NEW DELHI: State-run telecoms company MTNL has sought government permission to reduce its staff strength by two-thirds as it attempts to arrest a massive decline in revenues and profits.
The telco, which is 56% owned by the government, and offers services in Delhi and Mumbai, currently has over 45,000 employees on its rolls. It spent over 30% of its Rs 3,770-crore revenues in the last financial year on employee wages. India’s largest telco, Bharti Airtel, whose revenues are 10 times that of MTNL, has only 18,000 employees.
According to an internal telecom department (DoT) note, MTNL has told the government that it wants to reduce its employee numbers by about 30,000. But, the telco will have to overcome opposition from its strong employee unions before it can implement this proposal.
A top MTNL executive told that the company had “no plans to lay off employees”, but had told the government that “ideally, it required a mere 15,000 employees to run its businesses”. “The government, which owns the company, can take any decision,” he said.
MTNL declared a loss of Rs 2,514 crore for the year ended March 2010, and said this was largely due to a one-time expense of providing retirement benefits.
Again, for the three months ended June 2010, the company registered a loss of Rs 451.4 crore, 10 times more than the corresponding period last year, citing rising staff costs and setting aside provisions for retirement benefits as reasons for the decline.
The central government picks up sister concern BSNL’s employee pension bill and MTNL has sought a similar deal. It has said going forward, the pension component would increase further and it would be impossible for the company to bear this cost in a competitive market crowded with aggressive rivals.
Not surprisingly, the MTNL employee union is opposed to any talk of job cuts. “The company had already offered a voluntary retirement scheme ( VRS) for employees and a few thousand accepted it. So no more layoffs or forced retirement are possible, and the unions will not allow it,” said Aravind Sawant, president of the MTNL Kamgar Sangh.
He added that MTNL will become profitable if the Centre takes the pension burden off the company’s books and does not force it to procure equipment from PSUs. “We have been asked to pay PSUs such as ITI in advance for telecom gear to ensure the latter’s sustainability,” he added.
Analysts remain apprehensive about the success of MTNL’s proposal. “MTNL’s intent is good and in the right direction. But, it now depends if the government is willing to go along with the company. Only if the government stays strong and manages to convince employees can this be implemented,” said Ajay Parmar, head of research at Emkay Global Financial Services.
Earlier this year, a committee comprising National Knowledge Commission chairman Sam Pitroda, HDFC chairman Deepak Parekh and former telecoms secretary PJ Thomas had recommended that state-owned BSNL reduce its employee count by a third (over 100,000) to revive its fortunes.
Strong opposition from employee unions has resulted in the proposal remaining on paper. In July, the Telecom Commission, the highest decision-making body of the DoT, constituted an internal committee and tasked it with the responsibility of reaching out to BSNL’s employee unions and arriving at a consensus on this issue.
The MTNL communication to the government also highlights that DoT had not approved its plans to be a pan-India player, interfered in its management, failed to appoint a chairman after the post became vacant in January and also did not push for a merger with BSNL. All these factors have contributed to its worsening performance.
MTNL has been running operating losses since 2007, but managed to report a net profit for two subsequent years as it earned a large interest income on its Rs 6,300 crore cash balance. For instance, in 2008-09, MTNL recorded an operational loss of Rs 823 crore but this was offset by interest income of Rs 1,135 crore. The telco has now exhausted its cash pile by paying for third generation ( 3G) and broadband wireless airwaves.