Journal of Management (JOM)

Volume 5, Issue 4, July – August 2018, pp. 481–495, Article ID: JOM_05_04_051
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ANALYSIS OF OPERATING PERFORMANCE

OF BSNL
Prof. M. Yadagiri
Dean, Faculty of Commerce and Business Management,
Telanagana University, Nizamabad, T.S

B. Rajaram
Research Scholar, Department of Commerce, Telangana University, Nizamabad, T.S

ABSTRACT
Bharat Sanchar Nigam Limited took over the business of providing of telecom
services and network management from the erstwhile Central Government
Departments of Telecom Services (DTS) and Telecom Operations (DTO), with effect
from 1st October‘2000. It is one of the largest and leading public sector units
providing comprehensive range of telecom services in the entire India except New
Delhi and Mumbai. BSNL is the only service provider, making focused efforts and
planned initiatives to bridge the rural-urban digital divide in ICT sector. The present
study is focused mainly to assess the operating performance of BSNL in terms of total
income, operational income, total expenses, employee benefit expenses,
administrative, operating and other expenses, profit before tax, tax expenses and
profit after tax. The operational revenue from sale of services of BSNL in initial years
2007-08 and 2008-09 is highest and from the 2008-09 onwards it has been declining
year after year up to 2012-13 and started increasing slowly from 2013-14 onwards.
The revenue from basic segment has been declining year after year, whereas the
revenue from cellular segment and broadband segment increasing. The operating
expenses of the BSNL has been increasing year after year from 2007-08 and the
major operating expenses are employee benefit expenses and administrative,
operating and other expenses. The EBIDT is highest in the initial years of study 2007-
08, 2008-09 and then after it has been declining year after and become negative in the
year 2013-14. From the year 2014-15 the EBIDT become positive and increasing.
Keywords: Basic, Cellular, Broadband, Leased Line.
Cite this Article: Prof. M. Yadagiri and B. Rajaram, Analysis of Operating
Performance of BSNL. Journal of Management, 5(4), 2018, pp. 481–495.
http://www.iaeme.com/JOM/issues.asp?JType=JOM&VType=5&IType=4

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 Analysis of Operating Performance of BSNL

1. INTRODUCTION
Operating performance refers measuring performance of a firm against standard or prescribed
indicators effectiveness and efficiency such as total profit, operating profit, profit before tax
etc. The operational income generated by BSNL only from the basic operations of sale of
telecom services such as Telephones other than Wireless in Local Loop, Cellular, Wireless in
Local Loop, Broadband services, Leased lines, Leased income from passive infrastructure,
Interconnection usage charges (IUC) from other service providers, Other Services and other
operating income which includes income from construction contracts, income from sale to
third party sales from telecom factories , Profit from manufacturing activities of telecom
factories etc., excluding the other incomes during the financial year.

2. REVIEW OF LITERATURE
Paul (2011) has mentioned that Bharat Sanchar Nigam Limited would be subjected to extra
financial liabilities like license fees, corporate tax, dividend payment, etc which were not
possible to erstwhile DOT.
Varadharajan Sridhar (2011) highlights the unique cost structure, tariff regulation, and
universal service obligations of basic telecom services. It dwells upon the different stages of
spectrum allocation and management, including third generation and broadband wireless
services. The trade-off between competition and industry efficiency due to limited spectrum
availability and fragmentation is well emphasized.
Dr. Kanchan Bhatia and Prof Prashanth Jain (2012) concluded that the performance
appraisal system helps to increase organizational effectiveness as appraisal encourages high
level of performance , identifies employees with potential , rewarding performance equitably
and determined employees need for development. These all activities support organisational
strategic orientation and achieve organizational effectiveness. In private sector the principle
measure of successful performance is profit. Public agencies, on the other hand, have no such
universal and widely accepted performance measures of success. However, performance is
judged against the goals their programmes and weathers the desired results and outcomes
have been achieved.
R.C.Upadhyaya & Vashundhra Sharma (2012) in their Research Article on ‗A
Comparative Study of the Telecommunication Service Providers BSNL and Airtel Operating
in Gwalior Division India‖ concluded that after analyzing the performance, they found that
the Wireless services provided by the Airtel are more satisfactory than the services provided
by the BSNL. The performances in case of Wire line and Broadband services are almost
similar in both the companies and there is need to improve the performance of BSNL in case
Wireless services.
Dr.M.Dhanabhakyam & Swapna Kurian (2012) in their Research Article ―Profitability
Analysis of Bharath Sanchar Nigam Limited (Bsnl)‖ calculated the Net Profit Ratio, Return
On Assets Ratio, Return On Equity, Earning Per Share and Cash Profit Ratio from the year
2001-02 to 2010-11 and concluded that the profitability ratios shows fluctuating trends except
last two years and the last two years ratios shows negative values except cash profit ratios.
N.Swapna (2012) in her Research Article ―Telecommunication Sector in India – An
Analysis‖ concluded that the telecom industry in India has witnessed a phenomenal and
manifold growth over the recent years. In the country, personalized telecom access has
become an essential necessity of life for a growing number of people. The telecom sector in
India holds unlimited potential talking of future growth. In the nation, both Public as well as
private firms are vigorously enhancing their technologies in a venture to take the telecom
industry in the country to a much higher development.

