A day after MTNL Chairman & Managing Director, Kuldip Singh told the media that it was in talks with BSNL for a merger and that it was upto the government to decide, Sachin Pilot, Minister of State Technology confirmed that the merger was at a discussion state. In an interview to CNBC-TV18, the minister said that the two large entities will be complimentary to each other, leveraging their resources and it would be a good idea to to create a one-stop shop for consumers who want national coverage. However, he reiterated that the merger will be done only after taking into account, the feedback from the companies’ management, employees and other stakeholders.

We wonder if its really going to make a difference, when MTNL is continuously losing ground in the mobile service space. Although it has 5.47 million subscribers, only 35.40% are active connections. MTNL’s cellular services generated revenues of Rs 648.8 crore in FY11, a decrease compared to Rs 705.5 crore that it generated in FY10. The company, along with BSNL squandered the first mover (unfair) advantage, being allotted 3G and BWA spectrum, even before the auction took place.

The only significant business for MTNL comes from its basic phone or landline and broadband services, that too because of the advantage of being a legacy player in the segment, and more importantly, because they are being protected because the last mile of wireline access has not been unbundled.

Being PSUs, its more about employee unions than management, and the BSNL unions fear that there will be disinvestment before or after the merger (since MTNL is listed), and given the poor financial performance, some amount of ‘bloodletting’ (retrenchment). So the merger will be far from being anything but smooth.

Also, BSNL and MTNL are big public sector undertakings with large number of employees. Keeping this in mind, post-merger, things will take time to settle down. Decision making is almost in a limbo when merger terms are being negotiated, so it will slow down the pace of operations at the two companies.

(With inputs From Nikhil Pahwa)