Will MTNL succeed in overcoming its losses?
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Unsatisfactory Q1 results
MTNL has not performed well in Q1 ending 30.06.11 when compared to Q4 ending 31.03.11. Revenue decreased from Rs.855 crore to Rs.843 crore. The loss was mainly due to staff cost and retirement benefits. During the corresponding period of the previous year, MTNL posted a net loss of Rs.451 crore. Total income was Rs.971 crore in the corresponding period of the previous year. During the quarter, retirement benefits consumed Rs.108 crore as compared to Rs.60 crore in the corresponding period of the previous year. Net loss continued at Rs.850 crore compared to Rs.1099 crore in Q4. Operating profit margin and net profit margin are in the negative.
Geographic limitation of operations
MTNL’s operations are geographically limited to the already saturated metropolitan cities of Delhi and Mumbai, where the company is facing maximum competition from other players also. Before the advent of mobile phone and during the days of landline phone, MTNL was the king of its kingdom, dominating the telecom area. At that time in the eighties and nineties, the shares of the company were most sought after in the stock exchanges. It was a status symbol to possess the company’s shares at that time. But technology has made the company obsolete in the eyes of the investors. Still, the company can perform well if it spreads itself to other areas. But for that there are administrative difficulties and license procedures.
To run secure network for government with BSNL
The Central government has taken a decision to allow BSNL and MTNL to operate and maintain the secure telecom network that is being constructed to connect all government departments. MTNL has to run this network on a non-commercial basis. In this network, nearly 5000 government departments will be connected with each other. The government departments and ministries will use this secure network only in times of emergencies and for conveying secret information. C-Dot will supply all equipments for this connection network. The network will be built at a cost of Rs.900 crore by the Central government. There is another secured communication network that is being built for the armed forces. BSNL and MTNL will maintain this network also. The defence network is a Rs.10000 crore project. The details of these networks have not been made available by the government because of security reasons. But general public is interested to know whether MTNL will have any benefit in operating these networks. If MTNL is made to work without any benefits on a non-commercial basis, it will be unfair as MTNL is a publicly listed company and investors are entitled to demand compensation for any service made by the company including services to armed forces and the government.
Seeks to increase revenue by 25%
MTNL has tied up with Akmin Technologies Pvt Ltd to introduce a ‘Mobile Web Site Builder Service’ for its 8 million mobile subscribers in Delhi and Mumbai. It will cost the customer only Rs.75 per month. A customer can build and publish his website within minutes by using the step-by-step method instructions. Telecom Minister Kapil Sibal has directed MTNL to achieve a 25% increase in revenue by March 2012. Following this directive, MTNL is in the process of overhauling its customer care and marketing operations. In the next six months, MTNL needs to achieve an extra Rs.700 crore income to reach the target. In 2011, MTNL achieved a revenue figure of nearly Rs.4000 crore. MTNL has to concentrate in the lucrative enterprise business and produce a significant improvement in call completion rates in its GSM networks to achieve the set target.
Acute competition from private sector operators
But the problem is how to overcome competition from niche operators like Bharti Airtel, Vodafone Essar and Idea Cellular in India’s biggest telecom circles of Delhi and Mumbai. In 2011, MTNL posted a huge net loss of Rs.2826 crore. It was nearly 8% higher than the loss it posted in 2010. There is a poor demand for the company’s mobile services. When private telecom operators like Bharti Airtel are adding thousands of new customers to their network every month, it is a pity that MTNL is not able to add even 500 new customers every month. BSNL is far better in this regard compared to MTNL. MTNL has to spend nearly Rs.400 crore towards pension payment to its retired employees. This amount will be increasing in the future. MTNL also availed Rs.7000 crore loan to finance its 3G and BWA airwaves in Delhi and Mumbai last year. Its financial position is not comfortable with continuous losses incurred every year.
Whether 3G roaming legal or illegal
MTNL has been asked by DoT to hold back its deal with private players with regard to 3G roaming pacts. The government is examining whether such deals are permitted under the licensing agreement. The problem is that operators have signed roaming agreement in circles where they do not have 3G spectrum. They are also selling connections in such circles by making use of other operator’s network and spectrum. The government is examining whether this is legal. If this is viewed as spectrum sharing, which is not permitted under the licensing agreement, then it will be banned. But DoT seems to have clarified, according to the mobile operators, that roaming agreements will be allowed under 3G services. Operators maintain that this is not spectrum sharing as the equipment and network belong to the operator which owns the spectrum. It is not a case of operators putting their equipments on someone else’s spectrum. Roaming agreements among operators had been necessitated because of the fact that not a single operator won pan-Indian spectrum during the auctions held last year. For example, MTNL secured Delhi and Mumbai circles in the auction and it wants to offer roaming facilities to other players who did not get rights in these two circles. The company feels there is nothing wrong in it, but the government has to decide about it.
Technological progress
MTNL has hired the global consultancy firm PwC to scout for franchisee for BWA services. For BWA, Delhi and Mumbai saw highest bids at Rs.2241 crore and Rs.2292 crore respectively. It is not known whether MTNL will opt for LTE or WiMax technologies. LTE technology offers high speed internet. Users can stream high quality audio and video. WiMax provides wireless data over long distances in a variety of ways from full mobile cellular type access to point-to-point links. MTNL has tied up with Atom Technologies, a leading provider of m-commerce solutions to enable its customers to make bill payments through their landline or mobile phones. In Mumbai, MTNL has over 17 lakh telecom customers. The service enables the customers to make bill payments instantly through their credit cards.
Mauritius outfit turns around
In July, MTNL has invited expression of interest (EoI) from banks for availing long term loans worth Rs.1500 crore to repay its debts and to meet its working capital requirements. It is also planning to convert Rs.3000 crore into long term debt. MTNL has established its foothold in Mauritius with CDMA technology. It is now set to roll out GSM services also in Mauritius. The company is installing the equipment and the service is set to be launched at any time from now. Kuldip Singh is the Chairman & Managing Director of MTNL. Its Mauritius unit called Mahanagar Telephone Mauritius has turned around and has started making profits. MTNL has no idea to expand to any other country for the time being.
Undersea cable project abandoned
MTNL has abandoned its undersea cable project that it was executing through Millennium Telecom Ltd. The cables were laid from India to Singapore and Malaysia and to West Asia. It was a 51:49 joint venture with BSNL. Now both the companies are planning to use Millennium Telecom for their customer care and marketing purposes. The decision to work with BSNL and streamline the operations has come because of instructions from government. Both MTNL and BSNL are suffering from huge financial losses. Government feels that synergising their operations and cutting costs will improve their financial position somewhat. At one point of time, the government may contemplate merger of these two companies.
Push-mail service
MTNL has launched push-mail service in collaboration with Bharat Berry. Customers can stay connected to their e-mails, calendar and contacts. For multiple mail accounts, synchronisation of calendar and contacts service is also provided.
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