Indian government bails out BSNL

It turns out that state-owned operator BSNL isn’t very efficient, but the Indian government reckons merging it with even less efficient MTNL should sort things out.

That’s the cunning plan recently unveiled by Indian Telecoms Minister Ravi Shankar Prasad, according to reports and Twitter (see below).  BSNL, which has over 100 million subscribers, will be merged with MTNL, which has three million. It’s not known whether they will pick a new, unhelpfully vowel-free abbreviation for the combined effort.

On top of the merger they will apparently have 350 billion rupees chucked at them (if we have understood crore correctly), which is around 5 billion bucks. In return they will have to ‘monetize’ a similar value of assets held by the two companies. Various other chunks of cash are being mentioned in reports, so it’s hard to pin down the precise size of the bailout, but it’s substantial. On top of all that MTNL alone seems to have accumulated around 200 billion rupees in debt, which is a good effort.

“Neither BSNL/MTNL is being closed, nor are they being disinvested, nor are they being hived off to any third party,” Prasad is quoted as saying. “With all these measures, I’m confident, BSNL will become EBITDA positive in the next two years.” They’re also getting a bunch of 4G spectrum to help with the great turnaround, and will be offering thousands of employees voluntary redundancy.

The concept of a state-run telco is a pretty anachronistic one and it’s not at all surprising to hear BSNL and MTNL are struggling in the fiercely competitive Indian market. Apart from the expensive streamlining it’s not at all obvious what a state bail-out will achieve other than keeping them on life support a bit longer and we wouldn’t be surprised if this is a fairly contentious move.

Nokia getting prickly in India over non-payments

Reports have emerged out of India suggesting Nokia is on the verge of limiting its relationship with state-owned telco BSNL over non-existent payments.

According to The Economic Times of India, numerous vendors are becoming frustrated with on-going challenges in the India market, and the knock-on effect this has on payments of dues for products, solutions and maintenance. Nokia is allegedly on the verge of limiting its activities with BSNL due to frustration.

BSNL is one of the firms which is being hit hardest by the disruption in the market. Prior to the entry of Reliance Jio, the Indian market was relatively stagnant. A lack of innovation or desire to do anything out-of-the-norm, dragged India down the connectivity rankings. This was a market which was miles of the global average when it comes to digital progression, but Jio caused absolute chaos.

Although all the traditional telcos have struggled to adapt to the new status-quo, BSNL seems to be being hit one of the hardest. And this pain is being passed onto vendors.

Sources close to conversations between the telco and the vendor suggest the Nokia management team is heading towards the point of no-return.

“There is tremendous pressure on us,” the source said. “We have been asked to shutdown services we offer to BSNL by the top management executives in the headquarters due to continued nonpayment of our outstanding amount.”

At the time of writing, Nokia had not responded to confirm or deny the reports, though it would surprise few if the management team was becoming a bit more miserly.

According to the reports, Nokia is owed Rs 800 crore (roughly $110 million) for various network product and services. BSNL currently has 115 million subscribers across the country, while Nokia was previously tasked in upgrading 2G base stations to 3G. The impact on current services could be severe, though it is also worth questioning whether any other vendors would be keen to work with the telco for 4G or 5G should the reports prove to be accurate.

This is where the state-owned telco could feel the worst of the pain. It might just be hanging on nowadays, but if it is unable to secure funds or favourable contracts with vendors to continue network evolution, the pain of tomorrow might make today look like a cake walk.

It is also worth adding context to the situation with Nokia’s current performance. After years of losing out to Huawei in the 4G era, then years of drought as telcos prepared themselves for the 5G revolution, Nokia needs some commercial and financial wins. Nokia CEO Rajeev Suri has been keeping investors at bay with the promise of riches in the 5G era, though these fortunes will have to materialise sooner rather than later.

Nokia has been boasting it has secured commercial contracts with various telcos around the world, T-Mobile US being one of the more prominent, but it doesn’t matter how many contracts it has if it is not shipping product. The team has been quiet on the topic of how many base stations it has been shipping quarter-on-quarter, while there have also been reports of the vendor being unable to fulfil current commitments.

To pile on the pressure, the most recent earnings call was not what some would have wanted. Reporting a 2% boost in total revenues and an increase in operating losses slightly contradicts the fortunes of rivals. Ericsson recently reported a 10% increase in revenues for the latest quarter, while Huawei’s half-year revenues were up 23% in comparison to 2018.

Nokia is a company which is under pressure, which might well be contributing to the growing frustration with BSNL. To be fair to the vendor should reports prove to be true, there is little else it can do. If BSNL is unable, or refusing, to pay, it cannot offer its full range of services. It might not seem the most sympathetic to fans of the struggling state-owned telco, but Nokia will have few other options in such a scenario.