MTNL should not raise funds for DoT

NEW DELHI, May 31: The resource raising function of the department of telecommunication (DoT) should be taken away from the Mahanagar Telep...

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NEW DELHI, May 31: The resource raising function of the department of telecommunication (DoT) should be taken away from the Mahanagar Telephone Nigam Ltd (MTNL) and be given to some other agency. This has been recommended in the report of the Disinvestment Commission presented to the government recently.

The MTNL in future would be required to raise substantial funds for expansion programmes in the existing and new metro regions. The commission argued that "in such a situation, MTNL may not able to borrow further funds for the DOT as the debt:equity ratio of the company is already very high".

The MTNL, it may be mentioned, borrows from the markets which are on-lent to DoT as part of latter’s funding requirements. As on March 31, 1996 MTNL had on-lent Rs 5932 crores to DoT. The total quantum was sure to have gone up during the last fiscal.

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In the process of borrowing and on-lending, the commission pointed out, some of the transactional costs which are quite substantial are being absorbed by the MTNL. This depresses the profitability and also the share value of MTNL scrips.

As such, the commission suggested that all the costs relating to raising of funds already raised for the DOT should be fully reimbursed to the MTNL.

As a word of advice to the MTNL, the commission opined that retention of `creamy layer’ will provide the key to survival and prosperity of the company in the telecom sector which will witness fierce competition in the time to come.

According to the report, the segment of high users which constitutes 10 % of the total number of customers of the MTNL contribute 90 % of its revenue.Hence it was argued that MTNL would need to offer special service treatment and resort to aggressive pricing strategies in that segment before they were successfully taken away by private sector.

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The report has also stressed that “the policy of liberalisation in the telecom sector has posed a challenge to MTNL and it has to respond by framing suitable strategies to counter competition and sustain its growth and profitability.”

The biggest area of concern, as pointed out by the Commission, was the “skewed mix of consumers which has made MTNL vulnerable to skimming strategies by competition.” It adds that the private operators are expected to skim the high end users by resorting to aggressive pricing and strategies.