India merges 2 government entities to boost fiber in the country

India has historically lacked a good fiber broadband infrastructure, but the government is keen to advance the country's fiber deployments, which would also provide support for its 5G wireless infrastructure.

In addition to government goals for fiber, all the country's telcos are focusing on fiber deployments to cater to the growing demand for high-speed internet in both residential and office environments.

Recently, the Indian government announced the merger of two of its entities: Bharat Sanchar Nigam Limited (BSNL), a service provider operating across the country except in the cities of Delhi and Mumbai, and Bharat Broadband Network Limited (BBNL), a special purpose vehicle to connect India’s 250,000 Gram Panchayats (village councils).

The biggest advantage of the BSNL-BBNL merger is that it may improve connectivity in the rural sector. Both companies have synergy in the sense that they were formed with the idea of providing voice and data connectivity in rural areas. BSNL has an optical fiber cable network of around 700,000 kilometers, and with this merger it will get an additional 560,000 kilometers of optical fiber. This will allow the merged entity to improve rural connectivity.

Unfortunately, neither BSNL nor BBNL is doing well. While BSNL has been recording losses and subscriber exodus for several years now, BBNL’s progress has been impacted by a never-ending cycle of delays. BSNL is yet to officially launch 4G services, while the other private telcos have already introduced 5G services. This delay in bringing 4G services, as well as the lack of focus on improving customer experience, are the key reasons for the loss of BSNL’s market share.

BSNL recorded a loss of INR 69820 million ($852 million) in the 2021-22 financial year. The government believes BSNL will be able to report profit only in 2026-27 once it implements the INR 1640 billion ($20 billion) revival package, which was cleared last year. 

The revival package involves funds infusion, allocating spectrum, and a merger with BBNL to improve its fiber network. As per the Union Cabinet approval, BSNL would be spending INR 224.71 billion over four years from 2022-23 to 2025-26 as capex to launch 4G services, among other initiatives. The 200+ employees of BBNL will be absorbed by BSNL.

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BBNL was originally launched as National Optic Fibre Network (NOFN) project in 2011. It was later renamed BharatNet, and in 2014, BBNL was formed to implement the project. After several misses over the last decade, BBNL now has the target to provide a minimum broadband speed of 100 Mbps in 640,000 villages, part of 250,000 Gram Panchayats, by 2025. BBNL uses funds from Universal Service Obligation Fund (USOF) to provide connectivity in rural areas. 

BBNL was formed with the intention of providing non-discriminatory access to the fiber network to all service providers. However, this changes with BBNL’s infrastructure now coming under the purview of BSNL. Even so, BBNL has struggled to garner any interest from private service providers as its Public Private Partnership (PPP) tender was unable to get any interest from private players. Last year, it had to cancel an INR190 billion ($2.3 billion) tender to connect villages across 16 states as part of BharatNet project.

It is as yet unclear whether Mahanagar Telephone Nigam Limited (MTNL), the government-owned telco providing services in only two metros of Delhi and Mumbai, will also be merged with the BSNL-BBNL combined entity. Like BSNL, MTNL has also been reporting losses for the last few years. Media reports suggest that the government is mulling merging MTNL also with the BSNL-BBNL combine.

Pros and cons 

As mentioned, a BSNL-BBNL merger may improve fiber connectivity in the rural sector.

BSNL still commands a 25.55% market share in the wireline market as per the January 2023 data released by the Telecom Regulatory Authority of India (TRAI). This bodes well, as with the BBNL merger, its fiber network increases significantly. About a decade back, BSNL was the leader in this segment and boasted a market share of 68.02% in January 2013. India has a rural wireline teledensity of just 0.24% as per January 2023 data, so this is a massive segment that BSNL-BBNL combine can aim to capture. 

However, the biggest problem is that both entities are struggling and are unable to engage with the private sector. This stems from the fact that they are run with a bureaucratic mindset, which makes it tough to compete with private players who are much more agile and flexible in approach and execution.

Private service providers

It is not clear whether, after the merger of BSNL and BBNL whether private telcos will be able to use BSNL's infrastructure. Before the merger, they could have used BBNL's infrastructure because BBNL was a Special Purpose Vehicle to implement the project.  

Both Bharti Airtel and Reliance Jio are increasing their fiber infrastructure and putting more focus on the home broadband segment. As of August 2022, Jio had laid 1,100,000 kilometers of fiber. On the other hand, Airtel plans to start offering its fiber broadband service in 2000 towns by 2025, up from just 847 now.