MTNL looks for a saviour in Singapore Telecom - Views on News from Equitymaster

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MTNL looks for a saviour in Singapore Telecom

Sep 17, 1999

According to newspaper reports, Mahanagar Telephone Nigam Limited (MTNL) is planning a strategic tie up with Singapore Telecommunications. The tie up may cover areas including marketing cellular services, billing, customer care, leasing satellite space and production of yellow pages. MTNL (FY99 Revenues: Rs 52.47 bn), a public sector company, is a franchise of the Department of Telecom. The company has a 15-year telecom license to operate in New Delhi and Mumbai until the year 2013.

MTNL's decision to explore the possibility of a tie up comes at a time when the new entrants are threatening its dominance in the Delhi and Bombay telecom circles. Although MTNL has created a telecom infrastructure of high technical standards, it lags its competitors in terms of quality of service. An alliance with Singapore Telecommunications will help bridge this gap.

This is, however, just one problem that MTNL is facing. The company has to grapple with certain structural problems, which will continue to weigh heavily on its future performance:

  • A large employee base of 62,500, which, in comparison to its peers, leads to very low levels of employee productivity.
  • Its bureaucratic style of management has slowed down its responsiveness to competition.
  • The company continues to raise debt (which it passes on to the Department of Telecommunications) despite the fact that it is cash rich.
  • It still does not enjoy complete autonomy while taking decisions pertaining to tariff rationalisation.

    A favourable decision regarding the tie up with Singapore Telecommunications would definitely improve the company's prospects. However, until the structural drawbacks are taken care of, the company will continue to be susceptible to competition.

    Market View:

    The MTNL stock has been rated as a 'BUY' by analysts on account of it being one of the least expensive fixed line operators in the world. Moreover, the company already has a large customer base and a good infrastructure in place. It is also expected to earn substantially by using its existing infrastructure to provide value-added services.

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