RUPE India

The Real Issues Underlying the Ever-Deepening Crisis of BSNL and Other Public Sector Units

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Rahul Varman is on the faculty of the Indian Institute of Technology, Kanpur, India, where he teaches and writes about corporations and the neoliberal order.

( Hussain Indorewala )

CONTENTS

In Aspects no. 80 we followed the story of the development of the mobile telecom services sector in India since the entry of private firms around 30 years ago.1 We brought out how it has come to be controlled primarily by two massive private monopoly houses, with one private and one public sector firm retaining marginal shares. One of the points that we emphasised was that these monopolies regularly flout State regulations and accountability, while the regulatory authorities are more than willing to look the other way. We also brought out how, despite the large size of the Indian telecom sector, it is a story of lost opportunities: it remains abysmally dependent on foreign knowhow and technology, and has failed to develop robust manufacturing base.

To examine this question further, in this piece we attempt to critically trace the 25-year journey of the public sector firm Bharat Sanchar Nigam Limited (BSNL).2 We bring out how a real possibility and promise of indigenous development under the public sector, that is meant to be accountable to the people of the nation and their priorities, was lost. The reasons for this loss may appear disparate. But if we take the long view, it becomes explicit that the State pursued a consistent policy of discrimination against BSNL over this period. This at times took the form of placing unfair demands on it; frequently denying the assistance it needed; periodically foisting damaging decisions on it; and often blatantly favouring the private sector. The net effect has been to undermine and destroy a promising national asset, and leave a critical industry in the grip of two giant firms.

We lay out the argument in four parts. First we provide a background to BSNL. Then we examine the BSNL phenomenon in some detail with performance indicators and important developments and discuss the contradictory forces and expectations in which an organisation like BSNL is caught. Based on this evidence, we discuss the real questions about the public sector and BSNL, and conclude with some comments on the basic issues that we need to raise about the public sector debate.

I. Background

The story of telephone lines begins in India with the first telegraph connections being laid out in the 1850s by the British colonial state under the Post & Telegraph (P&T) department. This system continued after India gained political independence. Popular accounts tell us of the sacrifices and pride in work of the early P&T officials who laid telecom lines in remote parts of the country in difficult terrains, despite meagre resources.3 In the 1980s, the postal and telecom parts were separated and the Department of Telecom (DoT) was formed as an independent entity. Under the new department the enterprise of connecting the whole country through Subscriber Trunk Dialling (STD) booths was undertaken at a very large scale with the technology developed by public sector Centre for Development of Telematics (C-DOT) and commercialised through multiple private entrepreneurial ventures.4

In 1986, part of the telecom services, which were exclusively in the Government domain till then, were corporatised by the formation of two independent companies – Mahanagar Telecom Nigam Limited (MTNL) for services in the two metros of Delhi and Mumbai and Videsh Sanchar Nigam Limited (VSNL) for international telecommunication services. The 1990s saw early steps towards privatisation, with the sale of a stake in VSNL through global depository receipts (GDRs),5 and finally in 2002 the transfer of control of VSNL to the house of Tatas. VSNL became Tata Communications in 2008.6 In preparation for bringing private capital into the telecom sector, the Telecom Commission was formed in 1989 to formulate a policy framework for the sector, and in 1994 it was opened for the private players. In 1999 the telecom services provided by the Government were made into a separate department, Department of Telecom Services (DTS). This was corporatised as BSNL in late 2000, as a precondition for the public sector’s entry into mobile telecom.7

By 1995, private sector firms were granted licenses for providing mobile telecom services across the whole country, divided in 22 circles. But it was only in 2001, after public sector telecom services were corporatised as BSNL, that the public sector was granted licenses as the third player in each of the circles (BSNL in 20 circles, and MTNL in Mumbai and Delhi). In spite of their late start, BSNL and MTNL together held a 21 per cent share of the mobile market by 2005, comparable to the then market leader Airtel.8 By 2008 BSNL also held close to half the 12.8 million internet and 5.5 million broadband connections. Given its long legacy of landline connections and vast operations, by 2020 BSNL had book assets worth Rs 1.5 lakh crores, and the market value of merely the land that the company held was Rs 3 lakh crores.9 Since its inception, BSNL has invested in a massive mobile telephony network having 8 lakh kms of optical fibre and 1 lakh towers, which is the 25th biggest mobile network in the world.10

In recent times though, BSNL has been in the news only for the wrong reasons. Over the last 14 years 2010-24 it has accumulated losses of Rs 1.15 lakh crores. BSNL is way below its competitors in the primary metric of performance for the industry, Average Revenue Per User (ARPU) per month. Before Jio entered the fray in 2016,11 the ARPU of BSNL, at Rs 118, was comparable with the average of private operators (Rs 126), but by 2022 it fell off to Rs 53 under the predatory regime established by Jio.12 In November 2024, BSNL had an ARPU of Rs 90, compared to Airtel’s Rs 233, Jio’s Rs 195 and Vodafone Idea’s Rs 156. Despite the low ARPU, the market share of BSNL in terms of number of customers had fallen by 2024 to a mere 8 per cent in the mobile services sector.13

Along with its vast fixed line telecom operations, all the DTS workers were also transferred to BSNL when it was formed in 2000, with the original service conditions of being Government employees.14 Even in 2015, BSNL had 2.2 lakh regular employees on its rolls. Apart from regular attrition, there were concerted attempts to reduce the manpower through VRS (voluntary retirement scheme) ‘packages’ over the years. The number of regular workers on the rolls came down to 56,000 by 2024.15 But the employee costs were still more than 30 per cent of expenses, significantly higher than the industry norms.

During 2019 to 2023, the NDA government has come up with multiple ‘revival packages’ for BSNL totalling Rs 3.2 lakh crores, contrary to its sworn policy for privatisation of public sector undertakings (PSUs). Perhaps this was to placate the protests by the employees of BSNL, as well as to deflect the criticism that two massive private operators, Jio and Airtel, exercised oligopolistic control over such a vital public service. In Part III we will discuss some details and issues regarding these packages.

