One lesson the government should learn from the Air India-Indian Airlines merger fiasco is that combining two sick people ends up making them sicker.
Sure, merging BSNL and MTNL [ Get Quote ], as has been suggested by BSNL chief Kuldeep Goyal, will increase their turnover to more than that of market leader Bharti -- this suggests advantages in costs/marketing. Also, metros where MTNL operates have the highest-paying customers (though overall metro revenues are stagnating now) and, with most company head offices located here, the corporate network solution business is a big opportunity.
But it's only in the movies -- like Tom, Dick and Harry -- where people with different disabilities (one is deaf, the other dumb and the third blind) combine into one person with no disabilities. Both BSNL and MTNL are firms in trouble, for one reason or another, such as the stopping of the ADC subsidy in the case of BSNL.
While BSNL's turnover remained steady at around Rs 39,000 crore (Rs 390 billion) for the past few years, its profits fell by more than half in 2007-08 (to Rs 3,009 crore or Rs 30.09 billion); in 2008-09, they are expected to fall to around Rs 300 crore (Rs 3 billion).
While the subscriber base grew 13 per cent in 2008-09, revenues are likely to fall by around 7-8 per cent (Bharti's subscriber base, in contrast, rose over 50 per cent and revenues around 47 per cent).
Why BSNL has done so badly is obvious. Till 2006, and even some part of 2007, it matched Bharti mobile subscriber for mobile subscriber though it got less revenues since its subscribers were in smaller towns/rural areas. Then A Raja became telecom minister and decided he wanted to reduce the price of the telecom equipment BSNL had ordered despite an open competitive bid, and also halved the order size.
Starved of capacity, BSNL's market-share crashed. And now, in its next tender, with a losing company going to court, the process of adding capacity has again halted! So even if you merge BSNL and MTNL, as long as their ability to expand depends upon the vagaries of a minister or can be checked by one court case somewhere, they're certain to fail.
And lack of marketing savvy has meant BSNL has been able to do nothing to stop one-two million people surrendering their landlines every year (giving them a free broadband connection, for instance, was surely an idea that could have been tried?). And given that Bharti (30 million) today has more rural mobile subscribers than BSNL (19 million), it would appear the rural thrust is not completely loss-making.
MTNL is equally troubled. While its mobile subscribers have doubled in the last four years (the hike in all subscribers is lower due to, as in the case of BSNL, people returning their landlines), overall revenues have fallen slightly.
MTNL made losses of Rs 414 crore (Rs 4.14 billion) on its core telephony in 2008-09, but declared a profit of Rs 216 crore or Rs 2.16 billion (Rs 407 crore or Rs 4.07 billion in 2007-08) after taking 'other income' into account -- in the last quarter of 2008-09, however, even the 'other income' of Rs 202 crore (Rs 2.02 billion) didn't prevent it from making a loss of Rs 83 crore (Rs 830 million).
MTNL's marketing savvy is best demonstrated by its 3G foray -- along with BSNL, it has got at least a year's headstart over the competition, but it has virtually no 3G customers and is now asking private players to develop its network using, if need be, their own branding!
Apart from the obvious problems of getting two different organisational cultures to merge, there is also the issue of staffers and pay disparities -- from 33 per cent in 2007-08, MTNL's wage-to-turnover bill rose to 47 per cent in 2008-09 (due to arrears and a hike in salaries) while that for BSNL is around 23 per cent (2008-09 data is not yet out).
Since a merger will necessarily result in BSNL salary levels going up to MTNL ones, the result of expenses rising while revenues are stagnating can only be disastrous.