BSNL clears 30% divestment

Subject to Union government approval, the board of state-owned telecom company Bharat Sanchar Nigam Ltd on Thursday cleared a proposal for the divestment of 30 per cent government equity in it, as suggested by a committee set up under Sam Pitroda, the prime minister's telecom and infrastructure advisor.

The board also accepted the three-member Pitroda panel's proposal to reduce BSNL's 300,000 staffers by a third.

In addition, it accepted the Pitroda recommendation to have a contract-based appointment system for top management, separate positions for MD and CEO and a formation of an advisory board.

Apart from Pitroda, the panel comprised HDFC chairman Deepak Parekh and Union telecom secretary P J Thomas. BSNL employee unions have already made their strong opposition clear to the disinvestment and staff reduction proposals. They are planning demonstrations and more, across the country.

"The board has agreed to go for 30 per cent divestment in two-three stages. BSNL would soon appoint bankers for taking an estimate of the total valuation of the company," a company official told Business Standard.

As for reducing staff, the board decided to offer a Voluntary Retirement Scheme to about 60,000 of its employees. "About 60,000 people are (anyway) retiring in the next four-five years, who can adopt the VRS (if offered now). The rest of the 40,000 employees can be accommodated (transferred) in various departments under the communications ministry," the official said.

The board decided to ask for a financial package from the government to cover the VRS cost.

The board decision on divestment has to be endorsed by the Union cabinet. As for the staff unions, they had earlier managed to ensure a 2007 Cabinet clearance for a 10 per cent divestment could not be taken forward. They are planning a countrywide agitation on March 15 against the Pitroda report contents.

Since the earlier decision on divestment, the valuations of telecom companies have gone down substantially, with growing rate wars and new companies (six later entrants) battling in the market. The BSNL official admitted the company might not attract the same kind of valuation this time; among other things, it has been losing market share in the highly competitive mobile market. Its current market share is 12 per cent. And, the profit fell to about Rs 5 billion (Rs 500 crore) in 2008-09 from over Rs100 billion (Rs 10,000 crore) in the previous financial year.

Telecom analyst Mahesh Uppal says: "If BSNL divests to a strategic telecom partner, it is an opportunity, as its assets are vastly underutilised. However, if government takes the approach taken for the MTNL divestment policy, it can only harm BSNL. MTNL has some of the poorest performing telecom stock in the world. "

Added Romal Shetty, Head of Telecom, KPMG, said: "BSNL has the reach and the infrastructure. But, the company needs private sector ownership. If there is a roadmap to divest more than 30 per cent, at around 50 per cent or so in the future and management control with someone else, valuations would be better.

The previous board meeting on Friday had accepted another Pitroda proposal, to scrap the controversial 93-million-GSM line tender, worth Rs 350 billion (Rs 35,000 crore) and shift to an outsourcing model for procuring equipment. "The company will be able to meet the immediate capacity requirements. We have 20 million lines with us," the official had said.

Private telecom companies follow such a model for expansion. With this, BSNL would reduce its capital expenditure, besides reducing its problem of having shortage of young trained engineers in latest technologies, had said the Pitroda report.

The BSNL tender was referred to the committee headed by Pitroda after a number of controversies, from home ministry objections on Chinese equipment firms to legal battles by disqualified vendors. The committee was also asked to find ways to revive BSNL.