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 Prof. M. Yadagiri and B. Rajaram

Chhaya P.Patel, Asst.Professor & Smt.K.K.Patel (2014) concluded in their Research

Article on the ―study on Performance Appraisal System in BSNL‘ that practically there was
no appraisal in the organization. To be an effective tool, it has to be on the continuous basis
as in the absence of continuity, it becomes a redundant exercise. The very concept of
performance appraisal should be marketed throughout the organization. Unless this is done,
people would not accept it, be it how important to the organization.
Dr.Papori Baruah & Rashmi Baruah (2014) concluded in their Research Article ―Telecom
Sector in India: Past, Present and Future‖ that the growth and development of Telecom sector
of India has made it a key contributor in India‘s economic and social up gradation. Every
functional division and service provider of Telecom Sector of the country is trying to provide
world class telecom infrastructure in its area of operation to give services to its customers and
so, helping the country to progress in the global scenario.
Ms.Pritish, Dr.Taruna Saxena (2015) in their Research Article on ―An Analysis of the
Indian Telecom Industry‖ concluded that the Indian Telecom Industry contributes
significantly to the overall socioeconomic development of India. It is an essential tool for the
growth of the nation and the various telecom service providers offer voice and data services
to the customers across different regions of the country including both urban and rural areas
thereby facilitating the growth of this industry.
Anshu Gupta (2015) in his Research Article ―Financial Performance Evaluation of
Telecommunication with special reference to BSNL‖ concluded that the BSNL follows
aggressive policy of managing liquidity & company has sufficient liquidity assets to satisfy
its short term liabilities. After overhauling the five years balance sheets of BSNL and all
conditions, the author concluded that BSNL is facing the capital problem because of which
financial position of BSNL are affected. Financial position of BSNL was good in 2004
comparative to present year. Working process of BSNL takes long time because of which
BSNL is not being able to progress. The earned profits were more in the year 2005 but year
by year company is in a situation of downward profits. The profits of the company are
decreasing year by year due to maintaining high liquidity.

3. METHODOLOGY
The analysis of operating performance has made an attempt to assess the operating
performance of the BSNL on the basis of revenue sources and various types of operating
expenses for the period of ten years commenced from 2007-08 to 2016-17. The relevant data
collected from various issues of BSNL annual reports.

4. OBJECTIVES OF THE STUDY

The following are the fundamental objectives of the study;
1. To assess the revenue of the BSNL from sale of its services.
2. To know the segment wise total revenue of BSNL.
3. To identify the component wise operating expenses of BSNL.
4. To discuss the EBITDA, tax expenses and profit after tax of BSNL.

4.1. Revenue from Sale Services of BSNL

Broadly the revenue from the sale of services of BSNL can be classified in to the following
different types; i. Telephone Services, ii. Cellular Services, iii. Wireless in Local Loop
(WLL), iv. Broadband Services, v. Leased Lines services, vii. Interconnection Usage Charges
from Other Service Providers, viii. Other Services, ix. Income from Passive Infrastructure.

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 Analysis of Operating Performance of BSNL

The Table -1 presents the data related to revenue generation of BSNL by sale of various
types of its services for the period of ten years commenced from 2007-08 to 2016-17.

