SamPitrodacommitteerecommendations

BSNL is the seventh largest telecommunications company in the world providing a comprehensiverangeoftelecomservicesinIndiawithanequitycapitalofRs12000/crores, net assets worth Rs 88,000/ crores and a turnover of Rs 35000/ crores. Further, the company caters to 90 million customers, has 300,000 employees, 750,000 kms of optical fiber , a network of 40,000 towers, extensive urban ( except Mumbai and Delhi) and unparalleled rural coverage and many more unique assets and capabilities that offer significantpotentialforgrowth,revenuegeneration,valueunlockingandsocialrelevance.

This wholly owned government enterprise is under severe pressure and is making losses for the first time due to increased competition, a declining fixed line market, antiquated processes and procedural bottlenecks especially related to purchase of equipment, bureaucratic and government dependent decision making system, lack of collaborative actions, large work force, regulatory changes, operational inefficiencies and otherinternalandexternalchallenges.

At a meeting chaired by the Prime Minister to review the functioning of BSNL in January 2010, it was agreed to set up a committee to examine the issues and submit recommendations within a time period of one month. The Committee had three meetings and a series of major discussions with BSNL executives, Department of Telecom (DOT) leading consultants, investment bankers, private sector representatives, present and former employees of the company and others. During its consultations, the committee also reviewed hundreds of emails, individually and collectively. Based on these discussions, the committee strongly believes at that it is possible to bring about a turnaround at BSNL and once again position it is the dominant player in telecom by profit ,revenue, market share, technology,servicesandsocialrelevance.However,thiswillrequirevision,commitmentand supportfromthegovernmenttoimplementboldinitiativesandharddecisions.

Therecommendationsofthecommitteeneedtobeviewedagainstthebackdropof the market over the last five years where the Indian Telecom Industry has gone through a periodofintensetransformationoccurringthemultipledimensions

Mobiletelephonyhasleapfroggedfixedlinetelephonywithover550millionmobile Simconnectionsandincreasingcomparedto35millionlandlinesanddecreasing.

Telecomhastransitionedfromatechnologydrivenbusinesstocustomer CentricbusinessrequiringanorganizationalDNAofcustomercare.

Theindustryhasgonefrombeingamonopolytohypercompetitionwithoverten Operators.

Competitionisreducingprices,improvingtechnologyandintroducingnewbusiness Models.

Telecom is now becoming pervasive in India with far reaching implications in Governance,agriculture,education,health,defense,business,energy,infrastructure, finance,productivityefficiency,competitiveness,publicservicesetc., 2..

2 TheCommitteeRECOMMENDSTHEFOLLOWINGTOIMPROVEOVERALLPERFORMANCEOF BSNL

1.0

Enhance the quality of senior executives, the management team and the decisionmakingprocesstorespondtothecompetitivebusinessenvironment andthechangingmarketrealities. Focusonselectionofthebestprofessionalsfromthemarket,atmarketrates forhigherlevelmanagement,withrelevantexperienceanddomainexpertise (estimated around 3050). Internal candidates should be given equal opportunity,withoutanypolicyofpreferentialtreatment. Appoint an eminent person from the private sector with strategic vision and the stature to interface with the external environment, as the chairman to focusonshareholdervalue.SeparatethepostoftheManagingDirector/CEO ( From CMD), who should be a person with relevant domain expertise, with full P/L responsibilities and autonomy to manage day to day operations. This must be done immediately. Also, for efficient decision making, empower the MD/CEOwiththeabilitytoactasfastasthecompetition. Changetheboardcompositiontosevendirectors,oneinternaldirector(MD/ CEO), two government nominee NonExecutive Directors with relevant skill set, three external independent directors of eminence and relevance and the non executive chairman. CFO and COO shall be prominent invitee to the Board. Allow the Ministry to interact only through board representation and regular board meetings and not through day to day decisionmaking interfacing and supervision. Appoint a full time Chief Technology Officer (CTO), a Chief IT Officer (CIO), a Chief Operating Officer (COO), and a Chief Financial Officer (CFO), all of whomshouldreportdirectlytotheCEO. Appoint an advisory board for each of the business units. These should be appointedonlybytheBoard. Provide three year contracts with specific targets for all key management team members (estimated around 3050) with restricted stock options and / orrelatedincentivestodeliverincreasingprofitsandgrowth.

1.1.

1.2.

1.3.

1.4.

1.5.

1.6.

1.7. 2.0

Complete the organization restructuring process currently underway to establish four independent business units for Fixed access, Mobility, Enterprise and New businesses with due clarity and coordination to avoid duplication of efforts and for efficient use of resources related to network, human resource, other facilities and services. Empower independent business unit heads to act as fast as the competition. 3..