II. Decoding the Negative Image of BSNL Projected by the Media

Media coverage of BSNL over the years conveys overwhelmingly an image of inefficiency, sloth, and indecisiveness, leading to losses – thereby corroborating the commonplace belief that the ‘Government can’t do business’. In this section we will bring out some key events over the years which help explain the lacklustre performance and failing competitiveness of BSNL, and make the following argument:

  1. As a PSU, BSNL is supposed to meet social obligations that may not be commercially remunerative. But this makes it doubly handicapped – on the one hand, its private competitors are unencumbered from any such requirement and pursue only immediate profits; and on the other, in the name of being even-handed, Government has gradually withdrawn any special support that historically was available to BSNL for meeting those social obligations.
  2. What makes things even more difficult for institutions like BSNL is that the controlling agencies’ expectations and obligations are not only quite nebulous but keep changing arbitrarily all the time. As a result of these agencies’ acts of commission and omission, BSNL’s attempts to make investments, acquire licenses/spectrum, and graduate to the next generation of technology and services get mired in controversies, failures, and protracted and delayed processes. Further, BSNL has been saddled with court cases and conflicting claims and demands by multiple agencies and interests repeatedly, resulting in huge delays and lost opportunities, in contrast with the private players.
  3. Further, while private operators routinely take liberties with the regulatory system, and regulatory bodies are more than willing to indulge them, BSNL cannot expect such leniency, given that it has to measure up to an elaborate public accountability system.
  4. Stacking the field even more against the PSU, State bodies often appear to discriminate against it in favour of the private operators.
  5. Finally, in spite of so many handicaps, there have been moments in the journey of BSNL when it has turned out to be the most effective regulatory instrument available vis-à-vis the increasingly oligopolistic private telecom industry.

We will illustrate and elaborate on the above argument pointwise in the rest of this section below.

1. BSNL is Expected to Meet Social Obligations but is Provided Little State Support

Observers sympathetic to BSNL point out that it is the only real provider of land line services, and has continued to do since the first lines were installed during the British times. Vast and timeworn, fixed line operations, especially in remote areas, mean more maintenance and personnel costs. Fixed lines are more capital intensive than mobiles and hence meeting such social obligations is often not economically viable. On an average, BSNL was spending Rs 702 per line per month on rural landline services against a revenue of about Rs 78 per line per month in 2008-09, and in 2003-04 the PSU reported a loss of about Rs 9,528 crore in the rural landline segment.16 Thus, such obligations can work either on cross-subsidy or State policy that compensates for meeting social commitments by an operator. Over the years, little scope for cross subsidy has been left, as high-end fixed line users moved early on to mobile services being provided by private operators, even as the entry of BSNL into mobile segment was delayed by many years, as discussed above. Later, mobile services have worked on thin margins, due to cutthroat competition and the predatory pricing policies of the private operators.

At the time of the formulation of the National Telecom Policy (NTP) 1999, DTS, which later became BSNL, was not required to pay license fees against existing services. Further, the policy envisaged full exemption of license fees against BSNL’s cellular operations as well. But over a period, in the name of providing a ‘level playing field’ for the private operators and against ‘market distortions’,17 all such rights of BSNL were whittled down, while it continued to be the only operator in real terms that was saddled with multiple social obligations as well as its legacies of old technologies and vast operations. By 2014, BSNL had installed a public phone in almost all the 6 lakh villages in the country. By contrast, by 2010 private operators had provided no more than 2 per cent of the landline connections in the rural areas.18 Yet, BSNL was made to pay license fees for revenues from all its services like private operators, including loss-making telegraph and rural operations, while, contrary to what was committed in NTP 1999, reimbursement of license fees was stopped in 2006-07. In any case, the State has been unable to get even the due license fees over decades from the private operators. On the contrary due to hue and cry by these powerful private players, first the license fees were reduced as well as the due dates postponed in the 1990s, and then the annual license fees were converted to certain progressively reduced percentage of (adjusted) gross revenue (AGR). But much of it has still to be realised by the State from the errant and much litigating private operators. Meanwhile the dues have become a whopping Rs 2.5 lakh crores over time, including the dues that were never paid by those private operators who have shut shop!19

Initially BSNL got an Access Deficit Charge (ADC) to serve uneconomical markets as part of the transition to a corporation from a Government department. In 2003-04 the ADC support for BSNL was close to Rs 11,000 crores,20 so the loss of this support alone is sufficient to explain the rapid decline of BSNL reserves. But over time such Government commitment to BSNL has been whittled down and finally merged with Universal Service Obligation Fund (USOF).21 Even as this was done, there was no reduction in what BSNL was expected to do. Most egregiously, at some point, in the name of ensuring parity with private operators, BSNL was also expected to contribute a levy to USOF. The decisive difference was that BSNL actually invested in, and was committed to, rural connectivity – unlike the private operators. It led to an absurd situation in which BSNL was contributing more to the USOF than it was receiving out of it, in contrast to the private operators! This is diametrically opposite not only to common sense, but also international norms, whereby payments from the USOF are primarily for fixed line operators in remote and uneconomical areas.22 Most shockingly, over the years the USOF has paid out thousands of crores to fixed line operators such as RCom and the Tatas, and later to cellular service providers such as Jio and Airtel,23 but with very little accountability about whether they had met any of their obligations.

This pattern of withdrawal of the special status of BSNL took place on many fronts in the name of ‘fair’ competition. Take the case of Interconnection Usage Charges (IUC). Private operators were supposed to share their revenues with BSNL for connecting with the latter’s lines, especially fixed lines. But from the very entry of private operators, the private firms vehemently protested that BSNL was taking advantage of its dominant position in the industry, since it had the bulk of fixed lines, and was seeking an unfair share of the revenues of the mobile operators. The media, the regulatory bodies and even courts and academia reports were flooded with such pleas by the private operators. There was little consideration of the massive capital costs and even maintenance expenses of BSNL. The outcome of the unleashing of an entire ideological machinery in favour of private operators was, that by the time BSNL entered the mobile market, Telecom Regulatory Authority of India (TRAI) changes in IUC in 2003 led to a major revenue loss for BSNL. Paradoxically, according to BSNL’s contention in the Supreme Court in 2009, the termination charges on mobile networks were higher than for the BSNL’s fixed lines, while the costs for the latter were three times that of mobiles. This amounted to a Rs 6300 crore ‘largesse’ for private operators.24

