The government has decided against the merger of BSNL and MTNL and instead opted for transferring the mobile services of the latter to the former. What this would mean is that BSNL, which till now provides mobile services across the 20 circles of the country but not in Delhi and Mumbai, will start doing the same in these two circles also. MTNL, meanwhile will be limited to providing only the wireline services in these two circles. This arrangement will begin from January, 2021, sources said.

Though the Union Cabinet, while approving the over Rs 70,000-crore revival package for the two ailing state-owned telecom operators last year in November, had said the two should be merged, the idea has been deferred for now.

This is based on the recommendation of a government-appointed consultant, Deloitte Haskins & Sells LLP, which has suggested that 2G and 4G spectrum should be allocated to BSNL in Delhi and Mumbai so that the company can start providing pan-India services before MTNL is merged with it. According to the consultant, MTNL first becoming a subsidiary or an immediate merger between the two may lead to an outstanding debt of over Rs 45,000 crore for the combined entity, which will be unsustainable or unserviceable.

The outstanding debt liability of MTNL for financial year 2018-19 was about Rs 20,000 crore, its finance cost was Rs 1,703.18 crore. BSNL, too, has similar amount of outstanding debt and financing cost. Thus, in the event of subsidiarisation, followed by the merger, would make the combined debt burden of over Rs 45,000 crore, which will be unserviceable and unsustainable.

“The stamp duty cost on transfer of real estate to merged entity on immediate merger is also very high and therefore monetisation of real estate to pare debt of MTNL should be priority along with delisting of MTNL before merger,” Deloitte has said.

Also, pay scales in MTNL is one level higher and the average pay drawn by the officials in MTNL is also higher by 10-15%. This would need to be addressed before merger to avoid additional cost of nearly Rs 1,000 crore per annum on BSNL as well as due to pressure for upgrading the pay scale in BSNL also at par with MTNL.

Further, the issue of reconciliation and settlement of unreconciled inter-company balances of MTNL/BSNL also needs to be addressed.