Making an elephant dance

The state-run telecom major Bharat Sanchar Nigam Limited (BSNL) is in the news again and that too for the wrong reasons. Its employees are planning to go on a nationwide strike to protest against some sweeping changes, including massive job cuts, proposed by an expert committee. BSNL, plagued by numerous problems, is now gearing up for a complete overhaul, but everyone related to it know that salvaging the telecom behemoth is not an easy task for the government or the management as it has to overcome many insurmountable challenges in a short period of time.  They also know that time is ticking away for BSNL. BSNL, the third biggest employer after the Indian army and railways, recorded a whopping 81 per cent drop in its net profit in 2008-09 to Rs 575 crore from Rs 3,009 crore in 2007-08. Its revenue at Rs 35,812 crore in 2008-09 was 10 per cent higher.

Even more alarming is the fact that BSNL is actually making losses from its telecom operations, as the interest income Rs 3,900 crore that company earned in 2008-09 contributed to its profits. In the last financial year also BSNL’s interest income was Rs 4,004 crore, contributing bulk of its profit of Rs 3009 crore.

Sadly, the company that connected people from every nook and corner of India with its fibre optic cables and phones has lost heavily on its landline (non-cellular) business. According to a reply by the junior Telecommunications Minister Gurudas Kamat, BSNL in 2008-09 incurred losses worth Rs 4,963 crore from landline business. In fact, in the last five years, BSNL’s revenue from the landline business has dipped by more than 45 per cent. Intense competition in business, following the opening up of the telecom sector to private companies, is another reason for BSNL’s downfall.

Plenty of faults
A sharp fall in average revenue per subscriber, an increase in operating expenses and higher customer acquisition costs are eroding the profits of all telecom companies including BSNL. One representative example of the intense competition is the Karnataka telecom circle where there are now as many as 12 operators for cellular phones and four for landline.

Poor management, bureaucratic interference in day-to-day affairs, failure to compete with private players, corruption in equipment procurement and delay in decision-making all have hit BSNL’s performance in the last three to four years.
Taking a serious note of the plight of the telecom behemoth, Prime Minister Manmohan Singh appointed a committee headed by Sam Pitroda to find out ways to salvage the slipping company.

The panel, which went through all the details and nitty-gritty of the company,  has recommended several measures which are as follows. It said that BSNL should cut one lakh jobs which is equal to one third of its strength of 3 lakh employees. The government should lower its equity stake in the company by 30 per cent through disinvestment of shares, is another suggestion.

Difficult to implement
Pitroda also wanted BSNL to scrap the telecom equipment orders for 93 million GSM lines and replace it with network outsourcing deal. BSNL’s board has accepted all recommendations of the expert committee and cleared a proposal for 30 per cent government equity dilution. But the management has already started facing the heat from the employees, who threatened to go on strike to derail the government attempt. The recommendations of the expert committee certainly make sense but will be very difficult to implement. The committee, for example, has suggested 30 per cent stake sale of BSNL to an Indian strategic investor or through an Initial Public Offering (IPO). 20 per cent of the revenue earned from equity sale should be utilised for employee VRS, expansion and operations.

This prescription is impossible to follow. First of all, a strategic investor pumping in millions of dollars for buying 30 per cent stake will ask BSNL to shed all its excess employees and redundant operations before chipping in any money.
If the company goes through the IPO route it will not be able to sell its shares because of its very poor financial. No wonder, the BSNL board has decided to approach the finance ministry for grants to fund the VRS scheme. Stake sell will also face opposition from the union. Since 2007, BSNL has twice approved the proposal to divest 10 per cent stake in the company but the plan so far has failed to take off due to opposition from the employee unions.  

Strike threat
Fifteen employees’ unions in BSNL have already threatened to start agitation against the Pitroda panel’s recommendations. “Why sell the stake when the company is sitting on a Rs 35,000 crore cash reserve. Let it use the existing cash for its expansion,” Convener of Joint Forum of Executives and Non Executives’ Unions and Associations  V A N Namboodiri told Deccan Herald. To reduce the staff strength from around 3 lakh, the committee recommended outsourcing of several services including those of call centre or IT management. BSNL has already initiated the process to outsource more than 50,000 towers and over 5 lakh km of fibre optic cable. But, this move too is expected to face stiff resistance from the employees as it will impact close to 30,000 jobs. On the issue of downsizing of staff, the BSNL board is learnt to have decided to offer VRS to about 60,000 of its employees. “About 60,000 people are retiring in the next four to five years, who can accept the VRS. The rest of the 40,000 employees can be relocated in the communications ministry,” a official said.

Surely overstaffed  
There is merit in trimming the jumbo staff of BSNL, which suffers from low employee productivity and poor man management. The employee base of the state-run telecom company is ten times more than the private operators. For example, Airtel, the market leader in mobile phone segment with 25 per cent market share, has over 122 million subscribers across the country. It has just about 25,000 employees to manage the operations. BSNL has 65 million wireless subscribers and 27.9 million fixed-line users for which it has three lakh employees, making its employee-to-customer ratio of 1:310 against Airtel’s 1:4880. But Namboodiri is of the view that there is no need for reducing the staff as already over one lakh employees have retired in the last ten years. “If the government goes ahead with further downsizing of the staff, it would be disastrous as the company is already facing shortage of quality staff”, he said. To bring professionalism in the company management, the committee has said an eminent person from the private sector should be appointed as chairman supported by best professionals selected from the market at market rates. It has also suggested separation of the post of the Managing Director or Chief Executive Officer from that of the Chairman.

Other moves
Another reason for poor performance as identified by the committee is overlapping of several businesses causing unnecessary burden on the company. To sort out the problem the panel has recommended a separate subsidiary to hold undeveloped land bank.  To address the delay in procuring network equipment, which is one of the problems the company is facing, the panel has suggested that BSNL should start using tools such as e-procurement, vendor rating and running contracts.
Rajya Sabha member Rajeev Chandrashekar, who has been urging the Prime Minister to salvage the PSU, told this newspaper that  there is an urgent need to bring changes in the management .  “The government should take some drastic steps to save the company as it is the most important national asset” he said.
DH News Service

Prescription of expert committee on BSNL

Recommendations

* Cut 100,000 or one-third of 300,000 jobs
* Government should divest 30 per cent stake through IPO
* Bring in strategic investors by offering stake
* Create a separate company to hold land and other BSNL assets
* Scrap contracts awarded for 93 million GSM lines, go for utsourcing  

Problem in implementation
* Employees union will go on strike,
political parties will oppose
8 Politically difficult, given the poor health and uncertain future, IPO will not sell
* It will ask for trimming of workforce before and will demand management control
* Will make BSNL less attractive to      suitors and the process will take long time
* May lead to litigation and BSNL has no experience in outsourcing