This asymmetry continued for the international calls as well. For example, BSNL used to get Rs 10 per minute termination charge for all incoming international calls. But the charge was drastically cut to 30 paise per minute, while BSNL continued to pay on an average Rs 3 per minute for its outgoing calls terminating abroad. BSNL estimated that such changes extended benefits of more than Rs 4000 crores per annum to the international operators and a corresponding loss to BSNL.25 To top it all, the Comptroller and Auditor General of India (CAG) in its 2008 report pointed out that the faulty and delayed billing of IUC likely led to losses worth several hundred crores for BSNL.26

Even though termination charges were drastically cut,27 dominant private operators such as Airtel, Bharti and Vodafone were reluctant to pay the amounts due to BSNL. Ironically, the same players who had the dominant share in the mobile telephony, vehemently complained about their losses when Jio entered a decade later and quickly captured a massive market share with its predatory pricing.28 This time Jio complained about the ‘monopolistic’ advantage of the likes of Airtel and Vodafone due to ‘unfair’ call termination charges. Logically, an earlier entrant that has made massive capital expenditures and incurs operating expenditures for a call terminating on its network should charge for this facility. The point of contention is how much, and by whom. This is the subject of extensive technical discussion, similar to the discussion on spectrum usage charges. Yet when it comes to the interests of a public operator like BSNL, the Government itself does not protect its own firm’s interests, and there is no one else to do so. That is the point to keep in mind as we proceed.

A similar pattern followed in long distance telecom traffic, both within the country and international. Within a decade of opening of the telecom market for the private sector, long distance too was gradually opened for private operators – national long distance, international long distance as well as virtual private network (VPN) services. This led to private operators dividing the business among themselves and routing their calls among one another, leading to a huge loss of business for BSNL.29

Such ‘extra’ requirements imposed on BSNL do not end with operational matters alone. Successive policy pronouncements state ambitious targets for the indigenisation of telecom equipment. Meanwhile private operators have a three-decade record of sourcing equipment from international suppliers, from 2G to 5G.30 Thus the responsibility of meeting indigenisation targets falls exclusively on the already over-burdened shoulders of BSNL. BSNL’s very belated entry into 4G with the announcement of a ‘revival package’ in 2019 is a case in point. In June 2020, it was reported that BSNL would go for an ‘indigenously designed, developed and manufactured’ solution for 4G gear, in contrast to what all the private operators had done. This was apparently after an association of indigenous suppliers complained against an earlier tender and demanded that foreign companies should be barred from BSNL’s 4G procurement to encourage local manufacturers.31 By the following year a consortium led by Tata Consultancy Services (TCS) was awarded a Rs 24,500 crore contract to supply 4G network to BSNL. The consortium included Tejas Network (which had been acquired by the Tatas in 2021, perhaps in anticipation of the BSNL contract) and the public sector C-DOT and Indian Telephone Industries (ITI), a public sector unit for manufacturing phones and telecom equipment. Further, three manufacturing plants of the ITI were deputed to the private sector TCS for executing this order. All India Forum against Privatisation (AIFAP) alleged that ITI would be made to spend Rs 60 crores for building infrastructure to manufacture these items with mere 2 per cent margin.32 The Government claimed that by the end of 2023, one lakh 4G towers would be functional, but media reports in early 2024 suggested that the equipment was still being tested, and even by Septemebr 2025, BSNL’s 4G services were far from fully functional.33 It was also reported that such indigenisation requirements would be stipulated for 5G sourcing of BSNL as well, as and when it becomes a reality. BSNL remains a testing ground for developing indigenous 4G gear. Meanwhile private players such as Airtel had begun their 4G services more than a decade back!

Had the authorities been genuinely interested in increasing indigenisation, they could have applied the same requirements to private telecom firms as they imposed on BSNL. As they exclusively applied indigenisation requirements to BSNL, and thereby crippled it, they effectively ensured the end of the project of indigenisation as well in mobile telephony in India.

2. Contradictory and Repeatedly Changing Demands by the Controlling Agencies

In October 2006, the CAG came up with a report34 on BSNL’s Phase-V capacity expansion plan of its mobile services.

— In 2004 BSNL planned a capacity increase so that the telecom PSUs could achieve a market share of 50 per cent in overall telecom services.

— In 2005 BSNL board approved procurement of 641 lakh lines of cellular mobile telecom services (CMTS). Later the target was pared down to 400 lakh lines.

— Further, the objective of indigenisation was added to the requirement with procurement process being divided in two phases in equal parts. The second half had an additional requirement of 20 per cent ‘indigenisation’ of the value added to the equipment procured.

— Subsequently there was yet another change in game plan for tendering new lines, and the Ministry asked BSNL to order 600 lakh lines, with first phase of 33 per cent supply and the second phase of the rest of the lines with an indigenisation requirement of 30 per cent.

— In early 2006 a committee of experts was formed to vet the resulting tender, and finally the Board invited bids for 455 lakh lines for three zones from registered Indian companies and 180 lakh lines for the west zone, reserved for ITI. The eligibility criteria required that the bidders (of both the bids) should already have manufacturing facilities in India for the core equipment to be supplied, or they should create the infrastructure within six months from the date of issue of the purchase order for the first phase.

The CAG audit voiced its concern that between January 2005 and October 2006, the total addition of GSM35 subscribers by private operators was 381 lakh (excluding Delhi and Mumbai where BSNL did not operate), and BSNL lost this opportunity due to delays in the tendering process. Tellingly, the tendering process was not over even at the time of the release of the CAG report.

Take another instance: BSNL’s $5 billion 45 million GSM lines tender in 2007. Five entities bid for this tender – Motorola, ZTE, Siemens, Ericsson and Nokia. Motorola was disqualified on technical grounds, 60 per cent of the order was placed with the lowest bidder Ericsson, and the rest was divided between Nokia and Siemens at the same price as Ericsson. In response, Motorola moved the Delhi High Court against its disqualification, and the order remained pending for seven months!

