Policy Watch: Dial 'C' For Confusion?

The government is going ahead full steam with the formation of Bharat Sanchar Nigam Ltd, but several loose ends need to be tied up.

In March, 1999, the Government Of India (GOI) grandly announced that the Department of Telecom Services (DTS) will become a corporate entity on October 1, 2000. One-and-a-half years on, with just a week left for the deadline, several loose ends remain to be tied up.

Sure, the Bharat Sanchar Nigam Ltd (BSNL) will be born right on time, with a paid-up capital of Rs 5,000 crore. It will have a chairman (Department of Telecom Operations Secretary R.N. Goyal, say DOT sources) and licences to operate basic, cellular, and Net services nationwide, barring Delhi and Mumbai where the Mahanagar Telephone Nigam Ltd (MTNL) is providing these services.

Financial restructuring will not be much of a problem. Being a service-providing arm, the ledgers of DTS are in better shape than most government departments. Asserts a senior Department of Telecom (DOT) official: ''We are completely prepared for corporatisation.''

The Right Numbers
Ť Estimated market cap: Rs 2,50,000 crore
Ť Net worth: Rs 70,000 crore
Ť Annual revenue in 1999-2000: Rs 20,833.33 crore
Ť Net profits in 1999-2000: Rs 10,000 crore
Ť Fibre-optic backbone of 1,23,632 km
Ť 26 million subscriber base for basic telephony
Ť Nationwide licences for basic, cellular, long-distance, and Net services (barring Mumbai and Delhi)

Cross-Connections
Ť May have to take on a six lakh-strong workforce with an additional salary liability of Rs 720 crore a year
Ť Cannot reduce manpower without ministry's approval
Ť No decision on board of directors
Ť No monopoly in telecommunication services
Ť May not be free of government interference

But there's reason to believe that only the facade of BSNL will be ready on D-Day. There are several other issues that need to be addressed before it gets a body and soul. There's no sign of a professional board of directors or an executive committee yet; consultant AF Ferguson is still working on a business plan; and the valuation of DTS' 22 circles is still under way. Minister of State for Telecommunications Tapan Sikdar admits as much even as he insists that corporatisation will not be delayed by more than a few days. Says Sikdar, 57: ''Some of the contentious issues can be discussed and resolved after that.''

Senior government officials say DOT has been given a mandate to create BSNL on October 1, 2000, come what may. The unresolved issues, it has reportedly been told, can be addressed by and by. Telecom consultants greet this warily. Says Devinder Chawla, 38, principal, at Kearney: "Corporatisation is a significant step and needs to be carefully planned. If the deadline alone is driving the process, we may end up with some complex, unresolved issues."

Indeed, the hurry shows the GOI is serious about corporatisation, which has dragged on for seven long years. In 1993, management consultant M. Athreya had suggested that DOT (there was no DTS then) be split into four regional corporations and one corporation for long distance telephony.

But it was only in 1995 that the GOI actually decided to go ahead. Stiff resistance from the unions, however, stalled any further progress till telecom liberalisation forced it to move double-quick. Asserts a senior DOT official: ''In this age of cut-throat competition, you cannot run a commercial operation by remaining a government department. You have to be nimble-footed to stay ahead in the race.'' Corporatisation is expected to give DTS (in its new avatar) more operational flexibility and allow it to tap the market for funds, reducing its dependence on the GOI.

There is, however, a flip-side to such unseemly haste. Unlike MTNL and international long-distance service provider Videsh Sanchar Nigam Ltd (VSNL), both of which were created when telecom was still a state monopoly, BSNL is emerging at a time when the entire telecom sector has been opened up. It will need to respond immediately to the challenge of competition. But the GOI has not yet appointed a board of directors, though there are reports that some members of the Telecom Commission may be selected. Says Chawla: "Competitive pressures require quick responses. How is that possible when a board is not in place?"

Issues like partnership and alliances, for example, have not yet been addressed. Says telecom consultant Mahesh Uppal, 47: ''The long-distance player will be critically dependent on the local access provider to reach the individual subscriber. The terms of this interconnect will make or break this business.'' DOT officials, however, argue that this dependence is not a problem at this stage, given BSNL's network, customer base, and huge revenues.

The BSNL will also have to wrestle with the contentious issue of rural connectivity and the universal service obligations (USOs). DTS already has 3,43,000 lines to rural areas-far more than the 12 lines by all private operators-and BSNL will have to take on the obligation of maintaining them. That is not exactly good news for a profit-driven BSNL, and was, in fact, an issue that was raised when the unions went on strike in early September. The GOI is proposing to compensate BSNL by waiving its licence fee and its contribution to the USO fund. But if the proposal does not go through, the new entity will have to devise a strategy to make its rural network pay.

Quick decisions also need to be taken on how to mitigate the impact of the liabilities BSNL will incur. For one, it will be faced with a whopping corporate tax burden, estimated to be around Rs 3,000 crore on the Rs 10,000-crore profit it earned in 1999-2000.

There is also the burden of the Rs 1,000-a-month hike in the salaries of six lakh DTS employees (the price extracted by them for agreeing to corporatisation). If all these employees decide to join BSNL, this will mean an additional annual burden of Rs 720 crore. Fortunately, pension payments to the staff is not an issue. For one, the pension liabilities will not arise immediately. In any case, the group of ministers will decide whether BSNL or the GOI, through the Consolidated Fund, will bear the pension burden.

So will the country's newest public sector undertaking be a lean, mean, fighting machine or just another slothful monolith? Right now, the signs are not very hopeful. BSNL inherits a huge, unionised workforce, with no freedom to retrench excess manpower. What's more, it will be a wholly-owned government company, which does not augur well for autonomy and independence of action. True, corporatisation is supposed to be the first step towards privatisation, but nobody's uttering the 'P' word just yet. Says a DOT official: ''We'll cross the bridge when we come to it.'' That will be a big 'when' indeed.