The service agreement between Mahanagar Telephone Nigam Limited (MTNL) and Bharat Sanchar Nigam Limited (BSNL) aims to streamline operations and address MTNL’s financial distress. Under this arrangement, BSNL will provide inter-corporate debt (ICD) to MTNL for the maintenance of its assets. This partnership enables BSNL to manage MTNL’s telecom services in the Delhi and Mumbai circles, where BSNL does not currently operate.
MTNL has faced prolonged financial struggles, with declining revenue and Ebitda, and defaults on debt repayments. To address this, the government intends to operate MTNL on an Ebitda-neutral basis through this agreement. Analysts, however, have expressed concerns about the financial strain on BSNL, which is also loss-making, particularly if MTNL’s losses persist.
Key Terms of the Agreement
The agreement, effective January 1, 2025, for a 10-year period, stipulates that:
- If MTNL’s Ebitda turns negative, BSNL will provide funds as ICD to maintain MTNL’s assets.
- Positive Ebitda will first be used to settle BSNL’s ICD, ensuring MTNL remains Ebitda neutral. Any additional funds will address other liabilities or debts.
BSNL will also handle the rollout and deployment of 4G and 5G services in Delhi and Mumbai under its telecom license and brand name. The capital and operational expenses (capex and opex) for these services will be part of BSNL’s financials, while MTNL’s asset-related opex will reflect in its Ebitda. BSNL will reimburse MTNL for any maintenance costs on a quarterly or monthly basis.
Employee and Asset Considerations
BSNL retains the discretion to deploy MTNL personnel on deputation, with MTNL’s consent. However, MTNL’s employee association has raised concerns, urging a permanent solution for employee absorption into BSNL or repatriation to the Department of Telecommunications (DoT).
The association also highlighted deviations from the agreement, alleging the migration of revenue-generating streams such as FTTH, leased lines, and mobile customers to BSNL, leaving MTNL without sustainable income sources.
Financial Woes of MTNL and BSNL
MTNL reported a default of ₹5,774 crore, including ₹5,492 crore in principal debt and ₹281.9 crore in interest. The company’s total financial debt stands at ₹32,145 crore, nearly 40 times its consolidated annual income of ₹798 crore. For the July-September quarter, MTNL’s net loss widened to ₹890 crore.
BSNL, while seeing a 10.4% year-on-year revenue growth to ₹9,235 crore during the April-September period, recorded a net loss of ₹2,785 crore.
Future Outlook
The agreement between BSNL and MTNL is a critical attempt to stabilize MTNL’s operations. However, its success hinges on the effective rollout of 4G and 5G services in Delhi and Mumbai, increased user adoption, and careful management of financial burdens on both entities. Whether this partnership can secure the sustainability of MTNL while strengthening BSNL’s market presence remains to be seen.