Meanwhile A. Raja replaced Maran as Minister of Communications and decided that the price of Ericsson at $108 per line was too high. BSNL then had to halve its contract size to 22.3 million lines and negotiate a price of $91 with Ericsson. Nokia-Siemens, who had initially quoted $177 per line were not willing to match the new price, hence the tender got reduced to just 14 million lines, less than a third of the initial plan. Observers consider this ‘missed opportunity’ as a major setback for BSNL’s plans to gain ground in mobile telephony.36

A similar pattern of bureaucratic mishandling, detrimental political intervention and imposition of discriminatory conditions is observed in the attempts by BSNL to tender a 5.5 million-line expansion of its GSM operations in 2010-11. In September 2010, with the Government allowing Chinese vendors, BSNL invited fresh bids for procurement, while bids from Alcatel-Lucent, Ericsson and Nokia Siemens were already placed on an earlier tender. This was because employee unions asserted that Chinese equipment was significantly cheaper, and hence barring them would affect BSNL’s competitiveness as private operators had procured telecom gear from Chinese vendors at nearly 50 per cent the price at which BSNL would get from Western suppliers.37 BSNL had earlier cancelled a 93 million-line, Rs 35,000 crore, tender as the “process lacked competition.” The following year, the Ministry of Home Affairs put forth an additional condition of seeking the source codes from the vendors, but only the Chinese were willing to consider such a clause. On the other hand, DoT cautioned against Chinese vendors as security risk.38 BSNL was thus caught between contradictory demands, which are impossible to reconcile!

The Week in a detailed story39 reported that the network equipment tenders were cancelled 13 times between 2007 and 2010 by BSNL. It quoted SD Saxena (former director, finance of BSNL) on the irreparable damage to its cause:

Those were the peak days of mobile expansion… when everybody was adding 10 million lines, we could not even buy equipment. The (BSNL) network was choked. As a result, service quality became poor and customers started shunning us…

3. PSUs have to Honour the Regulatory System, Unlike Private Operators

Private players employ ‘innovative’ market capturing strategies which defy the regulatory requirements; however, the same would not be allowed for public sector companies. Some of the later entrants in telecom sector in the 1990s, who got the licenses for providing basic (land line) services through the CDMA40 tech, were permitted to use wireless for the last mile through Wireless in Local Loop (WLL). But what private operators like RCom did was to flout the rule and use the WLL license to connect the whole country through wireless tech and then use predatory pricing to capture the market. In fact, a similar strategy was later repeated by Jio when Mukesh Ambani led Reliance entered the market in 2016.41 The regulators turned a blind eye to such flagrant flouting of norms.

BSNL could not be expected to take such liberties with the regulatory process and hence was unable to compete with the private players. BSNL’s complaints of such breach of regulations by its competitors were ignored by the TRAI. Instead, the Government legitimised private operators’ full-fledged mobile services based on blatant defiance of regulations by permitting them to migrate to the so-called Unified Access Service License (UASL) regime. Most egregiously, as a result of this regulatory capture by private operators, BSNL’s bet on CDMA failed to increase its market share, and thousands of crores went down the drain.42

Another aspect of this process of marginalisation of BSNL has been cartel formation or oligopolistic behaviour by the private operators, as the massive telecom market consolidated in a few hands. Take the case of 3G spectrum auctions in 2010. While BSNL paid Rs 11,000 crores for countrywide 3G spectrum, dominant players – Bharti, Idea and Vodafone – instead of acquiring spectrum in all the 22 circles, bought it in 13, 11, and 9 circles respectively. In the process, each of them paid less than 50 per cent of what BSNL paid as 3G spectrum charges. Even at the time of the auction, observers commented on the cartel that was quite visible. Later the three private operators made ‘arrangements’ among themselves to provide services in all 22 circles across the country through ‘intra-circle roaming’. For example, Vodafone, which had not bid for the Kerala circle, nevertheless was able to offer 3G services in Kerala by arrangement with Idea, which had the 3G spectrum for that circle. Later the National Telecom Policy (NTP) 2011 attempted to justify such obviously oligopolistic practice by calling it ‘optimum utilisation’ of 3G spectrum. It is significant that the State not only pushes its own enterprises into a disadvantageous position but also justifies foregoing of its own revenues due to cartel manoeuvres by private players. BSNL went to the Supreme Court against such collusion, and DoT concurred with BSNL. In 2013 the apex court allowed Bharti Airtel to continue providing 3G services in seven circles in which it did not have licences, through interconnectivity pacts with other operators, but disallowed the company from enrolling new subscribers in these circles.43 This amounted to a mere slap on the wrist.

BSNL at times has also been forced by the Government to generously ‘help’ its competitors, the private operators. Most of us are familiar with the ‘2G Scam’: Licenses and spectrum were allocated across the country by the Government, without following any rules, to a large number of new operators and to front corporate entities of existing telecom operators.44 A relatively less talked about aspect of the episode is that many of the new operators, who illegally acquired multiple licenses and generous quantities of spectrum, were able to sell stakes in their freshly minted telecom operations at a great fortune precisely because they could leverage BSNL infrastructure to start their telecom operations! For notorious players such as Swan Telecom and Unitech, BSNL was directed by DoT to provide ‘roaming’ facilities even in those circles in which these companies had bought licenses, which completely confounds logic. Thus, without any investment in expensive telecom infrastructure, and by merely acquiring licenses and spectrum, the new entrants could acquire subscribers and claim to have substantial operations. On this basis they could sell stakes in their companies at fabulous valuations to international interests. Of course, the DoT would never have asked any private operator to be so generous to their competitors! The BSNL employees’ unions raised the issue several times with the Prime Minister and the relevant ministry, but to no avail.45

4. ‘Stepchild’-Like Treatment by the Government

Successive governments have meted out this sort of unfair treatment to BSNL while providing only half-hearted support. Take the case of allocation of Broadband Wireless Access (BWA) Spectrum to BSNL in 2010. Observers and employees were quick to point out that the PSU was compelled to accept spectrum in ‘non-standardised’ band and forced to pay Rs 8,000+ crores for pan-India license at a time when BSNL had limited scope to manoeuvre, having suffered its first losses in 2009-10. Employee unions asserted that despite being provided ‘inferior’ spectrum, BSNL was made to pay an amount similar to that of the private company bids. The particular band of spectrum allocated to BSNL could not be used for 4G, as the procurement of equipment would have been extremely difficult and prohibitively expensive, with scale economies working against BSNL. This is because the private buyers and therefore suppliers had already deployed it for other frequencies.46 Finally, in December 2011, BSNL wrote a letter to DoT offering to return BWA spectrum in all circles, but this was approved for only 9 circles.47 Rahul Khullar, former TRAI Chair, commented on this entire painful episode in Business Standard in 2019:

