Bharat Sanchar Nigam Ltd.: Ruling the Indian Telecommunication Market

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"BSNL is taking advantage of its size to sweep out the private operators. There is an element of dumping in BSNL's tariff strategy. They want to bring down the rates drastically low so that competition in the sector is completely eroded."

- P K Sandell, Advisor (Telecom Committee), Associated Chambers of Commerce and Industry of India, September 15, 2002.

"BSNL definitely has some advantages. Apart from low tariffs and network reach, it also enjoys the consumer confidence associated with a public sector company. We are fighting to change this perception in areas where we operate"

- An executive working for one of BSNL's competitors, March 2003.

"The changing regulations, converging markets, competing technologies and the ever-demanding customer needs have generated enormous additional opportunities and challenges for BSNL."

- Prithipal Singh, Chairman and Managing Director, BSNL, March 2003.

Losing Customers

In February 2003, Bharat Sanchar Nigam Ltd. (BSNL), the largest basic telecom service operator in India, was reportedly facing problems in retaining its existing landline customer base. The company found its landline subscriber base shrinking at an alarming rate. BSNL sources revealed that during 2002, around 2.5 million landline connections were surrendered by customers.

BSNL was also facing problems in adding new customers on account of delay in deploying new connections. Reportedly, the delay in providing new connections led to a 20% decline in the customer-base growth rate in 2002 as compared to the previous year (in 2002, BSNL could provide only one million lines as compared to 1.6 million lines provided in 2001). Analysts pointed out that this situation was not new to BSNL. In 2001 also, many BSNL landline connections were surrendered, prompting the Department of Telecommunications (DoT)1 to order an enquiry into the cause of the problem. The enquiry revealed that many factors were making subscribers surrender their landline connections. One major issue was the 1x6 rule2 introduced by the Income Tax Department.

In this scheme, a person was required by the law to file income tax returns, if he/she possessed a telephone. This led many subscribers, who did not otherwise fall under the purview of the 1x6 scheme, to surrender their phone connections. The trend was observed mainly in the rural areas. Income from agriculture was exempt from tax, but if they owned a telephone, people in these areas had to file their tax returns.

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Case Studies in Business Strategy Volume VI Case Study Volumes Collection

1] DoT was the primary telecom service provider and the regulatory body for telecom operations in India until 1997. In 1997, Telecom Regulatory Authority of India (TRAI) was made the primary regulatory uthority for telecom operations in India, following which DoT's functions were limited to provision of telecom services, policy framing and licensing fixed line players.

2] As per the '1x6 scheme', people who had any of these five assets - house, car, credit cards, club memberships, telephone connection (including cellular phone), or had traveled abroad during an assessment year had to file income tax returns. This measure was introduced to curb income evasion (a widespread practice in India) and bring more people into the tax net.