Tables 1 Revenue from Sale of Services of BSNL (Rs.in Lakhs)

Inter
connect
ion
Wirel usage
Income
ess in Broad Charge Other
Lease from Grow
Yea Teleph Cellul Local band s s
d Passive Total th
r ones ar Loop Servic (IUC)/f Servic
Lines Infrast Rate
(WLL es rom es
ructure
) Other
Service
Provide
rs
200 126683 10578 11340 32328
61796 91596 75732 565562 0
7- 7 89 0 12 -
(1.91) (2.83) (2.34) (17.49) (0)
08 (39.19) (32.72) (3.52) (100)
200 917342 98279 14872 28146
63643 175622 96020 430461 0 -
8- 5 5 08
(32.59) (2.26) (6.24) (3.41) (15.29) (0) 12.94
09 (34.92) (5.29) (100)
200 826770 97608 57463 10643 25180
248532 297779 4937 0 -
9- 9 1 01
(32.83) (2.28) (9.87) (11.83) (0.20) (0) 10.54
10 (38.76) (4.23) (100)
201 683930 88031 50553 18267 24617
330777 328470 5034 0
0- 3 0 47 -2.23
(27.78) (2.05) (13.44) (13.48) (0.20) (0)
11 (35.76) (7.40) (100)
201 565298 97413 33116 18037 24363
356891 317388 4503 4595
1- 8 5 04 -1.03
(23.20) (1.36) (14.65) (13.04) (0.18) (0.19)
12 (39.98) (7.40) (100)
201 494717 10120 22105 17967 24343
397478 318157 2641 7512
2- 51 4 35 -0.08
(20.32) (0.91) (16.33) (13.07) (0.11) (0.31)
13 (41.57) (7.38) (100)
201 501326 10662 18150 20823 25773
465969 302809 3003 11574
3- 37 9 07 5.87
(19.45) (0.70) (18.08) (11.75) (0.12) (0.45)
14 (41.37) (8.08) (100)
201 493381 11052 17021 20786 26178
499681 273189 2371 19106
4- 73 8 90 1.57
(18.85) (0.65) (19.09) (10.43) (0.09) (0.73)
15 (42.22) (7.94) (100)
201 468021 11289 11227 23846 25244 26345
533436 228029 1263
5- 10 7 97 0.64
(17.76) (0.43) (20.25) (8.65) (0.05) (0.96)
16 (42.85) (9.05) (100)
27742 26722
201 422931 11363 6855 238626 49621
540482 8 0 7
6- 30 1.43
(15.83) (0.25) (20.23) (10.38 (8.93) (0.00) (1.86)
17 (42.52) (100)
)

Source: Various issues of BSNL Annual Reports.

Note: Figures in bracket are per cent to total

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 Prof. M. Yadagiri and B. Rajaram

