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MTNL, BSNL merger on the cards

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CIOL Bureau
New Update

NEW DELHI: The Government has proposed to merge state-run BSNL and MTNL to create the country's largest telecom company by sales in the highly competitive sector, Communications Minister Pramod Mahajan said on Monday.



Mahanagar Telephone Nigam Ltd. provides fixed-line, mobile phone services and Internet access in the country's two main markets, Mumbai and New Delhi. Bharat Sanchar Nigam Ltd. (BSNL) provides fixed-line telephone services across India except the two main cities where MTNL is the market leader.



"One must think of some kind of synergy between the two telcos and we have thought that if we bring them together it will be a very powerful telecom entity, which will be able to work in a competitive environment," Mahajan told reporters. "You can't have two companies run by the government, one looking after rural areas and another looking after urban areas," Mahajan said. "If the government wants to be in this business it should look at the country as a whole."



BSNL and MTNL were monopolies until the late-1990s but have faced competition from a clutch of domestic and foreign private firms since India liberalised its telecoms industry, billed as one of the fastest growing markets globally in this decade.



Private firms Bharti Tele-Ventures, the Indian unit of Hong Kong's Hutchison Whampoa and the unlisted Idea Cellular, owned jointly by U.S. giant AT & T Wireless and India's Tata and Birla groups, compete with the state-run firms.



BSNL, wholly-owned by the government, is India's biggest telecom firm with sales of Rs 220 billion ($4.5 billion). It rolled out its nationwide mobile service on Monday. New York Stock Exchange-listed MTNL, in which the government owns around 56 percent stake, posted revenue of Rs 61.47 billion in the year to March 2002. Mahajan said the communications ministry was preparing a document on the proposed merger, but did not specify a timeframe.



He said a number of legal and employee issues related to about 410,000 workers in both companies had to be sorted out. "Definitely we have this concept in mind and we are preparing a paper," Mahajan said. "At least for the future let us think of MTNL and BSNL together, let us not divide them."



News of the proposed plan caused MTNL's stock price to slide as much as 9.7 percent to a seven-month low of Rs 118.10 on Monday because the merger could derail MTNL's privatization, a key trigger for the stock. "We believe the merger plan could be negative for MTNL shareholders as it would impact valuations and quality of earnings," said a telecom analyst with a domestic brokerage.



MTNL, which has some 5.0 million fixed-line users, closed 8.0 percent lower at Rs 120.25 on the Bombay Stock Exchange, whose main index ended 0.19 percent higher. Mahajan did not comment on MTNL's privatization and said there were no plans to privatize the BSNL, which has some 36 million customers, as its valuations were still to be worked out.



($1 = Rs 48.47)



© Reuters

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