 MHz band as 4G spec­trum should be al­lo­cated to BSNL im­me­di­ately but only for a lim­ited 5-year pe­riod. This may re­quire around Rs 1,875 crores of li­cense fee pay­ment for 5 years.

This can be fi­nanced by ei­ther eq­uity in­jec­tion from the Gov­ern­ment or by bor­row­ing the same with guar­an­tee from the Gov­ern­ment given fi­nan­cial con­di­tion of BSNL. Also, the Gov­ern­ment should pose the fol­low­ing con­di­tions on the BSNL while al­lo­cat­ing the spec­trum:

i. BSNL should get into ag­gres­sive tower shar­ing and leas­ing agree­ments with other tele­com ser­vice providers. This will re­duce the ex­pen­di­ture of rolling out 4G ser­vices by BSNL. In­stead of Rs 11,000 crores asked for by BSNL to roll­out 4G ser­vices, BSNL might be asked to re-ex­am­ine the pro­posed cap­i­tal ex­pen­di­ture with tower-shar­ing and man­aged-ser­vices model.

ii. The spec­trum should be al­lot­ted cir­cle-wise for 5 years. Each cir­cle of BSNL and BSNL as a whole must be given a strict man­date to be­come op­er­a­tionally self­sus­tain­ing (should be able to meet at least all op­er­a­tional ex­penses) from the third-year post the al­lot­ment of 4G spec­trum.

iii. The 4G al­lo­ca­tion should be con­di­tional on cir­cles pre­par­ing a busi­ness plan, in­clud­ing iden­ti­fi­ca­tion of only core and rel­e­vant hu­man re­sources for BSNL’s con­tin­ued op­er­a­tion, poli­cies for greater pro­fes­sion­al­iza­tion, in­creased de­vo­lu­tion of de­ci­sion mak­ing to the cir­cle heads, im­proved IT sys­tems etc.

iv. BSNL and DoT must come up with a plan within six months of al­lo­ca­tion of 4G spec­trum as to how it can best uti­lize its re­sources in­clud­ing hu­man re­sources.

The lat­ter may re­quire of­fer­ing/ne­go­ti­a­tion at var­i­ous lev­els with BSNL, pos­si­bil­ity of VRS or re­duc­tion of su­per­an­nu­a­tion age along with dis­cus­sion on busi­ness plan and pay-re­vi­sion and trans­fer of em­ploy­ees to dif­fer­ent pro­posed in­fra­struc­ture and project or­ga­ni­za­tions of BSNL and pro­grams such as Dig­i­tal In­dia, So­lar mis­sion, Smart Cities etc. The de­tails of the im­pact of re­duc­ing the re­tire­ment age and in­tro­duc­tion of VRS are pre­sented in point 6.

v. Fu­ture al­lot­ment of other spec­trum bands (4G, 5G, etc.) will be con­di­tional upon BSNL’s (and each cir­cle’s) per­for­mance as mon­i­tored from the third-year post 4G al­lot­ment.

6. Or­gan­i­sa­tional re­struc­tur­ing

a. Re­duc­tion of Re­tire­ment Age: We rec­om­mend the re­duc­tion of re­tire­ment age to 58 years. The av­er­age age of BSNL work­force is above 55 years. If the re­tire­ment age is brought down to 58 years, the re­duc­tion of work­force that may be achieved will be about 33,568 em­ploy­ees (17142+16426).

The em­ployee ben­e­fits ex­pense of BSNL in 201617 was about Rs. 15,715 cr. The em­ployee strength of BSNL in the same year was 1,96,448 (from BSNL an­nual re­port 2016-17). This im­plies the per em­ployee cost is about Rs. 8 lakhs (as per 2016-17 fig­ures).

The to­tal sav­ing due to re­duc­tion of re­tire­ment age to 58 years over the next six years will be about Rs 13,895.44 cr.

Even if the re­duc­tion of re­tire­ment age has to be done at the cost of im­ple­ment­ing the 7th CPC rec­om­men­da­tions (or 3rd PRC of BSNL), the sav­ing will be about Rs 7,505 cr (as­sum­ing a 15 per cent rise in em­ployee cost due to the im­ple­men­ta­tion of 3rd PRC).

b. VRS scheme: A VRS scheme should be brought in for all em­ploy­ees in the age group of 50 or more years. The scheme will be mod­elled on the fol­low­ing lines (as per DPE guide­lines and the ‘Gu­jarat Model’):

i. An ex-gra­tia amount of salary (pay & dear­ness al­lowance) of 35 days for ev­ery com­pleted year of ser­vice and 25 days for the bal­ance of ser­vice left un­til su­per­an­nu­a­tion (of up to 58 years) shall be paid to the em­ployee.

ii. All nor­mal pen­sion­ary ben­e­fits un­der Rule 37A of the CCS Pen­sion Rules in ad­di­tion to the ex-gra­tia ben­e­fits would be avail­able to the em­ployee who has been given VRS. Ex­pected Cost of VRS Scheme: The cost com­po­nents of VRS are as fol­lows: Ex-Gra­tia, Gra­tu­ity, Pre-pone­ment of Pen­sion, Pen­sion Com­mu­ta­tion, Leave En­cash­ment.