The 3G auction in 2010 irreparably damaged their finances. BSNL and MTNL were compelled to purchase 3G and… (BWA) spectrum… (It) was simply foisted on them… Worse yet, it created a permanent recurring liability to service a useless asset (the BWA spectrum).48

There are numerous such episodes over the years. Our data are culled from media reports; thus there could be more unreported ones. We have cited only some of the more egregious ones to establish a pattern for the contention made above. A few more are listed in The Week’s 2015 story.49

This never-ending saga of damage to BSNL due to the Government’s faulty/ill-intentioned decisions continues to date. It was only in 2024, by which point private players were well established and already investing in 5G tech, that the Government reluctantly decided to allocate spectrum for 4G to BSNL, after repeated pleas by the BSNL management and protests by the employees. But once again experts have observed that, after the loss of so many years, the spectrum being provided to BSNL for 4G puts it at a great disadvantage, and will not really position it for serious competition against the well-placed and well-heeled private operators. BSNL has been planning to add some equipment for 4G in 2100 MHz band, where it already provides 3G services, but this will not lead to good coverage and reach for either of the two services.50 For the rest of 4G, the Government has allotted spectrum to BSNL in 700 MHz. However, very few outside India, and none within the country, have deployed 4G services in this band, and hence once again procurement of equipment at competitive prices is going to be a huge problem. Moreover, this band is not appropriate for graduating to 5G network as and when BSNL is allowed to make that move.51

5. PSU as an Instrument of Regulation

Finally, in a system dominated by the monopolies, one effective check on the private sector is the counter measures that the State can take through PSUs. This can be seen in certain consequential decisions by BSNL. BSNL was allowed to enter mobile services market only in 2001, as the third operator, several years after the private operators had established themselves and garnered substantial market shares. Even such a late entry was allowed only after the BSNL unions took to the streets. Mobile tariffs crashed by almost 75 per cent in a short span in anticipation of the entry of BSNL-MTNL in mobile telephony.52 As Purkayastha argued, why should a mobile call cost 48 times more than landline costs, when the cost per line for a mobile was one fifth that of a landline user? But such rationalisation of mobile service prices could happen only when there was a public sector firm to counter the price gouging by private operators.53

In July 2024, right after the parliamentary elections, all three private operators – Jio, Airtel and Vodafone Idea – hiked tariffs by a substantial 10-27 per cent for all their tariff plans, within 24 hours of one another. This is a telling example of how oligopolistic markets function and set prices by cartel, making a mockery of State regulators. With their new prices, 28-day validity plans for all three operators were priced at Rs 299, though there were marginal differences in the services offered for the same price by the three operators. In contrast, BSNL offered 2GB data per day for a validity of 54 days at Rs 347,54 almost half the price of the private operators. Significantly, Jio, Airtel & Vi cumulatively lost 23.07 million subscribers in the quarter of July-September 2024, while BSNL added 6.3 million new customers!55 As is apparent from above, in an undifferentiated and yet essential service such as telecom, especially in a price sensitive market like India, the very existence of a PSU like BSNL can make a material difference in terms of choices available to a customer. This is particularly so as the market has become completely oligopolistic.

III. PSUs: What really is the debate?

Based on the case of BSNL as discussed above, let us attempt to clarify the real issues in the debate around PSUs. At present the dominant notion is that the purpose of PSUs is the same as private enterprise, i.e., to make profits. And if they are not doing that, it implies that they are ‘inefficient’ and ought to be privatised.

A contrary view is that PSUs are instruments of public good, and an integral part of the development project in post-colonial India. This becomes even more critical for an essential service like telecom in which massive public resources have been invested. Thus, a set of considerations entirely different from profits needs to be brought in to measure the performance of PSUs. Further, many of these parameters are hard to quantify, unlike accounting profits.

However, in the present times, even sympathetic commentators on PSUs are not willing to go beyond the profit logic. Taking maximisation of PSU profits as the goal, their diagnosis is that the problem faced by the PSUs is ‘political interference’ and governance issues. Hence the debate is reduced to how to provide the PSUs autonomy and thus make room for them to compete. In a fairly sympathetic and a detailed case study of BSNL-MTNL, Sinha concludes that the way forward is in providing relief to State-owned enterprises (SOEs) from the burden of complying with Article 12 of the Constitution (which treats SOEs as an extension of State bodies), thus making space for them to act and be governed like non-State entities. He concludes:56

Economic reforms and liberalisation have converted BSNL and MTNL from state-owned monopolies to players in a highly competitive market with no social or other non-commercial objectives. They will have to be run like other private sector telecom companies if they are to survive and prosper (emphasis added).

Thus, since the 1980s, the whole project of development of PSUs has been turned on its head. First a policy regime is put in place to favour private monopolies, and then PSUs are evaluated by the straightforward market logic of cost-benefit, by which PSUs appear inefficient, cumbersome and unsustainable. Public bodies too promote this idea of a PSU. In January 2019, when DoT sought the Niti Aayog’s opinion on equity infusion for BSNL-MTNL’s move to 4G, much after the private operators had already captured substantial 4G market, Niti Aayog opined against the proposal. It observed that the returns on such high investments of preferential equity infusion in BSNL-MTNL of Rs 14,000 crores for acquiring 4G spectrum are almost nil and not essential. The balance was tilted in favour of the above proposal only due to employee union protests.57

Even BSNL’s own management is invested in the idea that a PSU’s primary goal is to earn profits on the lines of private firms, and hence it should be able to compete with them. The management has repeatedly hired international consultants to provide ‘magical’ inputs and strategy which can make it conventionally competitive. For instance, it hired Boston Consulting Group (BCG) in 2024 for a whopping fee of Rs 132 crores, and before that it had hired Deloitte and KPMG too, to come up with the right prescriptions for BSNL’s ‘malady’.

