BSNL/MTNL multi-billion-dollar rescue plan 'a lavish funeral budget'

• Indian government finally presents telco merger plan
• Turnaround plan valued at close to US$10 billion
• Despite huge cost, it could be too little, too late for the state-owned operators

India this week unveiled a long-awaited, super-expensive turnaround and merger plan for state-owned telcos BSNL and MTNL, but despite the multi-billion-dollar price tag, some remain unconvinced that it will be enough to save the beleaguered operators.

There are lots of figures being bandied about, but drawing together all the strands, the package carries an overall value of almost 700 billion rupees (close to US$10 billion). In a nutshell, it covers the award of spectrum to the operators, long-term bonds for debt-reduction and capex/opex and – crucially – the financing for a voluntary redundancy plan designed to help the operators reduce their massive workforces and associated costs.

The Voluntary Retirement Scheme (VRS) alone will cost the government almost INR300 billion, including INR171.7 billion in ex gratia payments.

That INR300 billion figure "seems like lavish funeral budget for a terminally ill patient," equity analyst Ambareesh Baliga said on Wednesday.

Harsh words, but not wholly uncalled for.

After years of debate over their future, the state-owned telcos are in quite a...state.

BSNL has reported widening losses in recent years, finding itself as much as INR79.9 billion (over $1 billion) in the red in the year to March 2018, according to its most recent annual report. Its revenue slid by 20% to INR250.7 billion that year, while last year turnover dropped by a further 23% and losses almost doubled to INR142 billion, according to provisional government figures cited by the Economic Times in July.

At the time, Prasad noted that the operator's wage bill would account for a massive INR144.9 billion, or 75% of its annual revenues; BSNL had over 161,000 employees on its books at the end of June. Other Indian operators spend around 5% of revenues on staffing, he said.

Little wonder then that BSNL has been struggling to pay wages in recent months.

Against that backdrop, the government's INR300 million allocation for the redundancy programme at both BSNL and MTNL – the latter is smaller, but faces similar issues – starts to look less plentiful.

And then you have to consider the fact that BSNL and MTNL are competing with the likes of Reliance Jio, which is much nimbler, unencumbered by legacy, and signing up customers at a frenetic rate to new data-led services.

The state is giving BSNL and MTNL a break on spectrum. The overall bailout plan includes INR201 billion for 4G spectrum that should enable them to provide broadband and data services, the government said; it also added a INR36.7 billion tax break on spectrum. "By using this spectrum allotment, BSNL and MTNL will be able to deliver 4G services, compete in the market and provide high speed data using their vast network including in rural areas," an official statement reads.

That's all very well, but the operators still need to have the wherewithal to deploy that spectrum and launch the right services.

Under the turnaround plan BSNL and MTNL will raise long-term bonds of INR150 billion to restructure their existing debt "and also partly meet capex, opex and other requirements," the government said.

All of which comes to INR687.5 billion, by my calculations. It's a huge sum of money, but might well not be enough for telcos carrying such a weight of legacy, and who find themselves so far behind their privately-owned rivals. It might be too early to call the undertaker, but you can see why the mourners are gathering.