The num­ber of em­ploy­ees who will re­tire through VRS will be 20,883 (as­sum­ing 25 per cent of [16158+15882+13582+1 1698+9059+7163+5264 +4537]) (re­fer Ex­hibit 12). The em­ployee cost that BSNL will likely save due to the VRS will be 20,883 * 8 lakhs = Rs. 1,670.56 cr per year (with­out im­ple­ment­ing 3rd PRC) and 20,883*9.2 lakhs = Rs. 1921,24 cr per year (after im­ple­ment­ing 3rd PRC).

As of now, we do not have ex­act data of VRS com­po­nents.. How­ever, given the ex­pe­ri­ence of MTNL (es­ti­mated cost was Rs. 5953 cr. for 9,527 em­ploy­ees of MTNL2), we es­ti­mate the cost of VRS will be about Rs 13,048.86 Cr.

c. BSNL lead­er­ship and board of di­rec­tors: The board of di­rec­tors should also in­clude pro­fes­sion­als who have had ex­pe­ri­ence

of run­ning large busi­nesses. The board should not have only civil ser­vants and aca­demi­cians as In­de­pen­dent Di­rec­tors who have not been as­so­ci­ated with run­ning of busi­ness.

Aca­demi­cians for topranked In­dian man­age­ment in­sti­tutes or for­eign in­sti­tutes may be opted for board po­si­tions. How­ever, the num­ber of aca­demi­cians should not be more than 1 at any time. Also, the top man­age­rial po­si­tions should not be left va­cant for a pe­riod of more than 3 months.

d. Im­ple­ment­ing a per­for­mance-driven cul­ture: All em­ploy­ees should be eval­u­ated on a well es­tab­lished per­for­mance cri­te­ria. A merit-based cul­ture should be cre­ated in the or­ga­ni­za­tion. All ap­point­ments (re­cruit­ments and pro­mo­tions) should be based strictly on merit.

The top lead­er­ship of BSNL should be eval­u­ated by DoT and should be made ac­count­able for the prof­its and health of the or­ga­ni­za­tion. We even sug­gest that the top leader (CMD) should be a pro­fes­sional who has had ex­pe­ri­ence of run­ning busi­ness rather than a gov­ern­ment ser­vant who is ap­pointed on a fixed-ten­ure by the gov­ern­ment.

e. De­tails of other changes in BSNL that will be re­quired for a turn­around will be pro­vided in the Fi­nal Draft Re­port. The above is in­dica­tive of the ma­jor changes nec­es­sary at the top level only.

7. Pro­vide con­tin­gent liq­uid­ity sup­port for BSNL:

Given its fi­nan­cial con­di­tion, BSNL may re­quire fi­nan­cial sup­port for it to be re­vived in fu­ture. BSNL has al­ready asked for au­tho­ri­sa­tion to take loans for per cent of its op­er­at­ing ex­penses for next 2 years. While from an ac­count­ing point of view, ask­ing for let­ter of com­fort (a con­tin­gent li­a­bil­ity) is not same as bud­getary sup­port, eco­nom­i­cally both are

As per de­tails shared with us about VRS scheme for MTNL by DoT equiv­a­lent. In­stead of pro­vid­ing an ad-hoc sup­port as asked for, BNSL needs to be pro­vided this much needed sup­port based on cir­cle­wise busi­ness plans and its con­tin­u­a­tion/en­hance­ment should be based on key mile­stones to be achieved go­ing for­ward.

8. Post­pone list­ing of BSNL:

While there is a pos­si­bil­ity of list­ing of BSNL to bring in fi­nan­cial ef­fi­cien­cies, given BSNL’s cur­rent fi­nan­cial sit­u­a­tion and the mar­ket sen­ti­ments with re­gard to per­for­mance of gov­ern­ment en­ti­ties, we do not think this is an op­por­tune time for this. ("Most IPOs of the gov­ern­ment com­pa­nies in the past two years have not been fruit­ful to in­vestors.

Share prices of com­pa­nies – in­clud­ing Gar­den Reach Ship­builders & En­gi­neers, Ir­con In­ter­na­tional Lim­ited, The New In­dia As­sur­ance Com­pany, Gen­eral In­sur­ance Cor­po­ra­tion of In­dia – which were listed on the stock ex­changes are trad­ing much below the is­sue price. This has re­sulted in steep losses to the IPO in­vestors and dented de­mand for shares of gov­ern­ment com­pa­nies com­ing up for list­ing."

After five years, if BSNL is able to im­ple­ment crit­i­cal sug­ges­tions to im­prove its fi­nan­cial and or­ga­ni­za­tional sit­u­a­tion, then at that point, BSNL should be con­sid­ered for pri­va­ti­za­tion, ei­ther through a list­ing or a strate­gic role.

Si­mul­ta­ne­ously in work­ing out the steps iden­ti­fied above, the gov­ern­ment must set up an in­de­pen­dent on-go­ing re­view mech­a­nism for as­sess­ing the ef­fi­cacy of BSNL’s board de­ci­sions. This mech­a­nism should have a very low rep­re­sen­ta­tion from the gov­ern­ment.

Since con­tin­u­a­tion of BSNL would be con­tin­gent upon it tak­ing sev­eral steps, in­clud­ing those men­tioned above, and some of these are dif­fi­cult and trans­for­ma­tional, such a mech­a­nism will strengthen the Board pro­cesses and pro­vide vis­i­bil­ity to BSNL’s ef­forts.

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