4.1.1. Findings and Discussion

The analysis of the data of the table – 1 reveals the following findings with regard to the
revenue generated by BSNL by sale of its different types of services;
i. Sale of Telephone Services: It is noticed that the percentage of revenue from sale
of basic telephone services is highest at 39.18 in the year 2007-08. Then after it
was declined to around 33 per cent in the year 2008-09 and 2009-10. From the
year 2010-11 onwards the revenue contribution of basic telephone services was
gradually reduced year after year and reached to 15.83 per cent in the year 2016-
17. Therefore a clear cut declined trend was emerged during the period under
review. Therefore it can be concluded that the number of basic telephone
connections greatly affected by cellular phone connections.
ii. Cellular Services: A revolutionary change was evident by the Cellular phone
services in the telecommunication sector. The cellular services contributing the
major portion of the revenue in the telecommunication sector from date of
introduction of cellular phones. The revenue generated from the sale of cellular
services is Rs.10, 57,889 lakhs with the contribution of 32.72 per cent in the year
2007-08. Then after there was a drastically increased in year to year is evident and
reached to Rs.11, 36,330 lakhs with 42.51 per cent in the year 2016-17. It can be
concluded that there was a clear cut increasing trend emerged during the period
under study.
iii. Wireless in Local Loop (WLL): It is observed that the income from the sale of
WLL Service was Rs.61, 796 lakhs with 1.91 per cent contribution in the year
2007-08. Then after the contribution of WLL revenue was increased to 2.26 per
cent and 2.82 per cent in the year 2008-09 and 2009-10 respectively. From the
year 2009-10, the revenue from the WLL service contribution was continuously
declined from 2.05 per cent to 0.26 per cent in the year 2016-17. It can be
concluded that there was continuous fall in number of WLL connections from the
year 2010-11 onwards due to introduction of GSM.
iv. Broadband Services: The revenue from the broadband services was Rs.91, 596
lakhs in the year 2007-08 with 2.83 per cent contribution and then after there was
almost continuous increase from year to year and reached to Rs.5, 40,482 lakhs
with 20.23 contribution in the year 2016-17. It is found that there was an
increasing trend in revenue generation from the broadband services during the
entire period of study.
v. Leased Lines: It is noticed that the revenue from the Leased lines services was
Rs.75, 732 lakhs in the year 2007-08 with the contribution of 2.34 per cent in the
total revenue. Then after there was continuous increase in revenue from leased
lines service from the 2007-08 to 2010-11. In the year 2011-12 and 2012-13 there
was around 7.4 per cent revenue contribution from leased lines services. The
revenue contribution from the leased lines was registered around 8 per cent in the
years 2013-14 and 2014-15. The company earned Rs.2, 38,467 lakhs in the year
2015-16 and reached to Rs.2, 77,428 lakhs in the year 2016-17 with 10.38 per cent
contribution. It can be concluded that there is an increasing trend in the revenue of
leased lines.
vi. Interconnection Usage Charges (IUC) from Other Service Providers: It is evident
that the highest 17 per cent of revenue is generated with an amount of Rs.5,
65,562 lakhs in the year 2007-08. Then after it is noticed that its contribution of
revenue generation slowly declined year after year and reached to Rs.2, 38,626
lakhs with a percentage of 8.93 in the year 2016-17.

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 Analysis of Operating Performance of BSNL

vii. Other Services: The services include telegraph and telex, its revenue contribution
is very negligible. Its revenue contributions is only Rs.1, 13,400 lakhs in the year
2007-08 and Rs.1, 48,725 lakhs in the year 2008-09. Then after there was
continuous decline from year to year and became zero in the year 2016-17.
viii. Income from Passive Infrastructure: The income from passive infrastructure
includes charges for sharing of building space, Electricity and miscellaneous
charges, tower sharing charges and charges for duet sharing. In the early years of
study period its revenue contribution was zero up to the year 2010-11.From the
year 2011-12 onwards, its revenue contribution is slowly increased year after year
and moved from 0.19 per cent in the year 2011-12 to 1.86 per cent in the year
2016-17.
The total revenue from sale of services was highest at Rs.32, 32,812 lakhs in the year
2007-08. Then after the revenue from sale of services slowly declined with a growth rate of -
12.94 to -0.08 during the period from 2008-09 to 2012-13. In the year 2013-14 the revenue
from sale of services abnormally increased by 5.87 per cent when compared with its
preceding year 2012-13. In the year 2014-15 its growth rate was 1.57 per cent but it was
suddenly declined to 0.64 per cent in 2015-16. In the year 2016-17 the growth rate of revenue
from sale of services is noticed at 1.43 per cent compared with the 2015-16. Therefore it can
be concluded that there was no clear cut trend emerged in the revenue form sale services
during the period under review.

4.2. Segment - wise Total Revenue of BSNL

An operating segment is a component of the Company that engages in business activities
from which it may earn revenues and incur expenses, including revenues and expenses that
relate to transactions with any of the Company‘s other components, and for which discrete
financial information is available. All operating segments operating results are reviewed
regularly by the Board of directors of the Company, which is defined as chief operating
decision maker (‗CODM‘) to make decisions about resources to be allocated to the segments
and assess their performance. For management purposes, the BSNL business is organized
into the following different segments namely; i. Basic Segment, ii.Cellular Segment,
iii.Broadband Segment, iv.Unallocated Revenue Segment. The data related to segment wise
total revenue generation of the BSNL for the period of the study is given in the Table – 2.

