News is around that Finance ministry has rejected BSNL & MTNL’s plea of refunding  3G & Broadband access spectrum fee paid to government. BSNL & MTNL together have paid Rs.29000 crore as the spectrum price for both 3G & BWA. The spectrum has been  allotted to them around 12 months before the auction.3G spectrumhad been given to these companies before private operators on condition that they will match the auction price and will pay for spectrum accordingly.

After allotment of spectrum both companies took some time in creating the necessary infrastructure and then launched their services commercially. Infact BSNL is still not completed its roll out in all circles. So far both the companies couldn’t capitalize on first mover advantage and have not made much headway in terms of subscriber number and revenue. To my mind following can be some of the reasons for their failure-

  • Government’s haste in commercial launch of the service through two PSU’s even when backend infrastructure for 3G roll out was not ready for commercial services. For example when MTNL launched its 3G service in Mumbai and Delhi  it was able to offer the service in few small pockets of the cities and it took around 6-7 months to cover the entire cities. Slow roll out of 3G services led to negative publicity for both MTNL and BSNL specially by the media  and both the telecom PSU’s could not carry out full blown promotions as the network was not ready in majority of the areas. Although this is not the biggest reason, but the point is government had imposed its own willingness to launch 3G services in the country as soon as possible without caring about quality of services ,complete network roll out, MTNL/BSNL’s readiness for commercial services of 3G ,marketing and sales aspects etc Both companies couldn’t carry out any market analysis and market readiness for 3G services. They launched the service without a business plan and under pressure from the Government even when their 3G roll out was under process.
  • All private operators had the option of choosing the circles and they bid for circles after analysing aspects like future market potential, their own 2G customer base, financial capability etc. They  hired marketing consultants for getting a comprehensive strategy for 3G bidding and accordingly went for it. That’s how every operator had different strategy for choosing circles for 3G. But choice  what did MTNL and BSNL got for 3G ? BSNL has to offer 3G services in every corner of the country even when every  other operator finds it commercially unprofitable and chooses to stay off such circles. BSNL and MTNL didn’t get to choose according to their financial capabilities and  future growth of the market. BSNL should be compensated for operating in circles which may not be commercially profitable and hold slow growth for 3G services.
  • Weak Brand (BSNL & MTNL are not perceived as customer friendly, modern age & reliable brands), poor distribution (product is not intensively available),Ineffective communication execution.

As a result companies couldn’t capitalize on first mover advantage but on the other hand , are bound to match steep auction price. Companies like RCOM,TTSL didn’t participate in BWA auction seeing the costly prices & business case. But BSNL & MTNL didn’t have such option.

BSNL & MTNL had to shell out Rs.10186 cr & Rs.6564 cr respectively for 3G and Rs.8318 cr & Rs. 4533 cr respectively for BWA. That is huge sum of payout for  financially strained companies. To my mind, there is little injustice done to these companies and they deserve at least partial concession (refund) of spectrum fee on below given grounds-

  • They were not having any choice and had to launch the service in all circles. Their decision to launch 3G in any  circle was not based on cost-benefit analysis (as in the case of pvt operators).These companies have to fulfill some social obligation ,keeping business logic aside.
  • No other operator has gone for pan India license except BSNL & MTNL taken together. BSNL had to pay Rs. 10186 crore for pan India 3G license excluding Mumbai & Delhi, while the other operators are paying much less excluding two metros. Like Bharti is paying Rs 5,731 crore, Vodafone Rs 5,054 crore, Aircel Rs 6,499 crore, Reliance Communications Rs 2,021 crore, Tata Rs 5,864 crore and Idea Rs 5,769 crore for 3G license outside two metros.
  • These two companies do not have absolute freedom to take their strategic decisions as is the case with pvt operators. To give one example ,Government has mad it mandatory for these two companies to give some percentage of equipment supply orders to ITI Ltd. This leads to delay in many projects resulting in losses.
  • Both the companies are overstaffed. They have such a huge number of staff in one circle which other pvt. Operators may not have in whole India operation. BSNL has more than 3 lakh employees and MTNL has around 45,000 employees. Recent sixth pay commission implementation has increased the operational cost very significantly. The employee cost in these two companies is in the range of 40-50 % of the revenue. Industry average is 6-8%. These employees were recruited by DOT and not by these two companies and DOT has shifted its liability on these two companies. So providing employment to these many people without much productivity, these companies are obeying the social responsibility agenda of the government.

Thus since these two companies are not operating on sole business case basis so some relaxation should be given to them.


Thank you "Teleguru" for airing views in support of a PSU most determinedly being ruined by the government itself.