Destroying BSNL, one more time

Objections to the telco’s 4G tenders are reminiscent of the past. But this time, BSNL cannot afford to lose its chance of survival

State-run telecom company BSNL recently got a new lease of life after the Centre pumped in about ₹70,000 crore to revive it. It’s not even six months since this relief package was announced, and there is already an attempt to scuttle the dying telecom company’s revival plans.

On March 23, BSNL floated a new tender to procure 4G equipment in a bid to expand its mobile broadband network. The contract, valued at nearly ₹9,000 crore, included upgradation of 50,000 sites across the country that would position the telecom company to offer high-speed Internet access to its users. This project is crucial for the company, as it is already four years behind private telecom companies including Reliance Jio and Airtel in launching 4G services.

Deployment issue

So far, BSNL has been offering 2G and 3G services, thereby losing out on the opportunity to earn higher revenues from 4G customers. To plug this gap, the Centre decided to allocate 4G spectrum to BSNL this year and the company was quick to float the tender to award a comprehensive contract for planning, engineering, supply, and maintenance of its 4G network.

Just when things were looking to be on track, the tender for purchasing the equipment came under scrutiny from the Ministry of Commerce, after an industry body raised concerns. On April 15, the Telecom Equipment and Services Export Promotion Council (TEPC) sent a letter to various government departments, including the Ministry of Communications and the Prime Minister’s Office, alleging that the tender conditions set by BSNL flouted procurement rules under the ‘Make in India’ policy, and was heavily in favour of multinational companies. TEPC is an industry association representing domestic telecom equipment manufacturers such as Tejas Networks, Sterlite, HFCL, and Vihaan Networks.

In the letter, TEPC said that since public money was being used to revive BSNL, domestic suppliers of network equipment should be encouraged to participate in the tendering process. But they could not participate because, according to them, BSNL has set stiff conditions for bidders — including the requirement of having previous experience of setting up a mobile network for at least 20 million subscribers. It has also raised the national security angle, as if to suggest that equipment supplied by non-Indian entities could expose BSNL’s network to snooping.

BSNL has now been told to rework the tender after the Ministry of Commerce intervened. This means further delays. Meanwhile, Airtel has awarded a $1-billion contract to Finland’s Nokia for supplying 4G network equipment. No one has raised any security concerns on this deal.

It seems that lessons from the past, which ruined BSNL, have not been learned.

Past experience

Cut to 2008, when the Indian cellular market was at the cusp of exponential growth with 6-10 million new mobile users every month. Bharti Airtel was the top operator with 57 million users, followed by Vodafone-Essar at 41 million. BSNL, with 33.7 million users, decided to up the ante and announced an audacious plan to increase its network capacity by 94 million new lines at an investment of $10 billion, making it the world’s largest telecom equipment contract at that time. But then, allegations of irregularities in the tendering process hit the project.

Two years later, in 2010, the entire project was scrapped, dealing a crippling blow to BSNL’s expansion plans. Without adequate capacity to meet the growing demand for mobile phones, BSNL was pushed to the fifth spot after Airtel, Reliance Communications, Vodafone Essar and Idea Cellular.

BSNL’s revenues were nearly ₹40,000 crore in March 2007, while Airtel’s revenues were only ₹18,420 crore. By 2009, BSNL’s profits had nose-dived 81 per cent and revenues fell 6 per cent even as Airtel’s revenues grew by over ₹10,000 crore during 2008-09 and its profits increased to ₹7,859 crore. The destruction of BSNL started when it was denied to go through with the 94-million line contract.

Unfair burden

The latest tender for 4G equipment is more crucial than the 2G rollout in 2008. Then BSNL was still profitable then; now, it is fighting for survival. Rolling out 4G services quickly could still give the PSU a chance at cornering the market share in rural areas, where private players are just about launching services. If it has to compete with the likes of Reliance Jio and Airtel, then there has to be a level playing field.

It will be unfair to ask only BSNL to buy local 4G equipment, which is largely untested, and let private players run on equipment supplied by global giants like Nokia and Ericsson. If network security is an issue, then why should it only be relevant for BSNL? More than 90 per cent of mobile users in the country are on private operators’ network, and almost 100 per cent of these networks are supplied by foreign companies, including Chinese vendors.

The fact is that Indian players do not have experience in managing large mobile networks. While some of them may have developed 4G technology, there has been no large-scale deployment on these platforms, so the quality standards have not been tested. BSNL cannot afford to have another failed network deployment.

That is not to say that Indian manufacturers should not be encouraged. Companies such as Tejas, Sterlite, and Aksh Optifibre have developed top expertise in specific areas of telecommunication networks. The Centre should do more to support Indian manufacturing companies in a manner that’s fair to all stakeholders in the industry.

But the burden of propping up domestic manufacturers cannot be put on BSNL alone, in a highly competitive telecom market.

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