BSNL goes shopping, but risks further degrading its current operations

Amit Gupta/Ovum
02 Dec 2009
00:00

BSNL, along with MTNL, has been looking for investment opportunities in other emerging markets such as Africa (Zain’s African operations, Zamtel and Ethiopian Telecommunications) and Sri Lanka (Millicom). While these are good growth opportunities for private sector operators in India, BSNL needs to focus on becoming profitable and defending its market share in India before it looks for global growth opportunities.

In theory, using its cash pile to drive growth is a fine strategy

BSNL has a cash reserve of over $6 billion. So far the company has just been earning interest on this cash reserve. While this interest has been sizable enough to offset losses BSNL has been making in its telecoms operations, capital of this size could potentially be deployed to capture growth opportunities.

The markets BSNL has shown interest in share a few similarities with India, and present attractive investment opportunities. So, in theory, BSNL could use its capital and leverage its India experience to tap into the growth potential of those markets.

Other incentives could be related to the Indian government’s intention to divest 10% of its stake in BSNL. However, BSNL’s recent poor performance makes receiving a good valuation challenging. Additionally, BSNL’s workers’ union is vehemently opposed to the divestment (see the Ovum report BSNL–MTNL divestment: progress, outlook and implications for more details).

By investing its cash in lucrative global growth opportunities, BSNL can look to achieve a better valuation. Furthermore, this strategy could help the company’s management to convince its workers’ union that, despite having sufficient funds to support the immediate needs of the company, divestment would be needed to raise funds for long-term growth opportunities.

In practice, BSNL is trying to run before it can walk

While BSNL is seeking growth globally, its profitability – and arguably its survival – in the Indian telecoms industry looks less than certain. The industry is experiencing rapid growth, but only private sector operators are benefiting from it. BSNL continues to lose money as well as market share. Intensifying competition in the industry doesn’t bode well for the reversal of this trend.

In order for BSNL to become profitable and defend its market share, it needs to transform itself from a government-owned company to a customer-centric, efficiently run organization. Turning around a company of BSNL’s size and complexity is a daunting undertaking that will require astute planning, strong leadership to overcome various internal hurdles, and ruthless execution. This task will become even more difficult if the company’s management preoccupies itself with too many initiatives.

Pages

Comments
No Comments Yet! Be the first to share what you think!