Mahanagar Telephone Nigam Ltd (MTNL)-Strategic and Financial Analysis

Project Report on Mahanagar Telephone Nigam Ltd (MTNL)-Strategic and Financial Analysis

Case Study on Mahanagar Telephone Nigam Ltd (MTNL) Telecommunications Industry in India

Synopsis on Marketing Topic on Mobile Telecommunication Systems-

Mahanagar Telephone Nigam Ltd (MTNL


 SWOT Analysis of MTNL


Strengths

• India's second largest wireline operator
• First to market in India with 3G network launch
• First to market in India with IPTV service soft launch in October 2006

Weaknesses

• Mobile market share is tiny and has been falling
• Attempts to implement international strategy have been unsuccessful

Opportunities

• Launch of FTTH in November 2008 will help support the development of IPTV and multimedia services
• Continuing to invest in expansion of GSM and universal mobile telecommunications system (UMTS) network infrastructures
• Launch of 3G services such as videoconferencing and gaming will help to attract new customers
• Market share should benefit from MNP
• Officially launched IPTV service in May 2009

Threats

• Fixed-line customer base shrinking rapidly
• Facing fierce competition from privately-owned operators backed by major strategic investors

Company Overview

MTNL was established by the Indian government in 1986 to serve the country's key metropolitan areas of Delhi and Mumbai. The company provides fixed-line, internet and mobile services, commanding a 9.5% share of the fixed-line market, but only a 1.1% share of the entire mobile market (figures correct as of June 2009).

The company launched its GSM system in both cities in 2001 and, as of December 2009, had nearly 4.88mn subscribers. About 70% of the operator's mobile subscribers are prepaid customers, a relatively low ratio for the Indian market. MTNL also operated about 3.491mn fixed lines and served 2.258mn internet subscribers at the end of 2009.

Corporate Structure

The Indian government holds a 56.25% stake in the company, with the remaining shares listed on the Mumbai, Delhi, Chennai, Kolkata and New York Stock Exchanges. The Life Insurance Corporation of India owns 13.19% of MTNL's shares, while the Bank of New York owns 7.30%. In February 2011 the Department of Telecommunications revived a plan to merge BSNL and its sister company Mahanagar Telephone Nigam (MTNL).

Recent Financial Results

MTNL reported unaudited total revenues of INR9.512bn for the quarter ended December 2010, representing an increase of 1.7% from December 2009. Meanwhile, total expenditures declined to INR12.464, down from 17.960 in 2009. However, this is not enough to turn the company around as MTNL posted a net loss of INR6.710bn in the final quarter of 2010. Nevertheless, this was an improvement from the net loss of INR9.200bn in December 2009.

MTNL's basic services recorded a slight increase to INR7.624bn in December 2010, up from INR7.502bn in the previous year. However, revenues from mobile services fell by 7.5% to INR1.631 largely due to the ongoing price war in India's mobile market. MTNL's staff cost and retirement benefits fell significantly in the most recent quarter to INR8.129bn, which accounted for 85.5% of its total revenues. In the previous year, the operator's staff cost and benefits accounted for 142.2% of its total revenues, an equivalent of INR13.299bn.

In the second quarter ended September 2010, MTNL reported total revenue of INR10.952bn, representing an increase of 5.9% q-o-q but a decrease of 1.9% y-o-y. However, the operator's core business of basic telephone, mobile and WLL all experienced declines in revenues. Total basic telephone revenue fell by 6.7% q-o-q to INR5.109bn while mobile revenues also declined 2.5% to INR1.617bn. The operator managed to post a q-o-q increase due to a significant increase in revenue from other services, which grew by 62.5% to INR62.5% to INR3.752bn in September 2010.

Meanwhile, total expenditure increased to INR17.000bn, up by 14.5% q-o-q and 56.7% y-o-y. This was largely due to increases in staff cost and interest expense. As a result, MTNL incurred a net loss (after adjustment) of INR6.049 in September 2010, which is also the fourth consecutive quarter the operator has suffered a net loss.

