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.
MTNL posted a net loss of 26.11 billion rupees ($592.1 million) on revenue of 37.81 billion rupees during the financial year to March 31 2010, while ITI posted a net loss of 4.59 billion rupees on revenue of 45.96 billion rupees.
BSNL does not expect to turn a profit until the fiscal year to March 2013 and for the year just ended, forecasts a net loss of 27.25 billion rupees on revenue of 317.38 billion rupees.
That would be worse than its 2010 results of a loss of 18.23 billion rupees on revenue of 320.46 billion rupees, though it says matters will improve in the current year.