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State-owned telecom service provider Bharat Sanchar Nigam Ltd is ready to join the league of private players by offering a stake to a foreign telecom entity, as an alternative to an initial public offering which faced stiff resistance from employee unions.
Officially confirming the change in tack for the first time after months of speculation, Kuldeep Goyal, BSNL's chairman and managing director, told Business Standard, "Foreign partners definitely bring in some expertise that will help the company improve its performance."
Explaining the logic for inducting a foreign investor, Goyal said, "All of us at BSNL want to fight the competition pro-actively, for which some measures will have to be taken. We cannot go on like this, the employees will also have to realise that we have to take some tough decisions."
He, however, declined to discuss details such as the shareholding BSNL is willing to offer a foreign investor.
The BSNL board had cleared a plan to divest 10 per cent through an IPO last year to raise about Rs 10,000 crore (Rs 100 billion).
Goyal also made it clear the new plan would be discussed with the union for its concurrence. "We have to talk to our employees about whether they would prefer a foreign partner or an IPO," he said. "We also have to see what the government wants," he added.
The union has chosen not to comment until the issue is discussed with the management. "We have to talk to the chairman and managing director first to understand the proposal and the actual situation, after which we will be in a better position to comment," said V A N Namboodiri, president, BSNL Employee Union.
He added that the union would probably issue a statement after July 9.
Big foreign telecom operators like AT&T, France Telecom and Oman Telecom have been eyeing the Indian telecom market.
BSNL is the country's largest telecom company after Bharti Airtel, with 82 million subscribers (53.6 million of them mobile users) and has a country-wide network coverage.
With a turnover of Rs 38,000 crore (Rs 380 billion) and a net profit of Rs 3,000 crore (Rs 30 billion) in the last financial year, it will be a lucrative target for foreign players.
The company will also require cash to pay for third generation spectrum, which has now become more expensive with the recent decision to raise the reserve price of 3G spectrum to Rs 4,040 crore (Rs 40.4 billion). The company has a head-start over private competitors in 3G services, having been given government permission to begin operations even though private players are waiting for licences to be auctioned.
Commenting on the steep price of spectrum, the radio frequencies that enable mobile calls, Goyal said, "We started our 3G services in February without knowing the price of spectrum. But if the cost of spectrum is too high then we might have to adjust our price to consumers accordingly."
The company has 10,000 3G customers in over 70 cities and is targeting 100,000 customers by September this year.
The company is currently fighting a court case against telecom equipment vendor Nokia Siemens which had alleged unfair allotment of a tender for 93 million lines.
BSNL's move to induct a foreign partner is part of a trend among private telecom operators to infuse cash, technology, or reduce investment costs by leveraging bulk-buying discounts for equipment.
Tata Teleservices, for instance, sold 26 per cent to NTT DoCoMo for Rs 13,070 crore (Rs 130.7 billion). The Japanese telecom giant is now playing a key role in the Tata telecom company's roll-out of GSM services and in introducing its value-added services.
New entrants like Swan Telecom and Unitech Wireless were able to sell stakes even though they have not yet started services.
Swan Telecom sold 45 per cent to UAE-based Emirates Telecommunications Corporation (Etisalat) for around Rs 4,140 crore (Rs 41.4 billion).
Unitech Wireless, sold 60 per cent stake to Norway's Telenor for Rs 6,120 crore (Rs 61.2 billion).
