Broadband to the rescue?

Beleagured state-owned telecom major MTNL may see its saving grace in the lucrative broadband space

Mid-week, 12:45 pm, at the Mahangar Telephone Nigam (MTNL) telephone exchange in Navi Mumbai. The exchange looks more like a college campus, given its size and the open gardens all around. But there are just nine people, including two security guards, manning it. The broadband division is occupied by one official who is mediating a quarrel about attendance between four contract linemen. He ends the argument by simply marking everyone present for the preceding week.

A little further is the main customer care centre, where four women employees have started an early lunch. It takes them until 2 pm to finish their food and conversation, after which they hand out dated brochures for almost every enquiry. A man in the queue wants a plan from a newspaper advertisement, but they can’t find it in the system and advise him to come again a few days later. Disgruntled, he stomps away, muttering about finding an operator who will offer doorstep services.

Unfortunately, scenes like this are all too common across various MTNL exchanges in Delhi and Mumbai, and the impact on the state-owned telecom company has been devastating. From being a money-spinner that had cash reserves of over ₹5,000 crore just three years ago, MTNL reported a loss of ₹2,801 crore in FY11, and, in spite of its efforts to stem the bleeding, is likely to have closed FY12 with a loss of over ₹3,000 crore. The new chairman and managing director, AK Garg, who moved from BSNL in December 2011, agrees that MTNL has “issues”. “But we’re synergising operations and working towards making the most of our assets,” he defends.

What ails MTNL is pretty much what ails most public sector companies in India: excessive interference from politicians and bureaucrats and a demotivated and bloated workforce. But, despite the lashings of red on the balance sheet, MTNL may yet attempt a comeback. Can broadband offer the telecom giant that opportunity that it badly needs or is it time to hang up on the company?  

Tangled wires

As things stand, nothing seems to be going right for MTNL. For a company that has operations in only two cities — Delhi and Mumbai — it has a staggering 44,910 employees on its rolls. Compare that with rival Airtel, which services all of India as well as 17 African nations with 20,675 people. While MTNL has managed to slash its workforce from 62,000 in 1999, its staff costs have grown substantially, climbing from ₹1,836 crore in FY04 to ₹3,259 crore in FY11. (See: Overstaffed and overburdened

“MTNL needs to address its staff costs urgently if it is to turn profitable,” says Mohit Rana, partner at management consulting firm AT Kearney. Analysts estimate that pruning the workforce by 15,000 could save about ₹600 crore. But that means forking out ₹2,000 crore for the golden handshakes, and that’s an expense the company isn’t willing to bear. “We have requested the government to fund our VRS but have not received a reply yet,” says Garg.

Even if it manages to trim the bloat, MTNL, like all public sector companies, is at the mercy of the government. For more than two years, it didn’t have a full-time chairman because the government was dragging its heels on announcing a successor to RSP Sinha, who was asked to resign in January 2010. Until Garg’s appointment in December 2011, the company had only an acting chairman, which naturally delayed decision making. 

In the past, too, interference from its political and bureaucratic masters has cost the company dear, with it having had to scrap crucial tenders for procuring equipment as a consequence. In June 2000, it released a global tender for managed leased line data network equipment. Though Alcatel was the lowest bidder in the tender, the purchase order was allotted to the second and third lowest bidders.

After a series of meetings and arguments, the tender was finally scrapped in March 2001, denying MTNL the equipment needed for expansion. The time lost was a huge opportunity forsaken in a market where private operators were already making inroads. Similarly, a tender for CDMA equipment was unduly allotted by former telecom minister A Raja to a US-based company that delayed delivery so much that it allowed private operators to establish their supremacy in the two metros.

It would be easy to argue that these are problems beyond MTNL’s control and that it shouldn’t be penalised for them. But, while they do account for most of the PSU’s problems, there’s one very visible issue for which it must take ownership — poor branding and marketing. In a market that’s nearly saturated, advertising and branding are vital tools to woo customers and build brand recall.

And where Vodafone, Airtel and Idea Cellular have spent a significant amount of time and money in creating brand identities across platforms, MTNL has been conspicuous by its absence. MTNL’s communication and marketing is restricted to its products and services. “The advertising reflects neither the consumer nor the brand. It’s a huge waste of time,” avers Kiran Khalap, adman and co-founder of brand consultancy, chlorophyll. What the company needs to do instead is communicate what MTNL can stand for in the lives of its consumers, Khalap points out. 

