With the aggressive entry of Jio in the Indian telecom sector, customers are having a merry time with a reduced tariff and various freebies. But the telecom industry is going through a rough phase and the reduced tariff and freebies can’t continue forever. The good part is that our fundamentals are very strong. A growing economy, young population, high data usage, digitization, untapped rural potential, etc. are some of the positives for the industry from a long term perspective.
History teaches us that when things are not going well, it forces us to introspect and get back to basics. As always, private sector companies are quicker to act and adapt than public sector companies. A few years back we had 8-9 operators in the country, but in the 2 years, it has reduced to 4-5.
I see BSNL and MTNL merger as an inevitable outcome of this rapid transformation in the Indian telecom industry. From an analyst’s perspective, it makes absolute sense to merge BSNL and MTNL due to the following key reasons:
1) Cost Optimization: Telecom is a business of scale and the merger will help both companies to become leaner and thereby significantly bring down their capex and opex. There is lot of room for optimizing costs across their service lines. One common product, marketing, and customer service team will reduce duplication of efforts and rationalize the cost.
2) Enterprise and Wholesale Business: This merger will provide a big boost for their Enterprise and Wholesale Business. The merged entity will be able to stitch together a compelling value proposition to large and medium enterprises that operate across the country. Similarly, it will be more convenient for global operators to deal with one merged entity. In this case too, the scale matters a lot.
3) Better Valuation: The merger will increase the overall valuation and make the merged entity financially stronger, thereby receive a better credit term, which is an essential component of capital intensive businesses.
However, this merger will also have various challenges. And, one of the most challenging parts will be concerning the employees/resources. Being a public sector entity, this challenge is manifold. It needs to be seen how the Government and DoT can navigate through the hurdles and succeed in merging the two entities. A successful merger will be good for all, including its employees.
For more information on this topic or to schedule an interview/interaction with our spokesperson, please email Priya George, Corporate Communications at priyag@frost.com.
