In-principle Cabinet approval for merger, VRS proposal.

In an effort to revive the beleaguered state-owned telecom firms BSNL and MTNL, the Union Cabinet on Wednesday approved a package worth nearly ₹70,000 crore. The Cabinet, chaired by Prime Minister Narendra Modi, also gave an in-principle nod for the merger of the two entities.

Under the package, 4G spectrum worth ₹20,000 crore will be administratively allotted to the two firms. In addition, their debt will be restructured by raising bonds with sovereign guarantee worth ₹15,000 crore and a voluntary retirement scheme, on an outlay of ₹30,000 crore, will be offered to the employees. The government also plans to monetise the assets of the two firms worth ₹38,000.

“The thinking of our government is very clear. These are strategic assets of India. They are most cooperative when there is a natural calamity, the entire Army network is managed by them and even for banks most of the network is managed by BSNL. They are neither being closed or disinvested or hived off to a third party. We want to make these competitive and bring in professionalism,” Communications Minister Ravi Shankar Prasad said.

With these measures, BSNL and MTNL are expected to turn EBITDA positive in the next two years, he added.

Stating that an immediate merger will not be feasible, given that MTNL is a listed entity, the Minister said till the time the process is completed, MTNL will work as a subsidiary of BSNL.

Mr. Prasad pointed out that administrative allotment of spectrum for 4G services to BSNL and MTNL will enable the PSUs to provide broadband and other data services. This spectrum will be funded by the government via capital infusion of ₹20,140 crore.

Additionally, the GST amount of Rs 3,674 crore applicable on the spectrum value will also be borne by the Centre via budgetary resources. “By using this spectrum allotment, BSNL and MTNL will be able to deliver 4G services, compete in the market and provide high speed data using their vast network including in rural areas,” Mr Prasad said.

A “very attractive” VRS will be offered to employees from both firms who are aged above 50 years. The of nearly Rs 30,000 crore for this will be borne by the government. Within this, the ex-gratia component of VRS will require Rs. 17,169 crore, while Rs 12,768 crore will be used for meet cost related to pension and gratuity.

Mr Prasad also pointed out that while human resource comprises 5% of cost for other telecom operators, for BSNL and MTNL the number is over 70%.

BSNL and MTNL will also raise long-term bonds of Rs 15,000 crore for which sovereign guarantee will be provided by the Government. “With the said resources, BSNL and MTNL will restructure their existing debt and also partly meet CAPEX, OPEX and other requirements, an official statement said. The debt of the two firms stands at about Rs 40,000 crore.

Further, it has been decided the two companies will monetise their assets worth Rs 38,000 crore so as to raise resources for retiring debt, servicing of bonds, network upgradation, expansion and meeting the operational fund requirements.