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Telecom PSUs: The favoured block - Views on News from Equitymaster
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  • Aug 16, 2001

    Telecom PSUs: The favoured block

    Being a Public Sector Undertaking (PSU) has its own inherent advantages and disadvantages. But when it comes to the Indian telecom sector, PSUs are the king and the recent government policy framework seems to have just PSUs in mind. The basic objective is to minimize the loss to these PSUs with the advent of telecom liberalisation.

    The three key PSU telecom companies are DoT (or BSNL), MTNL and VSNL. While BSNL DoT dominates the telecom industry in terms of infrastructure and service status, VSNL has the monopoly in international telephony till March 2002. MTNL, on the other hand, provides basic service in two of the key telecom circles in India viz. Mumbai and Delhi, with a subscriber base of more than 4 m customers.

    If one were to consider the domestic long distance (DLD) telephony segment, at present, most of the DLD infrastructure in the country is with BSNL. It has 76,000 Rkm (route kilometer) of optical fibre cable (OFC) in comparison to 3,000 Rkm with other agencies. And BSNL provides basic telephony service in almost all the circles except Mumbai and Delhi, where MTNL is the basic service provider (BSP). Basic and cellular licensees have also established limited infrastructure in their circles, since they are allowed to carry long distance calls of their subscribers within their service areas. But BSNL is allowed to carry DLD calls to other circles also and the government is not willing to let private BSPs to offer intra-circle DLD service. Besides, the private BSPs are also unhappy with the interconnectivity charges that the Telecom Regulatory Authority of India (TRAI) has assumed (nearly 40% of revenues).

    Coming to the cellular segment, MTNL has stalled the implementation of calling party pays (CPP) regime, which would result in free incoming calls for subscribers. Even when the cellular companies are willing to introduce CPP, the fear of loss of the revenue share from cellular companies has forced MTNL to file a writ against the introduction of CPP regime.

    The existing public sector telecom service providers like MTNL, VSNL and BSNL have an inherent advantage in terms of network infrastructure and geographical coverage. Almost all their assets are fully depreciated and they generate sufficient cash flows to fund their expansion plans be it OFC network and additional switches. Also, the private players in the basic and cellular segment are made to shell out a large chunk of their revenues in the form of license fee. To put things in perspective, interconnection fee to BSNL and operation support costs was almost 38% of operating expenses for Hughes Tele.com. The same should be the case with other private operators as well.

    While the ministry is vouching time and again for a level playing field in the Indian telecom sector, the government’s policies and the telecom PSUs tactics on the ground level negate that. Development of telecommunications is a priority. For this both the telecom PSUs and the new private players would play an equally important role. The PSUs low costs are in the consumers’ interest, however, their mundane infrastructure and dismal service levels leave a lot to be desired.



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