• MOST READ

• LATEST NEWS

The Indian telecoms market is in turmoil amid probes into corruption in 2G auctions, and a new wave of M&A. Vodafone has bought out joint venture partner Essar and NTT DoCoMo is increasing its stake in Tata Teleservices, though Malaysian carrier Axiata has denied it plans to sell its share in Idea Cellular, possible to South Africa's MTN. However, all these changes could be overshadowed by plans for a dramatic shake-up of the state telecoms sector, as the government looks to enhance the performance of BSNL and reawaken plans for a viable homegrown equipment business.

A government body is proposing a reorganization that would have an effect on the industry structure almost as profound as China's telco restructuring of a few years ago. The Board for Reconstruction of Public Sector Enterprises wants the two state owned operators, BSNL and MTNL, to be merged, and also combined with ITI, the state's ailing telecoms equipment maker.

"The board strongly recommends the merger of ITI Ltd with BSNL, or its takeover by the BSNL as a separate subsidiary, thereby ensuring strategic vertical integration. This should enable BSNL to combine service providing with manufacture of the products," said the Board in a note on BSNL's web site. The proposal has an air of desperation in the face of BSNL's huge losses, MTNL's slow 3G progress (despite having early access to spectrum) and ITI's near irrelevance. The idea of operators making their own equipment was commonplace until the 1990s, but carriers like British Telecom, AT&T and others moved away from the integrated model in order to be able to shop around for the cheapest or most innovative products - and offload massive R&D and manufacturing overheads. Given the reputation of all three Indian state firms for inefficient management, combining them would amount to tying some very large rocks together and hoping they would float. Indeed, the very existence of the Board, which exists purely to advise financially troubled state-run companies, does not inspire confidence in the publicly owned groups in their current form.

Previously, the Indian government has looked at other options to breathe new life into the three companies, such as privatization or part flotation for BSNL, and foreign partnerships for ITI. Combining the two carriers would make sense, bringing some efficiencies and scale, and a national spectrum footprint to compete with the privately held majors like Bharti Airtel. "There is no reason for the MTNL to continue as a separate entity," said the proposal.

But despite the tax breaks that BSNL could claim if it merges with lossmaking ITI, the risks seem higher than those rewards - as seen in the coolness of international players towards possible partnerships. In April 2009, ITI planned to form joint ventures for at least three of its six business units and sell the stakes to foreign partners. Like a similar plan currently being initiated in Russia, this would not only have brought new funds into ITI, but brought it superior expertise from more successful suppliers. In return, they would get a foothold in a high growth market and a low cost manufacturing base. But despite interest from many majors such as Huawei, Samsung, Alcatel-Lucent and even Intel, last July the government said no deals had been done and only one (unnamed) vendor remained in talks.

Pages: 1 | 2

Related Stories

COMMENTS

No comments yet. Be the first to add a comment!

Carrier Broadband Performance: Africa & Middle East
Carriers are using mobile broadband as their weapon of choice in the fight against the commoditization of voice and falling ARPU. This...

Voice over LTE: Market Analysis and Forecasts
VoLTE offer unique advantages in lowering a carrier's voice infrastructure economics and promises to improve voice quality, device...