BSNL Getting Ready for a Makeover with the showstopper none other that the telecom guru, Sam Pitroda!

Can BSNL be competitive in a space dominated by private players?

Yes, according to a recent Pitroda committee report which says:

Bold initiatives and hard decisions can once again position BSNL as the dominant player in telecom – by profit, revenue, market share, technology, services and social relevance.”

According to the report, these ‘bold initiatives’ essentially include the following steps for BSNL:

  • Broadening the mindset and weaning itself of government support;
  • A new management structure that includes a CEO, external directors and a full time Chief Technology Officer (CTO) as well as a Chief IT Officer (CIO);
  • A chairman from the private sector with the vision and conviction to focus on shareholder value;
  • Induction of young talent in technology, IT, marketing, customer services, sales and retirement of 1,00,000 employees through VRS.

But beyond this organizational overhaul, there are other structural issues that need to be addressed, Recommendations include

  • The chairman should be an ‘eminent’ person from private sector with strategic vision’ and the stature to interfere with the external environment and focus on shareholder value;
  • The advisory board for each of the business units – having ‘clarity’ and ‘vision’;
  • Induction of young talent in technology, IT, marketing, customer services, sales – and retire 1,00,000 employees through VRS.

BSNL’s net profit was nearly Rs 6,000 crores just five years ago, with over Rs.36,000 crore in revenues. Now, Bharti has overtaken it, going from revenues of 8000 crores five years ago, to exceeding BSNL’s revenues by March 31, 2010. [1]

The obvious question is whether the PSUs – BSNL /MTNL – can keep pace with the growth in technology and consumer demand?

Will they go the way of PSUs in other sectors that have accumulated losses over the years? (Air India and myriad State Electricity Boards come to mind). Or

Do they have a real plan to succeed like the State Bank of India, which managed to break free from its public sector chains.

Strong competition in the mobile sector has far eclipsed the fixed-line sector. But across the country, there is no doubt that BSNL/MTNL still has monopoly over basic services and local exchanges, barring a few major cities where Airtel, Tatas and Reliance are providing basic services under the Unified Access Services Licence.

Now it is for BSNL to be clear about what it wants. They can continue their monopoly in the local exchange and stay out of the long distance and other service segments where it faces stiff competition. Or it can shed its haloed status and get set for competition on an equal footing.

In India, at present, there is no unbundling of the local loop. If the incumbents unbundled, what would be left?

Facing competition from the rapidly growing telecom markets / products regulated by TRAI. In other words, they cannot survive on advantages of ADC or sharing of infrastructure and will have to provide services on a level playing field, competing with many other service providers.

A year ago in May 2009, we learnt that the state-owned telecom duo will shortly be rolling out the country’s largest IPTV service. Can BSNL really take on private DTH competitors? Or face up to stiff competition in the mobile sector? It seems like this entity needs to look for other ways to maximize its incumbent advantage.

Vast Possibilities in Unbundling…

The valuable network infrastructure should be shared and unbundled to allow for earnings based on capacity maintained. BSNL/MTNL’s lack of enterprise in not being able to cash on beginner’s advantage with Wimax and 3G is apparent.

So, isn’t it better to let private players use it to maximum advantage (for varied VAS), and leverage its monopoly over the infrastructure by charging for offering interconnection and unbundling of the network?

In this, it can follow the example of incumbents in the US and UK where government controlled operators were transformed into private operators managing an unbundled network.

The story repeats itself in all major jurisdictions, including France and Germany[2].

If it is not realistic about its market prospects, this PSU may have to divest out of desperation.

[1] “IPTV: BSNL, MTNL do it MyWay” by Surajeet Das Gupta – Business Standard, New Delhi May 27, 2009