Giving beleaguered telecom PSUs MTNL and BSNL a R11,000 crore refund for the broadband spectrum they paid for in 2010 will probably give them a year or two of respite, but the move tells you exactly what is wrong with the PSUs. While private sector competitors are getting into more data services as this is where the future lies, the two PSUs are shrinking their data capabilities. It is true that it makes sense to give up the broadband spectrum since neither PSU has too many subscribers on such services, but then that is equally true of the 3G spectrum these PSUs have, indeed of even the 2G spectrum they have. Both PSUs have dramatically lost market share over the years and, in FY13, BSNL’s losses were over R8,000 crore and MTNL’s over R5,300 crore. Just looking at the losses, horrendously large as they are, misses the point. As compared to the industry average of around 5%, MTNL’s wage payments are higher than its revenues and while BSNL’s are lower, they are still a whopping 49% of turnover. In other words, both companies need drastic surgery. If the money was to be used to lay off staffers in large numbers—between a third to half the staff—there could still be some point to the exercise. But there is little sign of this. Indeed, the Sam Pitroda committee on reviving BSNL had made precisely such suggestions, including a stake sale to a strategic investor, most of which have been rejected by the telecom ministry.
Another point that needs keeping in mind is that while the refund is being projected as being revenue-neutral, it is nothing of the sort. While the government will pay out R11,000 crore to these PSUs, it is not certain it will get back this amount when auctioning the spectrum again, given the state of both the economy and the finances of the industry.