Why telecom privatization is good

Posted on May 10, 2013  /  3 Comments

Sri Lanka and Pakistan partially privatized their incumbent fixed telecom operators more or less at the same time competition was introduced. India, Bangladesh and Nepal did not. Bad move. The lumbering monsters could not compete. The sad state of the Indian incumbents who have been fed more subsidies than it is possible to imagine is thus described.

“MTNL’s net worth is likely to be completely eroded in the first quarter of the financial year 2013-14, while BSNL’s is likely to remain at Rs 50,000 crore, most of which is locked in fixed assets, at the end of the 2012-13 financial year,” said DoT. The ministry asserted that both the telecom providers faced several legacy issues that have also dented their bottom lines. Further, cost towards employees is far higher than other operators in the industry. In MTNL’s case, for instance, the employee cost as a percentage of revenue was over 103% and for BSNL, nearly half or 49% of the revenues were channeled towards employee costs, as against an industry average of less than 5%.

Privatizing now may not help. They are so behind, it will be almost impossible to revive them. Can you imagine: employee costs are 103 percent of revenue at MTNL.