Why MTNL Cannot Be Turned Around - Vivek Kaul's Diary
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Why MTNL Cannot Be Turned Around

Jun 2, 2016

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Normally I don't write on individual companies, so today's column is a bit of an exception to that. Today I plan to discuss the annual results of the government owned Mahanagar Telephone Nigam Ltd.(MTNL), and why it cannot be turned around.

The cue for this column lies in the fact that for the period of January to March 2016, the company made a profit of Rs 174.58 crore. The results were declared on May 30, 2016. On the same day, the telecom minister, Ravi Shankar Prasad, told The Economic Times, that the telecom department is "also working on to improve state-run Mahanagar Telephone Nigam Ltd. (MTNL)".

Does that mean MTNL can be turned around? The answer is no. There is a fundamental problem with the way the company is run, and I have my doubts on whether that can be corrected. But before we get into that, let me first try and explain how did the company end up with a profit of Rs 174.58 crore during the last three months of 2015-2016.

There were basically two entries that helped the company come up with a net profit. The other income for the period stood at Rs 580.60 crore. Other income essentially means the money that a company earns from activities other than the normal business operations.

The company earned Rs 458.04 crore from surrendering the spectrum it used for its CDMA operations, back to the government. The company discontinued its CDMA operations from March 1, 2016, onwards. Further, taxes of Rs 492.96 crore for an earlier period have been written back. These two items essentially helped the firm come up with a net profit of Rs 174.58 crore.

The annual loss of the firm for 2015-2016 stood at Rs 2,012.24 crore. This is lower than the losses of Rs 2,901.16 crore in 2014-2015. This has been achieved through the surrendering of the CDMA spectrum and a tax write back. If these two things hadn't happened, the losses of the company in 2015-2016, would have been similar to the losses in 2014-2015.



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Now let's talk about the fundamental problem that the company faces and why the telecom minister Ravi Shanker Prasad, cannot turnaround the company, despite his best intentions. Allow me to explain.

For the year 2015-2016, the company's income from operations (which does not include its other income) stood at Rs 3,197.40 crore. Of this, Rs 2,310.76 crore went towards employee benefits. A further, Rs 343.68 crore went towards employee benefits for retirement. Hence, of the Rs 3,197.40 crore operational income of the company, a total of Rs 2,654.44 crore went towards employee benefits.

This basically means that 83% of the company's income from operations went towards meeting employee cost. This is not an anomaly. In 2014-2015, employee cost formed around 78% of the company's income from operations. Hence, employee cost as a proportion of income from operations has gone up by a whopping 500 basis points during the course of just one financial year. One basis point is one hundredth of a percentage.

How does this compare with competition? Let's look at the numbers of Bharti Airtel. In 2015-2016. The income from operations of the company stood at Rs 60,300.2 crore. This is close to 19 times the total income from operations of MTNL.

And how much money did the company spend on employee benefits? Rs 1,869.3 crore. This is nearly 30% lower than the employee benefits expenses of MTNL. So what does this mean? It means that Airtel earned 19 times MTNL's income from operations by spending 30% lesser on its employees.

Further, Airtel's employee cost in 2015-2016 was 3.1% of its income from operations. MTNL's was at 83%. And how did things look for Bharati Airtel in 2014-2015? The employee benefit expenses of Airtel were at 3.05% of its income from operations. For MTNL, the figure was 78%. Hence, the employee benefit costs of Airtel went up by 5 basis points, during the course of one financial year, whereas that of MTNL went up by 500 basis points.

This is what MTNL is competing against. For it to be viable, the employee cost as a proportion of income from operations, will have to come down dramatically. That can only happen in two ways-salaries being slashed or employees being fired. The first option can be ruled out. The second option will have its own share of costs.

Actually, there is a third way as well i.e. if the company manages to increase its income from operations. But given the brand image that the company has among consumers that seems to be difficult. As they used to say in the good old days when MTNL was a monopoly, MTNL equals Mera Telephone Nahi Lagta. The company had a branding problem back then as well, but the consumer did not have choice. Now he does and he has executed it.