Table 2 Segment – Wise Total Revenue of BSNL (Rs.in Lakhs)

Basic Cellular Broadband Un-allocated Total Growth
Year
Segment Segment Segment Revenue Segment Revenue Rate
2371552 1188420 0 0 3559972
2007-08 -
(66.62) (33.38) (0) (0) (100)
2181993 1186077 0 2104 3370174
2008-09 -5.33
(64.74) (35.19) (0) (0.07) (100)
1959926 1145890 0 1624 3107440
2009-10 -7.80
(63.07) (36.88) (0) (0.05) (100)
1900588 1154247 0 1854 3056689
2010-11 -1.63
(62.18) (37.76) (0) (0.06) (100)
1319016 1264964 359368 242 2943590
2011-12 -3.70
(44.81) (42.97) (12.21) (0.01) (100)
1146055 1318600 409262 5332 2879249
2012-13 -2.19
(39.80) (45.80) (14.21) (0.19) (100)

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 Prof. M. Yadagiri and B. Rajaram

1086682 1369290 474612 4391 2934975

2013-14 1.94
(37.03) (46.65) (16.17) (0.15) (100)
1070235 1389506 503567 9142 2972450
2014-15 1.28
(36.01) (46.75) (16.94) (0.30) (100)
1160736 1422404 542179 1109 3126428
2015-16 5.18
(37.13) (45.50) (17.34) (0.03) (100)
1045811 1398951 540482 168100 3153344
2016-17 0.86
(33.17) (44.36) (17.14) (5.33) (100)

Source: Various issues of BSNL Annual Reports.

Note: Figures in bracket are per cent to total

4.2.1. Findings and Discussion

i. Basic Segment Revenue: The basic segment of telephony has been strategically
important for the PSU, as around 70 per cent of its revenue was generated from it over
the years. However, subscriber‘s base and revenue generation from basic telephony
had declined from Rs.23, 71,552 lakhs in 2007-08 to 10, 45,811 in 2016-17. Further
the basic telephony segment had been incurring losses from 2008-09 onwards, which
impacted the financial health of the company and during 2009-10, it had run into the
red. It is observed that the basic segment revenue declined from 66.62 per cent to
33.17 per cent during the study period. To improve its revenue generation capacity the
company had invested Rs.89, 11,800 lakhs to build up equipped capacity of 546.32
lakh lines against the working connections of 339.75 lakh lines for its basic telephony
network. Though the basic service customer base of BSNL started declining from
2005-06 onwards, but only in 2008 BSNL appointed IMRB for determining the
reasons for surrendering of landlines. However, the CAG recommended that BSNL
should have a time bound programme and fix milestones for increasing its landline
subscribers through aggressive marketing strategy, competitive tariffs plans and
improving its quality of service. BSNL should revamp its tariffs plans to revive the
demand for landline telephony and improve the capacity utilisation of telephone
exchanges. Broadband should be marketed effectively to attract new customers and
increase customer base of landline telephony. Tariffs structure for PCO market must
be redesigned to ensure retention and enhancement of PCO base. Subscriber base and
revenue from basic telephone service of BSNL declined drastically over the last five
years as also its overall revenue. Lack of dynamic tariff structuring, slack marketing
efforts especially in the face of competition from private operators, lack of quality in
service were major contributing factors for erosion of customer base and revenue of
BSNL. Erosion in subscriber resulted in accumulation of spare exchange capacity and
consequent unexploited capital investment.
ii. Cellular Segment Revenue: After basic segment, the Cellular segment is placed in
second position to generate the more revenue to the BSNL. The first Cellular phone
was introduced in India in the year 1995. The 4G services were launched in the year
2012. Now the cellular segment is with a subscriber base of more than 1,151.94
million as of January 2018, the mobile telecommunications system in India is the
second largest in the world and it was thrown open to private players. The GSM was
comfortably maintaining its position as the dominant mobile technology with 80 per
cent of the mobile subscriber market, but CDMA seemed to have stabilized its market
share at 20 per cent for the time being. Revenue generation point of view, the cellular
segment improving its performance year after year. In the year 2007-08 the cellular

