Business & Finance

A tale of RCom and BSNL

It was a month ago that the Supreme Court held three Reliance group entities, including RCom and its flamboyant Chairman Anil Ambani, to be guilty of contempt of court, for having deliberately given false undertakings to mislead the top court. It ordered them to pay the balance Rs.453 cr. to Ericsson within one month, failing which even Anil Ambani would go to jail. The deadline for making this payment expires tomorrow ie. 19th March, with nothing in sight so far. The company has been fervently pleading to SBI to release its IT refunds of Rs.266 cr. lying with it, which SBI has refused to, saying that the said sum belongs to the lenders; despite the NCLAT too pursuading it and pertinently pointing out that if SBI failed to give this sum to RCom, the company will go into liquidation and the banks would get nothing at all. The NCLAT also admonished SBI for having misled the court, by giving a false impression and painting a rosy picture, that RCom will get Rs.37000 cr. upon the RCom-RJio sale, which has not taken place so far and is unlikely to do so, with RJio unwilling to give the mandatory undertaking to the DoT, that it will takeover all the liabilities of the bankrupt RCom. While the market believes that Anil Ambani will anyhow manage to arrange the funds to pay Ericsson and avoid going to jail, the reality yet is that RCom is at the end of the road. Its insolvency is imminent and in that case, as the NCLAT says, the banks will get nothing whatsoever.


While RCom, which at one time was a market leader in the telecom sector is struggling to survive, so is another telecom giant, but in the public sector. The BSNL, a government owned entity, with a highly bloated staff of 176000 employees, whose 55% revenue goes towards salary, an eroded capital base, with losses of Rs.8000 crores recorded in FY 2018, and with an unserviceable debt of Rs.15000 crores, is struggling to stay afloat. The company has been losing revenue and market share, year after year, which is a mere 10% today, making it almost irrelevant in India’s telecom sector. The last time it made any profits was ten years ago and its revenues have fallen since then. BSNL has not paid salary for two months and needs an immediate capital infusion of Rs,14000 crores, even though a huge sum of Rs.7500 crores was infused as capital by the government, a mere two years ago.


The government is bound to put in the additional capital of Rs.14000 crores, not just because it considers telecom to be a strategic sector, wherein public sector presence is a must, but also because no political party has the guts to close down an entity with almost 2 lakh employees. BSNL needs Rs.14000 cr. to pay for the 4G spectrum fees, another Rs.13000 cr. to fund a VRS for its bloated staff and yet another Rs.5000 cr. to meet immediate operational expenses, which it will easily get from banks, with the DoT giving a letter of comfort, akin to a sovereign guarantee.


BSNL is bankrupt and is destroying enormous public wealth, which it will be allowed to do so. It is not subject to the vagaries of the market, and also does not need to battle competitive pressures, which the likes of RCom do. It is so unviable, that it will get no bidder, if is put on auction, minus its huge land bank worth about Rs.1 lakh crores. Its case is like that of Air India, another loss making PSU, which got no buyers when it was put up for sale. The likes of BSNL too must be referred to the NCLT, like any other private sector entity, to decide its fate without any political interference in the matter. If it is unviable, which it clearly is, it must be liquidated in order to stop wasting public wealth. If not it must be revived. Telecom is no longer a strategic sector as the government says, but is more a consumer sector, which needs no public sector presence.

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