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Execution holds the key - Views on News from Equitymaster
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  • Oct 28, 2000

    Execution holds the key

    Mahanagar Telephone Nigam Ltd. (MTNL) is in the midst of industry change, both technological and structural. The company will need a strong management to pull it through the challenging times.

    MTNL is the incumbent operator in the top two circles of the country, Delhi and Mumbai, which account for 15% of the total telephone connections in the country. The company has the license to offer basic telephony services in the two circles till 2013. Currently, it has 3.8 m subscribers for its basic services.

    Driven by volumes
    (Rs m) FY98 FY99 FY00
    Turnover 46,546 50,325 51,822
    Operating Profits 22,195 23,930 19,429
    Operating profit margin (OPM) 47.7% 47.6% 37.5%
    Profit after Tax (PAT) 68,740 74,255 71,251
    Direct Exchange Lines (DEL's) 3,406,740 3,653,913 4,031,624

    The company has recently forayed into the cellular service business and is also a category B (regional) Internet service provider. The company believes these new initiatives will be the drivers of future growth.

    Mumbai and Delhi continue to be the most lucrative telecom circles in the country. MTNL has a well-established infrastructure in place and has been in the telecom business for the past 14 years. Recently, the company modernised its infrastructure by digitalising its network and consequently improved operational efficiencies. The move has enabled the company to offer supplementary services like call waiting and call forwarding.

    To further improve its operating performance MTNL is taking steps to reduce its work force by introducing a voluntary retirement scheme (VRS). MTNL has taken a decision to freeze recruitment at the lower levels. In financial year '98 the retirement age was increased from 58 to 60 years. All the employees who were to retire, automatically got an extension of two years. These employees are now likely to retire in the current year.

    On the customer service front MTNL has undertaken several initiatives for bill collection. They are in the process of creating new channels for bill payment. MTNL is in discussion with many of the banks to provide payment of telephone bills through ATMs. The company has tied up with Master Card for payment of bills through Indian Oil Corporation (IOC) petrol pumps. MTNL has also launched a co-branded credit card with American Express, which is provided free of cost to the subscribers if they pay their telephone bills through the card.

    MTNL will be entering the cellular space with GSM technology. It plans to price this service extremely competitively. However, the TRAI has warned MTNL against cross-subsidising cellular services by its wireline business. The roll out of cellular operations has been delayed and is now expected to be launched in January 2001. At a later date the company plans to offer a wider choice of technology including CDMA and WLL telephony, which will cut down communication costs and bring the service within reach of the common man.

    The reforms have opened up several new opportunities in the sector such as domestic long distance (DLD). There are plans to foray into DLD through a joint venture (JV) with Videsh Sanchar Nigam Ltd. (VSNL). MTNL is well positioned to capitalise on this new opportunity as the Mumbai - Delhi route accounts for a major share of the country's DLD revenues.

    It is already a category B internet service provider with over 35,000 subscribers. Being a leader in telecommunications MTNL has certain inherent strengths. It would leverage on these strengths to occupy a similar position in the ISP business. The company has already taken steps to improve content on its default portal ‘Bharat on Line (BoI)’.

    The company has made a conscious effort to reduce the telephone connection waiting period. Through sustained efforts telephone connections are now available on demand. To face the emerging challenges MTNL is also drafting a new business plan called ‘Vision 2005”.

    However, being a PSU the company has certain inherent weaknesses. It is overstaffed and the decision-making process is slow. The Bombay and Delhi circles are matured markets with telephone connection growth plateauing. Further, it has to resolve the issue of legacy infrastructure.

    The company faces competition from new private sector operators Hughes Tele.com in Mumbai and Himachal Futuristic (HFCL) In Delhi. It will be imperative for the incumbent to beef up its service quality if it wants to hold on to its market share. Another serious concern is the change in technology. The new entrants in the field are starting with a clean slate and can set up state of the art infrastructure. However, such privileges are not available to MTNL.

    The company's stock has been hammered in recent months with the firming up of competition in its circles. A favourable outlook will hinge on the successful execution of its existing projects.



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