Investors are cheering yet another government intervention to keep the struggling state-owned telecom operator afloat. But beneath the short-term optimism lies a deeper crisis: mounting debt, a shrinking market share, and a legacy of financial mismanagement that has left MTNL on life support.
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This isn’t the first time a bailout has sparked a fleeting stock surge, only to be followed by a harsh reality check. As India’s telecom sector consolidates, private players are raising tariffs and strengthening profitability, while Bharat Sanchar Nigam Ltd (BSNL) and MTNL remain dependent on government lifelines.
Now, with the latest asset monetization plan in motion, the question remains—will this finally break MTNL’s cycle of decline, or is it just another temporary fix?
A legacy of decline
MTNL, a subsidiary of BSNL, is weighed down by a ₹32,000 crore debt burden, the result of 15 years of continuous losses. The crisis has deepened to the point of loan defaults, with ₹7,000 crore owed to lenders such as Union Bank of India, State Bank of India, and Punjab National Bank now classified as defaults.
Once a dominant force in Indian telecom, MTNL thrived in the 1990s as the sole provider of telephone services. But the sector’s liberalization under the National Telecom Policies of 1994 and 1999 opened the doors to private players like Bharti Airtel and Idea Cellular (now Vodafone Idea), who swiftly eroded MTNL’s market share.
By FY09, MTNL’s market share had dropped to 11%, and its inability to cut workforce costs—a privilege of its government-backed structure—accelerated its decline.
As revenues dwindled, MTNL relied on debt to stay afloat, triggering a vicious cycle: rising interest costs deepened losses, restricting its ability to invest in new technologies. By late 2024, its market share had collapsed to just 0.2%, forcing a merger with its parent, BSNL. But with BSNL itself lagging in 4G adoption, the merger did little to address MTNL’s fundamental problems—it was more of a stopgap than a solution.
Market disruption and AGR dispute: A double blow
In 1999, India’s telecom sector transitioned from a fixed licensing fee model to a revenue-sharing system for spectrum dues to the DoT, while captive telecom players continued under the fixed-fee model.
A key point of contention emerged around the Adjusted Gross Revenue (AGR) definition. Private telecom operators argued that AGR should include only core telecom revenues, whereas the DoT insisted it should encompass all revenues. The dispute dragged on for over a decade until 2019, when the Supreme Court upheld the DoT’s definition, triggering an additional ₹1.2 trillion in spectrum dues for telecom players. This sudden financial burden forced operators to take on more debt, slowing investments and intensifying financial strain.
Meanwhile, Reliance Jio’s 2016 market entry further upended the industry. By offering aggressively priced services, Jio lured away subscribers, squeezing incumbents’ revenues just as they were grappling with ballooning AGR-related liabilities. The result was a brutal shakeout—cash-rich players absorbed the hit and survived, while weaker ones folded. Market consolidation followed, and the government’s relief measures, including removing the 3% floor on spectrum usage charges and waivers for spectrum acquired post-July 2022, helped stabilize margins for the survivors.
With the turbulence of market disruption and AGR dues largely behind them, telecom players have now pivoted toward profitability. Industry leaders Reliance Jio and Bharti Airtel have been steadily hiking tariffs each quarter, capitalizing on a more stable competitive landscape.
Against this backdrop, BSNL and MTNL have taken a different route, keeping tariffs unchanged. This has helped attract price-sensitive subscribers, allowing BSNL to regain market share slowly.
However, after shrinking from 25% in FY09 to just 8% today, BSNL had ambitious plans to reclaim lost ground in 2025. Yet, delays in the ‘India Stack’ 4G/5G rollouts and persistent service quality issues have stalled its comeback, casting doubt on those lofty goals.
With a ₹3.2 trillion revival package, BSNL has launched 4G services and is trialing 5G. The latest budget earmarked ₹83,000 crore for BSNL’s tech upgrades and restructuring.
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But financial aid can only do so much when losses persist and debt keeps mounting—MTNL’s obligations have surged from ₹10,000 crore in FY04 (comprising primarily of current liabilities) to almost ₹35,000 crore in FY24, with long-term debt of about ₹25,000 crore.
Déjà vu—But will this time be different?
MTNL’s recent 25% stock rally feels like a repeat of July 2024, when its share price surged 150%.
Back then, investors panicked over looming bond interest payments—just as they are now over bank loan defaults. And just like today, the government stepped in with financial aid, covering ₹92 crore in immediate bond interest, temporarily reviving investor confidence and pushing the stock from ₹40 to nearly ₹100.
But once the bailout euphoria faded, deeper concerns—dwindling market share, falling revenues, and mounting debt—dragged the stock back down to ₹40 by year-end.
This time, the government is taking a broader approach. As part of its ₹10 trillion asset monetization plan (2025-30), the long-awaited sale of MTNL’s assets was confirmed by DIPAM’s secretary. The proceeds—expected to total ₹16,000 crore—will go toward debt repayment and restructuring.
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Unlike past interventions, this isn’t just a stopgap measure to cover immediate dues. If executed as planned, the monetization could nearly halve MTNL’s debt, which stood at ₹31,945 crore as of August 2024. However, delays in regulatory approvals and uncertainty around the final valuation remain significant risks.
Conclusion
Of course, even if annual interest-costs halve to about Rs1,300 crore, at the current run-rate of Rs160 crore quarterly revenues (Q2 FY25), with annual revenues of less than ₹700 crore, MTNL will still be making losses. As such, financial restructuring alone won’t be enough—it needs a real competitive edge.
Government-backed projects like Bharat Net may provide a temporary boost. Still, without aggressive investments in spectrum infrastructure, service quality, and customer retention, MTNL will remain a shadow of its former self.
Also read | MTNL is broke. But that’s not its biggest problem.
The latest bailout buys time, but time alone won’t turn the business around. Unless MTNL breaks its reliance on government support and charts a clear growth strategy, its battle against private telecom giants may again end in a familiar fashion—with another cycle of decline, intervention, and fleeting hope.
Ananya Roy is the founder of Credibull Capital, a Sebi-registered investment adviser. X: @ananyaroycfa
Views are personal and do not represent the stand of this publication.
