Monday, December 10, 2012

Recommendations of Sam Pitroda Commission, decisions of Telecom Commission and the patient in death bed - BSNL

BSNL - Connecting India

I am not sure, how many of you have pleasant memories about BSNL. At present, this telecom behemoth is struggling for profits more importantly for its own survival. From the position of an essential company, economic liberalisation made it just like any other company - in other words ‘dispensable’.  Opening the market in early 90s, rewrote the destinies of two business segments in India - Telecom and Insurance. (Of course there were many other areas which enjoyed the fruits of liberalisation).

Both in Insurance and Telecom, we had a couple of government companies which were considered as ‘too big to fail’. LIC in Insurance and BSNL/VSNL/MTNL trio in telecom. LIC successfully withstood the competition (of course the tag 'An Indian Government Undertaking' helped her a lot). In the telecom sector, VSNL went to private hands; MTNL is struggling with its operations in metros. I am not going to those details, as these issues were already covered in many earlier articles.

Current development in this sphere is related to the implementation of Sam Pitroda committee's recommendations on BSNL. This Committee was set up earlier, to review the functioning of Bharat Sanchar Nigam Limited (BSNL).

Important recommendations of Sam Pitroda committee

1. Focus on selection of the best professionals from the market at market rates.
2. Appoint an eminent person from the private sector as the Chairman.
3. Separate the post of the Managing Director/ CEO (from CMD).
4. Change the Board composition to seven directors {one internal (MD/CEO), one non-executive chairman, two government nominee and three external directors}.
5. Provide three year contracts with specific targets for all key management team members.
6. Establish four independent business units for Fixed access, Mobility, Enterprise and New businesses.
7. Complete ITS (Indian Telecom Service) absorption process.
8. Induct significant young talent in Technology, IT, marketing, sales, etc.
9. Retire or transfer around 100K employees through processes like VRS (Voluntary Retirement Scheme).
10. Change procurement processes and procedures substantially using tools such as e-Procurement, vendor rating, rate running contracts, schedules, etc.
11. Disinvest 30% through Indian strategic investor and at Initial Public Offering (IPO) to return 10% to the government and use 20% for employee VRS, expansion and operation.
12. Provide 30 million new high speed broadband connections in the next three years.
13. Unbundle local loop for public and private companies.
14. Proactively offer sharing of active and passive infrastructure to other operators.
15. Enhance rural communication facilities by connecting 250,000 panchayats.
16. Create a separate subsidiary company for tower related infrastructure.
17. Create a separate subsidiary to hold land bank and other real estate assets.
18. Establish a BSNL venture fund to invest and/ or acquire small appropriate technology companies.

My conclusions about committee's recommendations

1. Take a look at the first two recommendations. It’s based on the concept that, BSNL doesn't have good professionals to lead it. I agree that, good CEOs can change the fate of a company. But the problems in BSNL are not only about the leadership only, hence a cosmetic solution like absorbing best minds from the industry won’t solve it. What is the use, if you have Jack Welsh as CEO but both his hands are tied? It’s not only about the person but also about the freedom ha may have. If this basic framework is not there, then it doesn't matter if you take 10 people from the market or 1000 people from the market.

2. Third and forth recommendations looks more like doing a cosmetic surgery for skin cancer.

3. Fourth point is important, until and unless there is time dependant contract for improving the performance most things won't change. Gave three years to them - but with enough powers.

4. Sixth, sixteenth and seventeenth recommendations are also important. It will help BSNL to concentrate on where it is making the profit, and fix the issues in remaining verticals.

5. Seventh, eighth and ninth points are related to the handling of human resources. It is important to have best people in sales and after sales services. Currently, you have to struggle for each and every service from the company - no matter whether it is applying for a new connection, or relocating an existing connection. What is the use of best economical (call/ broadband) plans if it’s not supported?

6. Tenth recommendation is vital for the company. Cost of equipments should not be the sole criteria for selection - there should be something called quality as well. Company needs to improve its selection rules. Currently, if BSNL select one vendor then the other one will go to court; someone else will accuse the management of bribery. Just take a look at Airtel - if they want to create some infrastructure, they will make sure that the best is in place.

7. Eleventh recommendation dealing with divesting will help BSNL; after all, it will force them to concern about market's reaction. They will no longer be able to post the loss and keep quiet, answerable to shareholders and subject to critical evaluations from market will definitely improve them.

8. Twelfth and fifteenth recommendations are related to improving infrastructure and providing quality service economically in the rural areas. Considering the benefits company is getting from government, we can safely assume that, they are in such a position to execute these projects. BSNL got 3G spectrum much before than any other company.

9. Company can decide on Thirteenth recommendation based in its own commercial views.

10. Offering the infrastructure, e.g. towers and land, for other operators will help BSNL to generate revenue without much additional investment. Creating a separate company for its mobile towers can be a starting step in this direction.

11. Eighteenth is an important suggestion. If BSNL want to achieve any significant breakthroughs in technology then this will help them. Otherwise they may have to satisfy with buying/ renting foreign technology and equipments forever.

Decisions of 'Telecom Commission' on the recommendations

a. Taking 30-50 professional from market at market rates changing Board Constitution or separating Chairman and MD posts may not be feasible in only one Public Sector Undertaking (PSU) as it may trigger protest from BSNL and demand for similar treatment by other PSUs.
b. This is not the opportune time for listing & disinvestment of BSNL, as company is on downward performance path & disinvestment may not realize true value of the company.  In absence of listing, option of giving stocks as incentive, to key management is not available for the present.
c. VRS across the board may not be required; BSNL could examine option of VRS for select categories, examining financial burden and cost/benefit of the company.
d. On adopting Managed capacity or managed services model - Internal Committee view that the Board of BSNL may take a view is endorsed.
e. Unbundling of the local loop is a commercial decision, which shall be decided by BSNL Board after critically examining the issue.
f. All other issues are operational and commercial issues of BNSL for which the Board is competent to take decisions.
g. The Commission also observed that some of the above issues including items (ii), (iii) and (v) could be revisited if the need arose in the context of any major policy decisions involving restructuring and repositioning of BSNL.

My Take on the decisions of 'Telecom Commission'

a. Well, they agreed with my observation, but provided a pathetic reason for the same. Commission has to understand that, BSNL is the terminally ill patient not NTPC, OIL or other PSUs.

b. Well I agree with this point; but government don’t have to sell 50% even 5% will work. Let BSNL fear about market's reaction after they post the profits.

c. I agree that VRS will create an enormous financial burden on company’s balance sheet. But instead of Telecom Commission taking a decision on their own it will be better to consider the view of international consultants.

d. BSNL Board spend a long number of years before Sam Pitroda recommendations came in to existence - I didn’t hear anything from them about restructuring. If we are not forcing the board to do something then restructuring may remain as non-starter.

e. Agreeing with the view of commission.

f and g. If we leave everything to the discretion of board then many recommendations may never see the light of the day. Sometimes ministry won't agree, if ministry agrees then board may not agree, if both agree then union may not agree etc.


BSNL is neither monopoly nor indispensable. What more, now a day’s its decisions has a little weightage on market. The faster BSNL absorbs this hard reality the better. If they are still unable to digest, then take look at the financial conditions of her big brother – Air India.



1. Government of India

Photo Courtesy: Bharat Sanchar Nigam Limited (BSNL)

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