India's BSNL and BBNL to merge as billions set aside for BSNL revival plan

India's BSNL and BBNL to merge as billions set aside for BSNL revival plan

While we await the final results of the 5G auctions, Indian news outlets are reporting that the government has finally approved the merger of state-owned companies Bharat Broadband Network Limited (BBNL) and Bharat Sanchar Nigam Limited (BSNL). The government will also pump more money into BSNL.

Quoting BSNL CMD PK Purwar, India’s Economic Times says: “BSNL will work as an executing arm of the government and ownership of assets will rest with the government. BBNL has a workforce of less than 200. We have in our proposal said that we can absorb them in BSNL and contracts will be obliged, and revenue share agreements will be honoured.”

BBNL is the special purpose vehicle formed to implement the ambitious BharatNet rural coverage plan to lay out an optical fibre network across 250,000 village panchayats (village councils) across the country via what is known as the Universal Service Obligation Fund (USOF). The plan to merge BBNL and fixed and mobile operator BSNL was announced in April. Both companies have large fibre optic networks, which, one assumes, may complement each other. However, BSNL is not in a good state financially.

Hence the Indian cabinet has also approved a four-year revival package for BSNL which will receive fresh capital for upgrading its services, allocating spectrum and de-stressing its balance sheet. This will also support the augmenting of its fibre network through the merger with BBNL. 

The relief package also includes state-run Mahanagar Telephone Nigam Ltd (MTNL), which offers services in Mumbai and Delhi. Though BSNL and MTN  have not formally merged, MTNL is largely managed by BSNL.

Improving BSNL's quality of service is one part of the revival plan but the aim is also that will BSNL deploy a 5G network in about two years’ time, and expand 4G. The revival package will involve spectrum allocation for 4G in the 900 and 1800MHz bands.

This will leave BSNL well behind the private sector in both technologies, though government argues that 4G will be viable for some while to come.

Clearly defined outcomes in terms of revenue growth and keeping expenses in check are part of a plan that aims to see BSNL turn into a financially viable unit turning profitable in the financial year 2026-27.

While BSNL has a modest operating profit, the Times of India says it has debt amounting to Rs 33,404 crore (about $4.2 billion), which, the government says, will be converted into equity.

Is it worth it? It is said that BSNL plays a crucial role in the expansion of telecom services in rural areas and some of the money will help it to serve commercially unviable rural wireline operations. BSNL also supports the development of indigenous technology and disaster relief.

But money to pay off AGR dues, some of which will be settled by conversion into equity, effectively means the government is paying itself. And if the overall package really is worth Rs 1.64-lakh-crore (nearly US$20.6 billion), that’s a lot of money to claw back. It can also be added to the Rs 69,000 crore (more than US$8.6 billion) revival package agreed in 2019 for MTNL and BSNL.

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