The Telegraph
Since 1st March, 1999
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BSNL begs for bailout benefits

New Delhi, Oct. 25: Bharat Sanchar Nigam (BSNL) is looking nervously over a financial precipice — and has stuck out a begging bowl for a package of relief from the government.

The state-owned telephony major says the operation of the legacy systems that it took over from the Department of Telecommmunications (DoT) will ram a Rs 40,000-crore hole through its finances during the Tenth Plan period (2002-07).

The telephony major, which has just sent a frission of fear through the cellular industry with a highly competitive tariff plan for its CellOne service, has demanded a slew of tax breaks and fee waivers to tide over its corporatisation blues.

The understated threat: if the government doesn’t play ball, BSNL won’t be able to meet its social service obligations of running a telephone system of 3.4 crore lines over a national network that links Kargil to Kanyakumari, with almost 1 crore lines in the rural areas. It also says it will slip badly in meeting the tele-density targets — providing new telephone lines to customers — till 2010 that were set out in the National Telecom Policy 1999 if the government doesn’t concede its demands.

Bharat Sanchar Nigam, which was corporatised on October 1, has started to wail for a package of relief long before the government might have reasonably expected it to.

“The financial burden due to corporatisation works out to Rs 40,000 crore over the next 10 years. This is a huge drain on BSNL resources. It does not put BSNL in the position of carrying social responsibilities and, at the same time, generating resources for the government. This is being expected despite social obligations of rural connection and NTP 1999,” says BSNL chairman and managing director Pritihipal Singh in a letter to Vinod Vaish, secretary, communications and information technology, while pressing for the acceptance of the telephony giant’s demands.

Out of the Rs 40,000 crore, Singh has estimated that Rs 18,000 crore will be on account of licence fee/spectrum charges. Dividends on equity, preference equity and servicing of government loans, which are included in the capital structure of BSNL, will account for another Rs 9,000 crore.

“In fact, BSNL is struggling to repay the balance Rs 3,056 crore of the huge debt of Rs 10,850 crore incurred through bonds floated since 1986. The debt was raised to fund DoT’s past development plans to enhance tele-density, including in the rural areas,” says the letter. Singh says “no debt-redemption reserve had been built up over the years since such an unexpected debt burden was not anticipated”.

The BSNL chief said corporatised entity has been operating a massive chunk of unremunerative connections, which he put at 1 crore in rural areas and 50 per cent of the urban network of about 2.4 crore connections.

DoT had been able to operate and maintain the network because of a system of cross-subsidisation using revenues from top-end customers and long distance services.

Even now, BSNL has a system where the lower usage customer pays a lower call cost. For instance, the urban customer is charged 80 paise per call for the first 400 calls, 1 rupee for calls between 401 and 1,000 calls and Rs 1.20 for over 1,000 calls.

This inverted pyramid rate structure is now under threat. “Now, private operators are targeting the high-end customers and competition in national long-distance services has led to a steep decline in long distance tariffs,” says Singh in his letter.

“In this difficult situation, which is likely to become worse over a period of time, it is difficult for BSNL to cope with the additional financial burden due to corporatisation. Hence, there is an urgent need to neutralise the financial impact of corporatisation,” writes Singh.

“In the absence of support from the government, the NTP targets will not be achieved without significant contribution by BSNL.”

BSNL’s cries should sound music to the private operators who are waiting for it to lose its weight so that they can pick up a stake in the entity as and when the government decides carve it up into three separate companies.

“This is a decision that was recently recommended for BSNL. If this is followed, it will make the company soon sick and an easy prey for the private telecom companies, both domestic and foreign,” said a telecom analyst.

“The demand made by BSNL was expected to come. But it is strange that a company with such a huge subscriber base has come down on its knees so soon,” the consultant said.

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