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 Analysis of Operating Performance of BSNL

segment contributed 33.38 per cent of the total revenue. This upward trend continued
up to 2016-17 with 44.36 per cent. Based on this trend, it can be said that the cellular
segment revenue will be overcome the revenue of the basic segment of BSNL total
revenue.
iii. Broadband segment Revenue: The Internet in India began with the launch of the
Educational Research Network (ERNET) in 1986. The first publicly available internet
service in India was launched by state-owned Videsh Sanchar Nigam Limited
(VSNL) on 14 August 1995. The network was only made available to educational and
research communities. ERNET was initiated by the Department of Electronics (DoE),
with funding support from the Government of India and United Nations Development
Program (UNDP), involving eight premier institutions as participating agencies—
NCST Bombay, Indian Institute of Science, five Indian Institutes of Technology at
Delhi, Mumbai, Kanpur, Kharagpur and Chennai, and the DoE in New Delhi. ERNET
began as a multi-protocol network with both the TCP/IP and the OSI-IP protocol
stacks running over the leased-line portion of the backbone. In the initial period up to
2010-11 the revenue from broadband was included in the basic segment. From 2011-
12 onwards revenue generated from broadband has been shown as a separate segment.
It is noticed that the total revenue generated from broadband segment in the year
2011-12 is Rs.3, 59,368 lakhs and it has been increased year after year and reached to
Rs.5,40,482 lakhs in the year 2016-17. Thus the revenue from broadband segment
was moved from 12.21 per cent to 17.14 per cent from 2011-12 to 2016-17. As per
the internet usage data from the BSNL, it can be forecasted that the significance of
this segment will be increased in the near future.
iv. Un-Allocated Segment Revenue: The different types of miscellaneous revenues which
were not included in any of the above three segments are shown separately under un-
allocated segment. This segment contributes insignificant amount in the total revenue
of BSNL. The data reveals that only Rs.2, 104 lakhs of revenue generated from this
segment in the year 2008-09. It was drastically declined to Rs.242 lakhs in the year
2011-12. However there was an abnormal increased of Rs.5,332 lakhs in the year
2012-13, Rs.9,142 lakhs in the year 2014-15 and Rs.1,68,100 lakhs in the year 2016-
17.The total revenue of the BSNL declined by 5.33 per cent in the year 2008-09 and
7.80 per cent in the year 2009-10 when compared with its preceding years. The
declined growth rates were registered at 1.63 per cent, 3.70 per cent, and 2.19 per cent
in the year 2010-11, 2011-12 and 2012-13 respectively. The positive growth rates
were identified at 1.94 per cent, 1.28 per cent and 5.18 per cent in the years 2013-14,
2014-15 and 2015-16 respectively. Whereas only 0.86 growth was identified in the
year 2016-17 compared with 2015-16. Therefore it can be concluded that the revenue
generation capacity of BSNL has been in increasing trend year after year from 2013-
14 onwards.

4.3. Component wise Operating Expenses of BSNL

The cost of earning revenue is called operating expenses. The total expenses of BSNL
includes Employee benefits expenses ,License and spectrum fee, Administrative, Operating
and Other expenses , finance costs, and non-cash expenditure i.e., depreciation and
amortisation expenses. These expenses are directly or indirectly attributable to the revenue
earnings of the BSNL. The data related to component –wise operating expenses of BSNL for
the period 2007-08 to 2016-17 is presented in the Table – 3.

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 Prof. M. Yadagiri and B. Rajaram

Table 3 Analysis of Component –wise operating Expenses of BSNL (Rs.in Lakhs)