Mobile Services

MTNL launched its GSM mobile network in Delhi and Mumbai in February 2001. MTNL's mobile network footprint is relatively small when compared with the country's other mobile operators, but it has continued to invest in expanding both its reach and sophistication. In February 2007, MTNL awarded Alcatel-Lucent with a multi-million euro deal to supply and install 2mn lines in Mumbai, as the operator expands and upgrades its network to include GSM/EDGE and W-CDMA/HSPA technologies. This deployment should allow MTNL to offer the first third-generation services in Mumbai.

Following the commencement of 3G trials in September 2008, MTNL revealed that it planned to launch commercial 3G services in the Indian capital at the end of February 2009. US-based Motorola was contracted to roll out the new core network. MTNL plans to install 750,000 3G lines in both Delhi and Mumbai in early 2009. It will invest INR4bn (US$81.2mn) to roll out its 3G network in the two centres.

MTNL will offer 3G services under the Jadoo brand name including internet, videoconferencing and gaming. It is understood that MTNL's existing IPTV content providers will offer initial content for the 3G service.

MTNL's mobile service is also expected to benefit from the government's decision to introduce MNP. It expects that it will generate new custom as it hopes some high-end customers will be able to migrate to MTNL as a result of MNP. MTNL selected MVNO operator Virgin Mobile in December 2009 to manage its 3G network in Delhi and Mumbai in India.

The operator plans to invest nearly INR13bn (US$281.7mn) in financial year 2010/11, reports Dow Jones Newswires. The operator will primarily target capital expenditure (capex) for the upgrade and expansion of its GSM network. Enhancing network capacity was a top priority for the operator in 2010.

MTNL received bids from Aircel and Tata Teleservices in January 2011 to form a 3G roaming pact. The state-owned operator has 3G licences in the lucrative Mumbai and Delhi telecoms circles. It said in December 2010 it expects bidders to pay INR700mn a year to use its network.

Internet/Data Services

MTNL offers DSL services in Delhi and Mumbai. In November 2006, it contracted Huawei Technologies, ITI-Alcatel and Motorola to expand its broadband and mobile networks under three separate deals. Huawei won an INR2bn deal to roll out 500,000 new broadband lines in Delhi, while ITI-Alcatel won a deal to deploy the same number in Mumbai.

In November 2008, it was reported that MTNL was preparing to unveil a FTTH broadband and entertainment service. The service will utilise MTNL's existing investments in IPTV. However, it will offer higher speeds and provide newer services such as HD video and even HD TV channels.

MTNL has invited bids from global players to establish and manage its WiMAX networks across Delhi and Mumbai, as part of a six-year franchisee agreement. The announcement, made in August 2009, will see the revenue-sharing agreement reviewed every two years.

In May 2009, MTNL finally launched its IPTV service in Delhi, after a three-year soft launch that began in October 2006. Although MTNL's early IPTV service featured 25 free-to-air and pay-TV channels, this will rise to 200 in due course. MTNL had 2.023mn internet subscribers at the end of December 2008, of which 662,000 were broadband subscribers.

Strategy

MTNL's current strategy is focused on expanding its domestic investments as it seeks to roll out 3G networks in Mumbai and Delhi. The company aims to provide the latest technology and services to customers, at affordable prices. It also continues to diversify into new areas, seeking to provide telecoms services at both the national and international level.

Although MTNL has also sought to expand internationally, this strategy has, in recent times, failed to bear much fruit. The operator failed in a recent bid to acquire Telekom Kenya. Its participation in a number of mobile licence auctions in countries including Saudi Arabia, Qatar and Bhutan was also unsuccessful. Meanwhile, in January 2009, it was announced that MTNL had suspended indefinitely its planned acquisition of Sri Lankan WLL operator Suntel. In September 2007, MTNL submitted a formal bid for Suntel, but in August 2008 the plan was reported to be on hold while the Indian company continued to look for a suitable investment partner.

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