As of now a Crisil report points out that with the high prices of spectrum the three telecom service companies could restrict 5G launch in the initial years to metros and select circle as these show a high data consumption appetite. BSNL and MTNL
could have been the right antidote.
But they are distracted. Before June is over, BSNL will get as its new chairman — the MTNL chairman. The incoming chairman, P K Purwar, leaves the listed company which has run up an annual loss of Rs 3,390.20 crore to replace Anupam Shrivastava, who ends his tenure with a loss that is at least double that figure at Rs 7,714 crore.
Both Shrivastava and Purwar belong to the same cadre of Indian Telecom Services and have been chairmen of the two companies for four and five years, respectively. Shrivastava goes out after hitting the age of 60 years; Purwar has time on his hand.
As this revolving chairs play out at the corner rooms, the parents of both companies, the Department of Telecommunications (DoT) has apparently had to advise BSNL this month to put on hold all tenders and purchase orders. It is a good move, as Purwar will have to do the entire math of BSNL, which despite holding the largest network of fibre optic cable among all the telecom service providers in the country, struggles to survive as a viable concern.
Right now, he needs Rs 2,500 crore to just keep it afloat with Rs 850 crore needed in June. This is not the first time salaries have been delayed.
Minister Prasad told Parliament last week, “there was some delay in the salary paid for February, 2019”.
A Kotak Institutional Equities report says BSNL’s cumulative earnings before interest and taxes has crossed Rs 90,000 crore by end of December 2018. An IIM and Deloitte revival plan will also cost more money.
Revival means buying spectrum as the two companies have almost no spectrum to carry even 4G services. Almost all their spectrum in the bands of 800, 900 or 1800 megahertz (Mhz) are scattered in bits of less than 5 Mhz per telecom circle. A company needs at least 5 Mhz of contiguous spectrum in any circle to offer a data service like 4G. The space is too crimped otherwise for data waves to travel to and from a subscriber.
The problem for both the state-run companies is that even the spectrum that is available with them in these bands were largely given through administrative decisions, 20 years ago, piecemeal.
The only exception was the BWA spectrum in the 2.5 giga hertz band (GHz) that was given to them at the time of the first 3G auctions. But this too was a wrong allotment since BSNL and MTNL got the 2.5 Ghz band whereas the LTE-based technology promoted by both RJio and Airtel focussed on the neighbouring 2.3 Ghz band.
In other words, the two state-run companies today sit on either too small parcels of spectrum in the busy bands like 800, 900 or 1800 to offer 4G services or else have lots of spectrum in 2.5 Ghz that is not popular with the handset market. The choice for the government is thus stark.
It can decide to renew the licences for free once again for BSNL and MTNL for the future or ask them to match the same price for these bands as would be discovered in the 5G spectrum auction. Going by the current market price, if the DoT chooses the latter it would have to provide about Rs 60,000 crore to these companies and even then find they can offer only voice or just a bit more 3G services as before. And, that would keep their combined market share at a negligible 17.67 per cent (government data).
For these companies to offer 4G services, however, there is a problem since the spectrum proposed to be made available for auctions is inadequate even for companies in the private sector.
Remember, irrespective of the nature of data services to be provided like 5G or 4G, companies will need a certain minimum level of contiguous spectrum in the 2.1 to 2.3 Ghz bands. The government is finding it difficult to provide such adequate spectrum to the likes of Airtel, Vodafone or RJio. The entry of BSNL and MTNL will raise the level of competition and therefore price for these scare bands. A Crisil report points out “the reserve price recommended by the Telecom Regulatory Authority of India (TRAI) for 5G spectrum bands is much higher than in countries like the UK or South Korea. How much money there is for investment is crucially linked to price-setting at the auctions”.
There could be serious implication if the government decides to offer the state run companies the necessary bands for free.