3 3.0. Improveorganizationperformanceandemployeeproductivitysubstantially. 3.1. 3.2. 3.3. 3.4. 4.0. Retireortransferaround100Kemployeesthroughbestpossibleprocesses likeVRS. Instituteaperformancedrivenculturetocreateameritocraticorganization. CompleteITSabsorptionprocessimmediately. Induct significant young talent in technology, IT, Marketing, Customer Services,Salesetc.,

Change procurement processes and procedures substantially to respond to rapidly changing technology and industry needs with necessary transparency timeliness and accountability using tools such as EProcurement, vendor rating, rate running contracts, schedules etc., to reduce reasonable delays and to avoid legal conflicts. However,togaincostadvantageandobviatetechnologyrisks,BSNLshouldfocuson minimizing the capital expenditure by proactively seeking and adopting service legal agreement(SLA)boundsharedsolutions,foractiveandpassiveinfrastructureneeds. Simultaneously,toremaincompetitiveincostandqualitydeliveryBSNLshouldadopt a managed service model for many of its operations e.g., Operations relating to network, IT, Call Centers etc. To ensure this carry out special consultations on a priority basis with the Chief Vigilance Commissioner, keeping in mind the special circumstancesofahighlycompetitiveTelecomSectorGovernmentCompany. Enhance business operations by building special expertise in marketing, sales, distribution, customer service, billing, revenue assurance, quality assurance, service provisioning, network management, network planning, fault management etc. Simultaneously, manage cost aggressively. Take urgently, special initiatives to enhance the quality of service by empowering employee at all levels to focus on customer orientation and customer satisfaction. Improvement in customer satisfactionindextobepartoftheannualplanandperformancematrix. Disinvest 30% in stages at the appropriate time, say after fundamental changes have been made to enhance enterprise value, through Indian strategic investor and at Initial Public Officering (IPO) to return 10% to the Government and use 20% got employeeVRS,expansionandoperation.Furtherdisinvestmentcouldbeconsidered afteradetailedperformancereviewinthreeyearstime.

5.0.

6.0.

7.0. Explore new markets and applications related to Enterprise, Government, Defense, Education, Health, Agriculture, Energy, Judiciary, New green field cities, Transportation, Security, Safety, Police, Disaster Management, Fiber to home (FTTH) etc. Create viable business models in these areas by collaborating with relevant expert organizations to makejointofferings. 4..

4 8.0. Provide 30 million new high speed broadband connections in the next 3 years with relevant and useful applications and content in local languages and significantly improvequalityofserviceandconsiderofferingservicelevelguaranteetowintrust. Invest in building a financially remunerative next generation end to end national IP Networkofthefuturetohandleeverincreasinginternetanddatatraffic. Unbundle local loop for public and private companies to launch new services on non executivebasiswithcaretopreventcannibalization. Exploit BSNLs unique positioning of infra led biggest food print in rural India by creatingadditionalrevenuestreamsforruralinfrastructureandcapabilities. 11.1. Proactively offer sharing of active and passive infrastructure to other operators to generate attractive returns and ensure non cannibalization of BSNL customers by seeking compliance with appropriate conditions. Shared services may include intra circle roaming, renting of capacities on active and passiveinfrastructureetc. Enhance and expedite rural communication facilities, services and applications by connecting 2,50,000 panchayats and integrating various government flagship programmes targeted at rural development through NREGA, Rural Health Mission, Food Distribution, PDS, etc. to augment the inclusivegrowthagendaoftheGovernment.

9.0. 10.0 11.0.

11.2.

12.0.

Implement immediately end to end IT systems and solutions (ERP, CRM etc.) for all key business processes in all business units with a focus on Finance, Billing, Human Resource, Customer Service, Network Management, Sales, Marketing, Project Management,Trainingetc. Createaseparatesubsidiarycompanyfortowerrelatedinfrastructuretoaggressively market to other public and private sector customers and unlock whole/substantial potential value through strategic stake sale, M&A or separate IPO. Explore possibilitiesofmonetizingothersuchsubsystemse.g.,interconnectoperations. Create a separate subsidiary to hold undeveloped land bank and other real estate assets (estimated to be over 2.5 Million square meters of vacant land in seven key cities)andalargenumberofunutilizedstaffquarters,etc.Monetisethevalueofthis subsidiary by collaborating with a reputed and experienced real estate related companyintransparentmanner.

13.0.

14.0.

15.0. EstablishaBSNLventurefundtoinvestand/oracquiresmallappropriatetechnology companies with strategic values to encourage local innovation, local manufacturing and newbusinessopportunities. 5..

5 Please note that there are substantial details available on each of the above recommendationsforfurtherfollowup. It is suggested that these recommendations be implemented urgently in a mission mode with a dedicated team of three leading executives (MD/CEO, COO, CFO) with a detailed roadmap on each and every item specific time table, dedicated financial and human resources and measurable milestones to return BSNL to profitability, growth and a leadershippositionintheglobaltelecommarket. Thecommitteewouldbehappytoguidetheimplementationprocess. SamPitroda DeepakParekh PJThomas AdvisortothePrimeMinisterChairmanHDFCLtd., Secretary InformationInfrastructureand Dept.ofTelecommunications Innovations andChairman, TelecomCommission