Dispensable BSNL Employees

A significant, though often concealed, feature of all the expert analysis and prescriptions regarding PSUs is that they put the primary blame for the lack of performance on PSU employees. This probably explains the common and recurring recommendation to cut the workforce across PSUs, ignoring the larger strategic and governance issues for which the liability ought to lie with State and regulatory functionaries. For instance, the first of a series of revival packages for BSNL worth Rs 69,000 crore, announced in 2019, was primarily used for the ‘voluntary retirement scheme’ in which 79,000 employees were removed from the BSNL’s rolls. Abhimanyu P., General Secretary of BSNL Employees Union, stated that there was little ‘voluntary’ about the whole project:58

(S)alaries were delayed for months, the retirement age was threatened to be reduced. As a result, employees were forced to retire…

And this sort of indiscriminate paring of the rolls seriously compromised their services. Thomas John, President, Federation of National Telecom Operators Union, stated that maintenance of landline phones typically required one technician for every 500 phones. “Now we barely have one technician for every 2,000 landline phones”, he added.59 Further, in 2024, employees were working on pay scale fixed in 2007, while the promotion policy had become almost defunct.60

To compensate for the lack of manpower, the organisation hired an army of ill-paid contract workers. Ironically, at least in this respect the PSU has become a copy of the private operators. In the end of 2019, it was reported that one lakh contract workers of BSNL had not been paid their wages for 10 months, while at the same time, BSNL was also planning to lay off 30 per cent of its contractual workers!61 This was not an isolated incident. A September 2020 report stated that contract workers in BSNL had not been paid wages for the past year, and 13 contract workers had ended their own lives in distress.62 In 2024, AIFAP claimed that 50 per cent of BSNL activities had been outsourced, whereby even engineers got a meagre monthly salary of Rs 15,000, while other workers were paid less than Rs 10,000,63 perhaps half the legal minimum wages for an unskilled worker!

The political bosses of BSNL too target its employees. BJP MP Anantkumar Hegde, in a public meeting in August 2020, in the midst of COVID pandemic, proclaimed:64

BSNL employees are anti-nationals and traitors who do not work, more than 88,000 employees would be fired soon as the government will privatise it (emphasis added).

As BSNL is being systematically hollowed out, the consequences are visible in all aspects of its functioning, from service quality to physical infrastructure. The following is a customer observation on Reddit based on his visit to a Bangalore office of BSNL:65

Today I went to the BSNL office … (it) was completely deserted except for one woman… who is probably only a few years away from retirement… Just one employee in a three-floor building. Pretty sure the top floors are not even furnished, leave alone dusted and cleaned.

Behind the Revival Packages

Since 2019, the Government has come up with three so-called revival packages for BSNL. The first, as we discussed above, was almost completely used for severance packages to achieve substantial reduction of the workforce. The second, announced in July 2022, was supposed to be worth Rs 1.64 lakh crore. The cash component in this package was only about Rs 44,000 crore. The remaining Rs 1.2 lakh crore was the non-cash component that was supposed to be transferred over four years. The non-cash component included administrative allotment of 4G spectrum, the Bharat Broadband Network Limited (BBNL) merger with BSNL, debt restructuring by raising bonds with a sovereign guarantee, and financial support for the unpaid AGR dues of BSNL. The cash component included capital expenditure support and viability gap funding for rural wireline operations.66

Though such packages are always announced with much fanfare, it is very difficult to make out how much actually was received by BSNL. For instance, take the last of this series of packages, worth Rs 89,000 crores, which was announced before the 2024 parliamentary elections. Business Standard reported that only 6 per cent of the budgeted amount was utilised in the first seven months of the FY 2024-25.67 Let alone the sum of the package, the General Secretary of the employees’ union complained that more than Rs 38,000 crores of actual dues remained unpaid to BSNL by the Central government!68

The Government does not seem to have any coherent plan to revive BSNL, assuming it intends to do so. Taken at face value, the entire approach is piecemeal and often contradictory. Thus, on the one hand there have been a series of revival packages since 2019, and at the same time, there have been attempts to sell off BSNL part by part. Even a lock, stock and barrel privatisation akin to that of Air India may be in the offing. Since 2019, the Government has been attempting to sell off the assets of PSUs (including BSNL), but the whole process is so opaque that it is hard to decipher the end game. In August 2021, the Government stated that it expected to realise Rs 35,100 crore from the sale of part of the 2.86 lakh km BharatNet fibre assets and 13,500 mobile towers owned by BSNL-MTNL, as part of its National Monetisation Pipeline.69 In 2024 the Parliament was informed that BSNL had leased almost one-fifth of its towers, mostly to private operators.70 In July 2024 the DoT Secretary came up with a 54-page long list of 531 locations of BSNL land parcels, buildings, staff quarters, telecom training centres, etc. for the purpose of monetisation.71 But, as E.A.S. Sarma, ex-Secretary, Government of India, pointed out, DIPAM (Department of Investment and Public Asset Management) unilaterally decided on monetisation of land, ignoring the fact that it was state governments that had invoked their “eminent domain” authority to acquire these lands.72

IV. Conclusion

Telecom is a public good, and access to internet and social media is vital not only for communication, but also for many other essential services and amenities. Moreover, almost every aspect of society and the economy is being digitalised, and a digital identification is now required to access services like banking and finance, ecommerce, entertainment, and even education and medical services. Access to most Government schemes and social services has also become contingent upon telecom services.

An important feature of telecom services is that they are highly capital intensive, with rapidly changing technology. As we have seen, in a couple of decades we have transitioned from 2G to 3G to 4G to 5G, and there is now a buzz about 6G. These refer to different generations of mobile technology. Each transition implies investment in new equipment, as well as buying of spectrum and licenses for providing services across the country. In other words, a telecom firm requires massive infusion of capital at frequent intervals. In comparison, the costs of adding a new customer are almost nil once the capital investment is in place. Moreover, there is little to differentiate one service provider from another, and what really separates them is the price of the service. Given this peculiarity of very high fixed costs and negligible marginal costs, telecom is what economists call a natural monopoly. This implies that it is very wasteful to have multiple operators in the industry, as would be required if competitive forces are to work in the real sense. Worldwide, in each national jurisdiction, there are only a handful of successful/sustainable telecom operators. In India, there have been brief periods when many of the 22 operating circles had a large number of operators, such as immediately after the 2G scam in 2000s, or even in the beginning in the 1990s.73 But finally, what we are left with are two private operators who divide 75 per cent of the market among themselves across the country. Apart from the largest two, there is Vodafone Idea, which is barely surviving despite receiving massive Government largesse, and BSNL, which has a market share of less than 10 per cent.

