HoldCo model likely for MTNL, BSNL merger

The Department of Telecommunications might favour the holding company structure for the merger of the two telecom PSUs,  Bharat Sanchar Nigam and Mahanagar Telephone Nigam.

Though a final decision is yet to be taken, this is in line with the recommendations of the consultants appointed by the DoT to assist in the restructuring exercise. "The HoldCo structure is a good immediate term measure to try and achieve the benefits and synergies of a unified operation of BSNL and MTNL," the consultants said in their final report submitted to the DoT recently.

A professional management structure, with a board that includes government and industry nominees and employee-participation from of the merged companies, would ensure this model.

The consultants were: ICICI Securities, ABN-Amro, Rothschild, AG Ferguson & Co and Desai & Diwanji. "Once the HoldCo structure is able to stabilise and derive the required level of synergy; further measures to consolidate the two operating companies with the holding company can be worked out, if deemed necessary at that point of time," the consultants said.

The consortium of consultants said, "HoldCo could facilitate and enable a higher level of synergy between BSNL and MTNL against the present operational structure.

The strategic, marketing and business development decisions for the two subsidiaries will be taken care by the holding company."

Besides, there would be significant cost savings in capital expenditures and asset utilisations.

Moreover, the HoldCo structure would enable low transaction costs and address issues such as parity of costs, even though the "unified chain of command objective may be lost, it said.