Administrat
License ive, Non-
Employee Finan Total
and Operating Cash Growth
Year Benefits ce Expens
Spectrum and Expens Rate
Expenses Cost es
Fee Other es
expenses
2007- 880891 315213 1111675 86254 969610 3363643
-
08 (26.19) (9.37) (33.05) (2.56) (28.83) (100)
2008- 1136323 264635 1137797 44325 852341 3435421
2.13
09 (33.08) (7.70) (33.12) (1.29) (24.81) (100)
2009- 1345504 87555 1019905 35161 919679 3407804
-0.80
10 (39.48) (2.57) (29.93) (1.03) (26.99) (100)
2010- 1379095 197172 1012368 38986 972543 3600164
5.64
11 (38.31) (5.48) (28.12) (1.08) (27.01) (100)
2011- 1340604 352772 1029391 18412 917432 3658611
1.62
12 (36.64) (9.64) (28.14) (0.50) (25.08) (100)
2012- 1375782 205236 1040235 35147 833643 3490043
-4.61
13 (39.42) (5.88) (29.81) (1.00) (23.89) (100)
2013- 1543584 224330 1100765 21964 602317 3492960
0.08
14 (44.19) (6.42) (31.51) (0.63) (17.25) (100)
2014- 1496350 217032 1083959 50189 881680 3729210
6.76
15 (40.13) (5.81) (29.07) (1.35) (23.64) (100)
2015- 1538649 228538 1139235 54339 713511 3674272
-1.47
16 (41.88) (6.21) (31.01) (1.48) (19.42) (100)
2016- 1571545 231086 1182313 14679 633042 3632665
-1.13
17 (43.26) (6.36) (32.55) (0.40) (17.43) (100)

Source: Various issues of BSNL Annual Reports.

Note: Figures in bracket are per cent to total

4.3.1. Findings and Discussion

i. The administrative , operating and other expenses represents 33.05 per cent, non-cash
expenses representing depreciation and amortisation expenses at 28.38 per cent and
employees benefit expenses represents 26.18 per cent in the year 2007-08. The
employee benefit expenses and administrative, operating & other expenses both are
equally represented at 33 per cent in the year 2008-09.It is observed that employee
benefit expenses are dominating position from the year 2009-10 to 2016-17. During
this period the employee benefit expenses increased from 39.48 per cent to 43.26 per
cent. Therefore it can be concluded that around 43 per cent of total expenses spent on
employee benefits only. On the other hand administrative, operating and other
expenses are at 33 per cent, and all the remaining expenses representing 24 percent of
the total expenses during the period under review. Whereas the non-cash expenses are
slowly declining year after year. Non-cash expenses declined from 28.83 per cent in
the year 2007-08 to 17.43 per cent in the year 2016-17. The licence and spectrum fee
payments are highest at 9.37 per cent in the year 2007-08 and it was declined to 2.57

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 Analysis of Operating Performance of BSNL

per cent in the year 2009-10. Again in the year 2011-12 it represents 9.64 per cent and
gradually declined year after year and reached to 6.36 per cent in the year 2016-17.
ii. In case of finance cost includes interest expenses on financial liabilities at amortised
cost such as subscribers deposits, loan, unwinding of discount on decommissioning
liabilities and others represents 2.56 per cent in the year 2007-08. This cost was
declined from year to year and reached at only 0.4 per cent in the year 2016-17. It is
noticed that employee benefit expenses represents the highest percentage of total
expenses followed by administrative, operating & other expenses, non-cash expenses,
licence and spectrum fee and finance cost in the entire period of study.
iii. The growth rate of total expenses is identified at 2.13 per cent in the year 2008-09
when compared with its preceding year 2007-08. The growth rate was declined by
0.80 per cent in the year 2009-10.Whearas the growth of total expenses registered at
5.64 per cent in the year 2010-11. Then after the negative growth rate -4.61 per cent
was identified again in the year 2012-13. In the year 2013-14 total expenses are
almost similar to total expenses of 2012-13. Again in the year 2014-15 the growth rate
of total expenses are highest at 6.76 per cent. By introducing various controlling
measures internally the growth rate of total expenses declined to -1.47 per cent and -
1.13 per cent in the year 2015-16 and 2016-17 respectively. Based on fluctuations of
total expenses year to year it can be concluded that there is no clear cut trend was
emerged in the growth rate of total expenses of BSNL.

