- 4G will be positive for BSNL revenue growth, although the opportunity will remain limited if it does not target new subscribers and business areas.
- Government intervention is a downside to improving the state-owned operator’s competitiveness.
Reportedly, the Department of Telecommunications (DoT) has approved BSNL’s spectrum proposal, which will see the allocation of 2x5MHz of spectrum in the 2100MHz band in all telecom circles except Rajasthan.
BSNL will use the spectrum to build out its 4G network, which could be launched as early as March 2019. The operator already has 5MHz of 2100MHz spectrum, which it shares with sister company MTNL across all telecom circles, although it is currently deployed for 3G services. We believe that its spectrum portfolio will allow it to be able to build a sufficiently attractive new-generation network, which would support and grow its current base of 113.12mn subscribers. In Rajasthan, BSNL will use its 800MHz spectrum to offer 4G services. It intends to deploy 50,000 towers over the coming months to add to its existing portfolio of 130,000 towers.
BSNL is still a significant player in the mobile market with a 9.9% market share as of Q218, although this is down from a Q213 high of 11.6%. Its market share eroded as other operators began targeting rural mobile subscribers, which was a stronghold of BSNL owing to its extensive mobile network which covered villages. The operator continues to lack traction in urban areas where private players operate significantly higher-capacity and reliable networks, and does not offer much beyond basic telecoms services.
|On The Road To Recovery|
|BSNL Mobile Subscriber Trends (000)|
|Source: TRAI, Fitch Solutions|
We believe that a majority of BSNL’s mobile subscribers are on low-value 2G services, and data utilisation on its network remains minimal, making it difficult to sell data value-added services (VAS) to its subscriber base. The operator must shift the reliance away from its rural subscriber base and seek to improve its offerings in urban population centres. We believe that BSNL will also look at Internet of Things (IoT) applications as the next revenue driver. It also revealed with the spectrum announcement a tie-up with IoT services provider Unlimit. We expect the company to make in-roads into the fleet management and logistics sector.
The operator has not made clear how it intends to pay for the spectrum, which it valued at INR138.85bn (USD1.91bn). It had earlier proposed to split the payments into 16 annual instalments of approximately INR4.52bn (USD62.22mn) and an INR66.5bn (USD914.51mn) equity issue to the government. It is uncertain whether the DoT is sticking to this suggestion, with BSNL stating that payment formalities are still being worked out.
The government remains willing to help the state-owned operator, which has consistently posted net losses, although the government stated that the company turned an operating profit in FY2018 (ended March). We believe this will be negative for the competitive landscape, and the state should look instead at improving synergies between its resources – with a MTNL – BSNL merger being the best route to improve the operational efficiencies of the telcos.
|Profitability Still Elusive|
|BSNL Revenue And Net Income Trends (INRmn)|
|Source: BSNL, Fitch Solutions|
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