Moreover, this huge telecom network, whether private or public, stands primarily on public resources and institutions: spectrum and licenses,74 and loans, primarily from public sector banks, in a sector that is highly capital intensive and leveraged. Combine this with the notorious and consistent record of private operators in brazenly defying the regulatory framework – not paying Government dues for spectrum and licenses, as well as on profits earned. These unpaid dues run into lakhs of crores of rupees over these 30 years of functioning of private operators in India’s telecom services industry. Further, despite the Government emphasising the need for indigenisation of telecom knowhow in every single telecom policy pronouncement, such little indigenous knowhow as has been developed has been in the public sector – CDOT, ITI or BSNL. The public sector has also supplied early leadership and trained personnel for the private sector. The Government has institutionalised a regulatory and juridical system – TRAI, TDSAT, and the public judiciary. Further, laying a countrywide fibre network and broadband connections to markets that are not commercially viable (remote and rural areas) has been the responsibility of PSUs like BSNL.

To summarise, telecom is a public good, a natural monopoly which has been primarily developed on public resources, and is vital for the functioning of economy and people. This leads to a very important question: Why then is the telecom sector under the tight control of two giant private operators? This question becomes even more pertinent if we look at the expectations from BSNL in the past 25 years: it is to bear the burden of indigenous technology development and security concerns about China, even as it is expected to serve uneconomical poor-rural-remote segments. Moreover, even abiding by regulatory directions, not only in letter but spirit, is left to BSNL alone, while private operators are busy skirting them.

People expect that the public sector will provide decent jobs with some minimum rights of unionisation, tenure and reasonable work conditions, but at the same time, the dominant view today labels a PSU, which provides such rights, as ‘inefficient’ and corrupt. We never hear of worker rights or unions in Airtel, Jio or Vodafone. We do not get to hear the voices of the private sector workers, as even speaking about their rights would mean immediate retribution. In fact, if some material is accessible on the functioning of BSNL it is only thanks to the unions, who have consistently brought these issues into the public domain. It is their protests that at times have restrained the State authorities from acting in an even more biased fashion.

As the ‘commanding heights’ of the economy are occupied by monopoly capital, there is no question of any market forces at work in the Smithian sense. The competition is reduced to which firm is better at influencing the State and its policies in its own favour. Hence the role of the State has been merely that of a facilitator for the monopolies, rather than to discipline them. As is evident from the above discussion, the only players that the State has any capacity to discipline are its own PSUs, which it pushes further in the interests of the monopolies. In such a situation, PSUs seem to be perpetually living on borrowed time, waiting to be privatised, either wholly or piecemeal, or forced to shut down or shrink. Those who are employed in these PSUs have to take the initial brunt of these policies by losing secure jobs with some essential entitlements. As we can see here, despite having one of the largest investments in infrastructure among the telecom companies, and significantly smaller debt than the private players, BSNL resembles an orphan. Paradoxically, the stakeholders who have been treated as the most dispensable, namely BSNL’s employees and their organisations, have been the sole interest that have been fighting for BSNL’s survival.

Given that telecom is such a vital pipeline on which today so many essential services depend, as the State and corporations move towards even further digitalisation, it is important that the debate is brought back to the question of the public good and holding monopolies accountable. In ensuring the public good, PSUs like BSNL necessarily would have to play a critical role. Note that the BharatNet programme that was started in 2011 to connect rural India has failed by far to meet its targets. According to Government’s own estimates, 97 per cent of rural households and 70 per cent of villages remain uncovered with broadband connections,75 while the quality of mobile services leaves much to be desired.76 Interestingly, in three of the four economies larger than India, China, Germany and Japan, the State has a major stake in at least one of the dominant telecom operators; the US is the exception. China’s telecom services are completely dominated by SOEs. This is one of the vital reasons for the rise of Chinese equipment suppliers such as Huawei and ZTE, for which the State could ensure large domestic demand.77 But with the neglect and even active undermining of PSUs as State policy in the last three decades in India, we are now not only left to the mercy of the duopoly of Jio and Airtel, but also have no indigenous presence in equipment manufacturing, in spite of having one of the largest telecom markets in the world.

A telling example of the policy of appeasement of monopolies on the one hand, and active undermining of BSNL on the other, is the third remaining private operator – Vodafone Idea, a combine of the UK-headquartered Vodafone, one of the world’s largest telecom operators, and the Aditya Birla group of India. Vodafone Idea has consistently refused to pay its license and spectrum dues since the 1990s itself, right from its origins. It also failed to pay other massive tax dues when Vodafone acquired the Indian company, Hutch Essar, and entered the Indian market.78 The unpaid dues have become huge; the company is supposed to pay around Rs 40,000 crores per annum to meet its commitment to the Government.79 And yet the Government has been indulgent, allowing it to neither pay the dues nor make fresh equity investments, in spite of the massive heft of its parent holding companies. So much so that today the Government has become the 49 per cent ‘owner’ of the company (after converting unpaid dues to equity), while the two private corporate entities that control and manage Vodafone Idea have together only a 25 per cent stake!

The existing popular debate regarding the public sector is posed in a distorted fashion, taking profitability as the sole sign of efficiency. That amounts to viewing telecom from the viewpoint of private capital, not the public interest. In fact, to measure efficiency we need to first define what output we want, i.e., our objectives for the public sector. Since we are discussing an essential service, our objectives have to be to ensure the right of every citizen to telecom services on an equitable basis, and to ensure the service providers’ accountability to the citizens. Secondly, once the aims are defined, the measure of material efficiency is: which method meets those aims with the minimum material input? In the case of a natural monopoly like telecom, efficiency in achieving social aims can best be ensured by building a strong public sector and making it answerable to the citizens. In these tasks, the workers of the public sector would have a vital role to play. In the history of the BSNL that we have recounted above, one can catch many glimpses of the scope for building such an accountable public sector; but this scope was repeatedly crushed by official policy. This concrete history provides a refutation of the incessant propaganda that we see today against the public sector, propaganda which has influenced public thinking itself in harmful ways.

The experience of the telecom sector thus shows the actual process through which the space once occupied by India’s public sector has now come to be occupied by giant private monopolies. As we have seen, private telecom firms themselves have been built with public resources, but, ironically, they have received favourable treatment vis-a-vis the public sector. They are not even nominally answerable to the people; they serve solely the profit drive of their owners. The social needs once being addressed, with whatever limitations, by the public sector have been sidelined, and we are left with massively wasteful, materially inefficient and unaccountable private firms.