There’s a reason why MTNL’s advertising is so unimaginative and ineffective. Unlike, say, Vodafone, which has retained the same agency (Ogilvy & Mather) since 1999, MTNL has four advertising agencies at any given time and fresh bids are called every year, leaving little incentive for any ad agency to work towards a long-term campaign for the telco. Currently, Airads Advertising, Crayons Advertising, RK Swamy BBDO and Square Communications are on MTNL’s roster. The PSU declined to explain the mandate given to the agencies and two agencies contacted for this story said they did not have the “go ahead” from MTNL to talk to the media. 

For his part, Garg rubbishes all charges of poor branding, stating that the problem lies in “insufficient” sales operations. “The important thing is to make the product available to people at their doorstep,” he says. “Advertising is a cost I can curtail because MTNL is a well-known brand.”  

Potential lifeline

But it is not well-known enough in the broadband space — and that’s where MTNL needs to make an impact. In the past couple of years, MTNL has ceded its position as the second-largest high-speed broadband provider after Bharat Sanchar Nigam (BSNL) to Bharti Airtel (see: Round the bend). But there’s still an opportunity for MTNL to make good its past losses. While the telco’s average revenue per user (Arpu) from mobile services dropped from ₹747 in FY05 to ₹281 in FY10, its Arpu from broadband services increased from ₹531 to ₹593 during the same period. “In the telecom arena, the vertical where MTNL can make profits is data services,” declares Abhishek Chauhan, senior consultant in the ICT practice, Frost & Sullivan, South Asia & Middle East.

Others agree. “MTNL has some inherent advantages in data services  that it should leverage better and faster. It has a large broadband subscriber base in the key markets of Delhi and Mumbai, a fixed line network (still the fastest and most reliable for data transmission) and adequate spectrum,” points out AT Kearney’s Rana.  

Thankfully, that realisation has come to the PSU as well. The idea is to beat private players who are focusing on wireless broadband services through data cards and dongles. MTNL is late to the wireless party, having recently started offering 3G data cards. In the past year, it has procured about 30,000 dongles and already sold a few thousand. By the end of 2012, it will increase broadband speed for wireless services from 3.2 Mbps to 20 Mbps. But, for true competition on speed — copper wire offers speeds of 24 Mbps compared with a maximum 20 Mbps on wireless broadband — MTNL is focusing on expanding last mile connectivity. “Wireless always has bandwidth constraints; fibre is the best solution for broadband,” Garg declares. 

And Garg is putting his money where his mouth is. In FY13, MTNL will invest ₹800 crore to expand capacity and upgrade networks. It has introduced a technology called fibre-to-the-home (FTTH) that uses optic fibre instead of the traditional copper for last mile connectivity. About 200 customers in Delhi have signed up for the costlier FTTH service, which offers speeds of up to 100 Mbps and last month, MTNL launched FTTH in Mumbai. “We are now going to multi-storeyed buildings and residential complexes to offer this service. Our next targets are commercial users,” Garg adds.

Meanwhile, the competition isn’t sitting idle. Airtel is targeting small and medium businesses for revenue growth, while CDMA players like Sistema Shyam (MTS brand) and Tata Teleservices are aggressively pushing their data cards. But Garg has an ace up his sleeve. As the number of users on a wireless network increases, speeds go down. That doesn’t happen with MTNL’s broadband service because each subscriber gets a dedicated port or line from the exchange and thus the speed remains constant. Currently, MTNL has 1.66 million ports, implying an ability to service as many customers. Its user base, however, is only 1.03 million, indicating idle capacity that Garg says is for anticipated demand. 

Live Wire

Does MTNL have the resources to make its broadband ambitions play out? The company has a debt of ₹7,455 crore and staff costs account for nearly 86% of sales, leaving little room for manoeuvre. But apart from spectrum, it also has another asset — its real estate. MTNL is believed to have a land bank and buildings spread over several hundreds of acres in Delhi and Mumbai. Rather than selling them, the company has found a better option — it has rented out several properties to PSUs as well as MNCs and listed out 35 buildings in Delhi for rent. “More methodologies are being worked out to exploit the land bank. We are considering opening ATMs in our buildings and bigger ones can be given out on rent to open bank branches,” Garg says. Suprisingly, government approvals for using the land were obtained quite easily. 

Meanwhile, MTNL is trying to minimise its losses on BWA spectrum for which it had to pay ₹4,400 crore, which it had originally raised through debt. Three years after getting the spectrum, the company has woken up to the fact that the market is not ready for BWA. Now it is toying with the idea of returning the spectrum to the government. But that will be a one-time gain on the balance sheet. To get back to its former glory, MTNL will have to set its house in order on many fronts.