Financial Daily from THE HINDU group of publications
Monday, Sep 02, 2002
Corporate - Mergers & Acquisitions
BSNL, MTNL merger plan takes industry by surprise
MUMBAI, Sept. 1
THE Union Communications & Information Technology Minister, Mr Pramod Mahajan's statement that the Government intends to merge Bharat Sanchar Nigam Ltd and Mahanagar Telephone Nigam Ltd appears to have taken the telecom industry by surprise.
"We do not understand whose purpose is served by this, BSNL's or MTNL's,'' said a former senior official with one of the state-owned telecommunications companies. "BSNL will no doubt get Delhi and Mumbai into its fold while MTNL's shareholders will lose share value on account of the constraints and obligations of BSNL,'' he said.
MTNL, a listed company, operates basic, cellular and Internet services in Mumbai and Delhi while BSNL, completely under the Ministry of Telecommunications, operates the same in the rest of India.
If MTNL shareholders will get a less attractive deal as a result of such a move, the only logical reason why this should be done is to make BSNL more attractive, say telecom industry analysts.
And, the Government could have only two reasons for making BSNL look more attractive, they said. One, if it wants to divest its stake in BSNL. And the other, if it wants to make BSNL more profitable by bringing into its fold the "creamy circles" of Delhi and Mumbai.
"The latter cannot be the eventual objective since the Government is very clear it wants to move out of the business of business; in addition there is no indication from the Minister that the Government will not eventually divest in BSNL and MTNL.''
In addition, BSNL is so large, that however profitable and attractive MTNL might be, "the muscle of MTNL will be swallowed up by the blubber of BSNL," said one telecom industry official.
Telecom industry officials said they were puzzled since they did not see who would be able to afford a controlling stake in such a behemoth of a merged entity, should such a merger actually happen.
"The combined entity would have its presence in every basic and cellular circle in the country. Large telecom groups already have large footprints, either in cellular or basic telephony; why would they want to invest in it? Of course, they would get an all-India presence, but would they relinquish their existing circles? Whom would they relinquish them to?''
More than anything else, who has the money for this? ask other analysts. "Forget a 26 per cent stake, a 10 per cent stake in such an entity could cost more than Rs 10,000 crore. Who would want to spend Rs 10,000 crore in a company where the Government still has a 90 per cent say in it?''
Not to mention the army of employees, said one senior official from one of the PSUs. "MTNL has almost 60,000 employees and BSNL more than 3 lakh."
It would be unlikely that even a foreign investor would find it attractive or affordable on these terms, added analysts.
While BSNL's network that spans the length and breadth and every nook and corner of the country is certainly attractive, "nobody knows how much of legacy exchanges there are that need to be updated and what kind of additional investments need to be made to turn it into a state-of-the-art telecom services company,'' said an analyst.
Village telephony: Cell players upset over Mahajan stand
CELLULAR service operators are upset at the the Union Communications & Information Technology Minister, Mr Pramod Mahajan's indication that he will prevail upon BSNL to provide telephony in those villages where the private basic operators have failed to.
"We feel that the pressure on the basic services operators to provide village private telephones (VPTs) may be eventually lifted or eased,'' said a representative of the cellular services industry. "Although the Minister has said that the basic operators would have to pay in some manner and will not be let off the hook, we think matters are becoming too easy for basic operators, especially because they have received free licences for limited mobility.''
"VPT obligations have been laid out by the Department of Telecommunications; they cannot be watered down so easily.''
Private basic services operators are required to provide a certain number of VPTs in the circles of their operation. The Minister had, some months ago, pulled them up saying he would revoke their licences if they did not fulfil their obligations within a stipulated period of time. However, basic services operators, several of whom are facing severe financial problems, have been unable to fulfil their obligations.
The Minister is now saying that the villages which fall under the private basic operators' jurisdiction should not suffer on any account and that he does not want the "current telecom revolution to suffer". He has said the private operators will have to share in the scheme for village telephony.
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