In the context of the present global crisis, marked by both tariff wars and military wars, India’s people more than ever require a strong and vibrant public sector. But this must be a public sector different from what has prevailed in India till now. India’s public sector has been insufficiently accountable to the people, because its owner, the Indian State, itself has been unaccountable to the people. What we need is a public sector that is evaluated on the yardstick of public good, and is answerable to the people. This, however, would be opposed by the interests which are dominant today, particularly the private monopoly houses, which enjoy State backing. And so, it can only happen as part of a broader change.

Important suggestions and detailed comments by RUPE editors and Manali on earlier drafts are gratefully acknowledged. Thanks are also due to EAS Sarma, Prabir Purkayastha and GL Jogi for their encouraging comments, and to Aditi Roy Ghatak and Paranjoy Guha Thakurta for helping with sources.

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  2. Since its birth in 2000 ↩︎
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    ↩︎
  4. Madhu Mehta, STD PCO and Indian Telecom: Taking Telecom to the masses, Sept 15, 2009, https://nipun.servicespace.org/docs/stdpco.html. ↩︎
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  8. Sidharth Sinha 2009, Ibid. ↩︎
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    ↩︎
  32. AIFAP, 2024, op. cit. ↩︎
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  34. Report No. 10 of the CAG for the year ending March 2006. Cited extensively in Sinha 2009, op. cit. ↩︎
  35. Global System of Mobile Communication, one of the major telecom network standards that is used widely. ↩︎
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  38. Prabir Purkayastha, 2011, op. cit. ↩︎
  39. Vandana, 2015, op. cit. ↩︎
  40. Code Division Multiple Access system, this is the alternative standard to GSM system. ↩︎
  41. For details of both the RCom and Jio strategy, see Rahul Varman, 2023, op. cit., Part III, section 2 and Part II, section 3 respectively. ↩︎
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  44. For some details of 2G scam, see Rahul Varman, 2023, op. cit., Part I, section 2. ↩︎
  45. Prabir Purkayastha, 2011, op. cit. ↩︎
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  47. DoT may auction BWA spectrum after getting back BSNL airwaves, Moneylife, 19 December 2011, https://www.moneylife.in/article/dot-may-auction-bwa-spectrum-after-getting-back-BSNL-airwaves/22274.html. ↩︎
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  49. For details, Vandana, 2015, op. cit. ↩︎
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  55. Subhayan Chakraborty, 2024, op. cit. ↩︎
  56. Sidharth Sinha 2009, op. cit. ↩︎
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  60. National Federation of telecom Employees, Employee’s Aspirations in a Changing Environment, 06-08-2024, https://www.nftechq.co.in/pdf/ilovepdf_merged%20(29).pdf. ↩︎
  61. Shilpa Shaji, BSNL: No Wages in 10 months, 7 Contract Workers Kill Themselves, NewsClick,09 Nov 2019, https://www.newsclick.in/BSNL-Wages-10-months-7-Contract-Workers-Kill-Themselves. ↩︎
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  63. AIFAP, 2024, op. cit. ↩︎
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  65. Reddit, Sad state of affairs at BSNL, https://www.reddit.com/r/bangalore/comments/1d3gw7z/sad_state_of_affairs_at_bsnl/. ↩︎
  66. Ronak Chhabra, Modi Govt Says it is Committed to Revive BSNL but is it? NewsClick, July 30 2022, https://www.newsclick.in/Modi-Govt-Says-it-is-Committed-Revive-BSNL-but-is-it. ↩︎
  67. Ruchika Chitravanshi, Delayed BSNL equity infusion, sluggish state transfers drag capex momentum, Business Standard, Dec 05 2024, https://www.business-standard.com/companies/news/delayed-bsnl-equity-infusion-sluggish-state-transfers-drag-capex-momentum-124120401189_1.html. ↩︎
  68. Ronak Chhabra, July 30, 2022, op. cit. ↩︎
  69. Press Trust of India, Govt eyes Rs 35,100 cr from partial sale of Bharatnet network, tower infra, Business Standard, August 23, 2021, https://www.business-standard.com/article/economy-policy/govt-eyes-rs-35-100-cr-from-partial-sale-of-bharatnet-network-tower-infra-121082301234_1.html. ↩︎
  70. Tanay Singh Thakur, BSNL has Leased 12,502 Towers to Private Telcos, Most to Jio, TelecomTalk, July 26th, 2024, https://telecomtalk.info/BSNL-has-leased-12502-towers-to-private-telcos-most-to-jio/979456/. ↩︎
  71. National Federation of telecom Employees, Monetization of BSNL assets, 08-07-2024, https://www.nftechq.co.in/pdf/ilovepdf_merged%20(26).pdf. ↩︎
  72. E A S Sarma, Illegalities/improprieties in the monetisation of BSNL/MTNL’s assets like lands/towers/fibreoptic network, Countercurrents, 26/09/2024, https://countercurrents.org/2024/09/illegalities-improprieties-in-the-monetisation-of-BSNL-mtnls-assets-like-lands-towers-fibreoptic-network/. ↩︎
  73. For the details on evolution of the industry in 1990s and then consolidations, see Rahul Varman, 2023, op. cit., Part II. For the details and specific data on rest of the assertions on telecom industry in this concluding section, especially with regard to the private monopolies in telecom, see the above account. ↩︎
  74. Given that spectrum is a common public resource that is available in very limited quantity, it is allocated by the State to the interested operators along with a license to operate. ↩︎
  75. Pooja Dash, Why BharatNet Remains an Unfinished Dream, The Wire, 15/Feb/2025, https://thewire.in/government/why-bharatnet-remains-an-unfinished-dream. ↩︎
  76. Aditi Roy Ghatak, Missed Calls~I, The Statesman,October 30, 2024, https://www.thestatesman.com/opinion/missed-callsi-1503359151.html. ↩︎
  77. For some details, see Rahul Varman, 2023, op. cit., Part IV, section 4. ↩︎
  78. For details, see Rahul Varman, 2023, op. cit. ↩︎
  79. Jatin Grover, Vodafone Idea gets another lifeline, govt to convert ₹36,950 cr dues into equity, mint, 30 Mar 2025, https://www.livemint.com/companies/vodafone-idea-government-equity-conversion-spectrum-auction-dues-telecom-sector-relief-package-agr-dues-11743347258488.html. ↩︎