Updated: 4 Mar 2010, 1001 hrs IST  

Panel for 30% stake sale to strengthen BSNL

4 Mar 2010, 0050 hrs IST, Rashmi Pratap, ET Bureau

MUMBAI: Sam Pitroda, the technocrat who laid the foundation for the telecom revolution two decades ago, is recommending a strategic stake sale and

staff cut by a third to revive the flagging fortunes of the state-owned Bharat Sanchar Nigam (BSNL).

The government should sell a 30% stake in the company through an initial public offer and also raise funds from the sale of its infrastructure, such as signal towers and real estate, the Pitroda-headed panel has recommended.

BSNL “is under severe pressure due to increased competition, a declining fixedline market, antiquated processes and procedural bottlenecks, especially related to purchase of equipment,” the report said. “Bureaucratic and government-dependent decision making system, lack of collaborative actions, large workforce, regulatory changes, operational inefficiencies and other internal and external challenges,” also contributed to its decline.

Telecom minister A Raja said he was not aware of the recommendations.

Prime Minister Manmohan Singh, worried about the steep decline in BSNL’s profitability over the years, called in Mr Pitroda to head a committee with banker Deepak Parekh and the telecom secretary PJ Thomas as members to suggest revival measures. While some suggestions may be implemented, key ones such as strategic stake sale may not happen given the government’s stated policy of not doing so.

“A strategic Indian investor, by virtue of owning a substantial stake, can bring in sound management practices and technological expertise, both of which are needed by BSNL,” said an analyst who did not want to be identified. “There is an even stronger case for a strategic sale here because BSNL is part of an extremely competitive industry and needs to be revamped. This can be accomplished by a strategic investor.”

However, this militates against the government’s thinking which plans to raise Rs 40,000 crore next fiscal, starting April, but without a strategic stake sale.

“There is no question of strategic sales,” finance minister Pranab Mukherjee told ET in an interview after the Budget speech. “I am very clear about this. The government will retain 51% equity. The methodology (for stake sales) will remain the same as the idea to bring about people ownership in these companies and improve their functioning.”

BSNL’s problem is also to do with the interference from the bureaucracy which rules over the business decisions of the company, without probably understanding the nuances of the business itself.

“Allow the ministry to interact only through board representation and board meetings and not through day-to-day decision-making, interfacing and supervision,” it said.

It may be one of the reasons why the company is unable to purchase equipments to keep pace with competitors such as Bharti Airtel and Reliance Communications which take decisions on spending billions of dollars on capital expenditure, wasting no time.

BSNL’s mega tender for 93 million GSM lines, floated in May 2008, is yet to be implemented.

“To remain competitive, BSNL should opt for managed services for network operations, IT and call centres,” the report said.

BSNL’s net profit plunged to Rs 574 crore in 2008-09 from Rs 3,009 crore in 2007-08. It has more than 90 million subscribers, assets worth Rs 88,000 crore and a turnover of Rs 35,000 crore

The telephone company has to use the funds from share sale to retire about a lakh of its 3 lakh employees, through best possible processes like voluntary retirement scheme (VRS) and induct young talent in technology and customer services, it said. “At the IPO, 10% should be returned to the government and 20% should be used for employee VRS, expansion and operation. Further, disinvestment could be considered after a detailed performance review in three years,” it said.

It has taken a leaf out of the books of private companies such as Bharti and Idea Cellular which have spun off their towers and minted millions of dollars and raised their valuations. It said BSNL, which has over 40,000 towers in the 20 circles, should follow them.

Aircel’s sale of 17,500 towers for Rs 8,400 crore to GTL Infrastructure in January 2010 showed BSNL’s towers are worth over Rs 19,200 crore.

“Their value can be unlocked through strategic sale or an initial public offering,” said the committee.

Its land ownership is estimated at over 2.5 million square metres across seven cities, besides staff quarters. The committee has recommended the creation of a separate subsidiary to hold undeveloped land bank and other real estate assets and unutilised staff quarters. “Monetise the value of this subsidiary by collaborating with a reputed and experienced real estate-related company in a transparent manner,” it said.

The suggestions also include the establishment of a BSNL venture fund to invest in or acquire small technology companies to encourage local innovation and local manufacturing. It has suggested management structure changes, too.

“Appoint an eminent person from the private sector with strategic vision and stature to interface with external environment as the chairman to focus on shareholder value,” it said.

“It is suggested that these recommendations be implemented urgently with a dedicated team of three executives — MD or CEO, COO and CFO — with a detailed roadmap and timetable and measurable milestones.”