Also, MTNL operates in Delhi and Mumbai, the two biggest and the two toughest telephone markets in the country. While it goes about restructuring (assuming that it does), the other companies won't be sitting idle doing nothing. While excuses can still be made for keeping Bharat Sanchar Nigam Ltd(BSNL) going, there is none to keep MTNL running.

It's time the government shuts down the company and starts monetising its assets. MTNL has offices in premier areas of Mumbai and Delhi. In Mumbai, two offices in Prabhadevi (Central Mumbai) and Cumbala Hill (South Mumbai) can be sold at a very good price. The money thus earned could be spent towards improving the physical infrastructure of the country.

It's time the country stopped subsidising the lives of a few thousand individuals that MTNL employs.

Vivek Kaul is the Editor of the Diary and The Vivek Kaul Letter. Vivek is a writer who has worked at senior positions with the Daily News and Analysis (DNA) and The Economic Times, in the past. He is the author of the Easy Money trilogy. The latest book in the trilogy Easy Money: The Greatest Ponzi Scheme Ever and How It Is Set to Destroy the Global Financial System was published in March 2015. The books were bestsellers on Amazon. His writing has also appeared in The Times of India, The Hindu, The Hindu Business Line, Business World, Business Today, India Today, Business Standard, Forbes India, Deccan Chronicle, The Asian Age, Mutual Fund Insight, Wealth Insight, Swarajya, Bangalore Mirror among others.

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12 Responses to "Why MTNL Cannot Be Turned Around"

Kumaresan M

Jun 28, 2016

@Rajinder Sharma,
I have interacted with field people. Your statement is partially true. They lament that proper trainings are not being imparted and there are lineman smarter, who learnt the necessary stuff on their own and sort out the things over phone. [There are too many devices, brands models etc]. Had you just browsed the web for complaints on private operators you will be presented with millions of web links by google. It is always a trend to blame government organisation.
@Niraj --- The comparison is absolutely flawed. I believe you would have already seen the competitive pricing, schemes etc these organisation are coming up with.

Government sectors should not always be viewed as money spinners.

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Kumaresan M

Jun 28, 2016

PSUs in India were once (even now some of them) profit making entities (e.g. BHEL BEL EIL, ISRO, DRDO ....) with extraordinary quality human resource far superior than any private or MNCs of today (Recruited based on JEE, GATE... exam scores). Many Ph.Ds. Lot of international orders (Boilers of BHEL, Voting machine [designed by Rangarajan] is one of the most reliable device to the nation from BEL).
But successive governments rendered them to dust and now one after the other falls pry for disinvestment. There are some PSUs challenged by technology like INDU famed Hindustan Photo Films.[still films are needed for medical imaging but lack of government support rendered it to rust]
Hindustan Motors closed without being supported. (Look at the modern day cars shapes.... all slight variation of the good old Ambassador. Had the governments property funded it, it would have given tough competition to all Indian made foreign cars.)

1. Successive Governments treated these organizations (MTNL & BSNL) as an orphan.

2. The consideration of financial burden as on today alone is unjustifiable as the situation is a corollary of point 1 above.

3. The impetus given to the private sector created an unhealthy situation on the part of MTNL & BSNL considering progressively depleting manpower and technological inputs at the field level.

4. The unethical practices encouraged by top brasses of private sectors made the life of MTNL & BSNL customers miserable. Eventually customers migration to private.

5. The unethical practices were so low in character that private players physically damaging the cables and roadside junction boxes.

6. They know that these damages will render MTNL & BSNL in a helpless situation as they are under staffed and taking criminal action is next to impossible.

7. They coerce MTNL & BSNL employees at all level by bribes and gifts.

8. There is an emotional aspect to these two organizations as they were built when no such sophisticated machinery available. The towers. The cabling at such location where life is endangered by wilderness of forests and animals and even present day cities were not so.

9. The private sectors even now rout their calls through MTNL & BSNL. They all cheat. Once reliance paid a part penalty of few hundred crores.

10. But with all the above limitations the human resource is one of the bests and devices as well. Given equal opportunity i am sure MTNL & BSNL and all PSUs will be a class apart.
Now, if Airtel or Reliance try their hands in laying cables and erecting towers all across the country the equations will be quite different.
My humble question is that will you drive away your mother and father or your kids just because they are financially of no benefit right now.

The revenue loss is due to the private operators' unethical functioning. They puncture the cables. disturb or damage the road side junction boxes. [My own experience]
Private operators do not even pay the minimum essential remuneration for a decent living. Most of the operations are outsourced. [No social justice]
The article is fully looking from the money point of view and capitalistic. Life is much more than money alone.

My opinion is this kind of views are very disturbing and misleading the decision making authorities and favoring the private sector either directly or indirectly.

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Harihar Iyer

Jun 13, 2016

Privatise MTNL & BSNL it doesn't make any sense to run these organisations under goverment control. Goverment role should be restricted to as a policy maker and an enabler to develop business friendly environment. National security is an important thing govt should concentrate on the same.

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kalyan nag

Jun 4, 2016

i am totaly disagreed with the projection views, beacuse a large number of staffs are going to be retd. by 2018. more over huge number of assets such as bldgs and lands are available in these 2 metro
cities. it will definitely turn around by 2020

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Muthuswamy N

Jun 4, 2016

First we have to decide whether we want to run companies profitably or whether we want everything done inside the company. If the company flops, there is no need for outsourcing or in-sourcing.

This is the problem with Govt run companies for decades. They have missed the priorities. First the company should stay alive to pay its employees! Businesses are not for giving employment to as many people as possible and keep on increasing their pay and perks. This way clerks can run businesses!

Look at any Govt joint, state or centre or the Govt offices: They are staffed anywhere from 3 to 10 times more than what is required to do the job effectively. Put in another way only one out of 3 to 10 people are actually doing the work in Govt offices and industries and businesses. This is the normal sight when you visit any Govt joint, for eyes with even minimal perception of management.

I tend to think this anomaly cannot be corrected easily in our country. I agree with Vivek's analysis that MTNL will have to close down if several more crores of rupees lost have to be saved.



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Lavanya

Jun 3, 2016

I agree with Vivek..but I seriously doubt if this would happen...unless the telecom ministry has the guts to issue ultimatums to mtnl staff to ensure that performance shall determine future faith..but none of our politicians show that kind of resolve to justify public funds...

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Nair J P

Jun 3, 2016

Yes I fully agree with the views expressed. MTNL survived when no competition existed. it was the need of the hour hence Govt put money to develop those infrastructure. Now its a different story. the employees are not competent and have carefree attitude (go to hell attitude to be more correct). I believe even TRAIs policies are intended to favour MTNL by making the business hard for others. even mails send to authorities lies unattended which shows the mindset of the employees.
the article was really informative. I dont agree that Airtel and MTNL should not be compared. they are both in the same business, no matter how each of them do it.

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Rajinder Sharma

Jun 2, 2016

1.MTNL staff ARE LEAST INTERESTED IN GIVING A SATISFYING SERVICE.A totally demotivated lot.Corrupt to the core.Hence, consumers surrender connections or migrate to other providers.
2. Staff just not competent to handle the technical glitches.They are not interested to learn how to fix a problem.
3.Staff only wants increased pay and allowances and bonus without performance.No profit should mean no bonus.This is not their expectation.

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Raman

Jun 2, 2016

Normally(?) you dont write on Individual companies?
Havent I seen a write up recently about Air India and little while ago about LIC?
Or was it in some other forum?

thanks

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Niraj

Jun 2, 2016

Vivek, While fully agreeing with you views that it is difficult to turn around MTNL and that at an appropriate time the Government should get out of this business, the comparison of employee expenses of MTNL Vs. Airtel is flawed. This is because Airtel outsources most of its operations to third parties such as IBM, Nokia, etc. and those expenses include manpower expenses but would have been categorised differently. This is a Apples to Oranges Comparison.

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