4.4. Analysis of EBITDA, Tax expenses and Profit After Tax of BSNL
The operating performance of the BSNL is measured accurately in general by analysing its
Earnings before Interest, Tax expenses, Depreciation and Amortization. Thus it is aimed to
analyse the following aspects
i. Earnings before Interest, Tax, Depreciation and Amortization (EBITDA): It is a
measure of a company‘s operating performance. Essentially, it‘s a way to evaluate
a company‘s performance without having to factor in financing decisions,
accounting decisions or tax environments. EBIDTA allows analysts to focus on
the outcome of operating decisions while the impacts of non-operating decisions
like interest expenses a financing decision, tax rates a governmental decision, or
large non-cash items like depreciation and amortization an accounting decision.
By minimising the non-operating effects that are unique to each company,
EBITDA allows investors to focus on operating profitability as a singular measure
of performance. Such analysis is particularly important when comparing similar
companies across a single industry, or companies operating in different tax
brackets. EBITDA is calculated by adding back the non-cash expenses of
depreciation and amortization to a firm‘s operating income.
ii. Profit Before Tax: The Net profit margin is indicative of management‘s ability to
operate the business with sufficient success not only to recover from revenues of
the period, the cost of services, the expenses of operating the business including
the depreciation and the cost of the borrowed funds, but also to leave a margin of
reasonable compensation to the owners for providing their capital at risk.
iii. Tax Expenses: A tax expense is a liability owed to federal, state/provincial and
municipal governments within a given period. Tax expenses are calculated by
multiplying the appropriate tax rate of an individual or business by the income
received or generated before taxes, after factoring in such variables as non-
deductible items, tax assets, and tax liabilities. Tax expense affects a company‘s
net earnings given that it is a liability that must be paid to a federal or state

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 Prof. M. Yadagiri and B. Rajaram

government. The expense reduces the amount of profits to be distributed to

shareholders in the form of dividends. This is even more disadvantageous to
shareholders of corporations who must pay taxes again on the dividend received.
However, a tax expense is only recognized when a company has taxable income.
In the event that a loss is recognized, the business can carry its losses forward to
future years to offset or reduce future tax expenses.
iv. Profit After Tax: Profit after-tax is the earnings of a business after all income
taxes have been deducted. This amount is the final, residual amount of profit
generated by an organization. The profit after-tax figure is considered the best
measure of the ability of an entity to generate a return, since it incorporates both
operating income and income from other sources, such as interest income. The
profit after-tax margin is closely watched by investors to see if the income-
generating ability of a firm is changing over time. If so, this could be considered a
valuation indicator that may result in a change in the stock price. If a company is
publicly-held, it also reports profit after-tax on a per share basis. This information
appears on the face of the income statement. The Earnings after income taxes and
other statuary taxes are earnings available to pay to the equity shareholders.
v. Deferred Tax: A deferred tax liability occurs when taxable income is smaller than
the income reported on the income statements. This is a result of the accounting
difference of certain income and expenses accounts. This is only a temporary
difference. The most common reason behind deferred tax liability is the use of
different depreciation methods for financial reporting and the IRS. A deferred tax
asset is the opposite of deferred tax liability. Deferred tax assets are reductions in
future taxes payable, because the company has already paid the taxes on book
income to be recognized in the future like a prepaid tax.
In case of BSNL, the deferred tax has been dealt with in accordance with the contention
of the Company before the tax authorities. The depreciation has been calculated on the book
value of assets taken over from DoT, contrary to the Income Tax Department‘s contention of
treating capital reserve as relief/ grant/ subsidy deductible from book value of assets. The
Company contends that the capital reserve arising out of the capital structure at the time of
incorporation of the company is not in the nature of financial relief and hence not to be
reduced from the value of fixed assets. According to the company‘s contention, the
depreciation provided in the books on the value of assets without deducting the amount
involved in capital reserve is admissible in income-tax. The stand of company was upheld by
the Hon‘ble High Court of Delhi and the Income Tax Department has not contested against
this in the higher court as at the balance sheet date. The company recognising deferred tax
assets/liabilities accordingly.
The BSNL, being a company providing telecommunication services is eligible to claim
deduction under Section 80 IA of the Income Tax Act, 1961 with respect to 100 per cent of
the profits and gains derived from this business for the first five years and thereafter at 30 per
cent of the profits for the second five years (referred to as the Tax Holiday Period). The
company has opted for tax holiday period from financial year 2003-04 and the period ends in
the previous financial year 2012-13
In accordance with Accounting Standard Interpretation (ASI)-3 issued by the Institute of
Chartered Accountants of India, the deferred tax provision in respect of timing differences
which originates and gets reversed during the tax holiday period have not been recognised.
Deferred tax in respect of timing differences which originate during the tax holiday period
but gets reversed after the tax holiday period, have been recognized in the year in which the
timing differences have originated. For this purpose, as a conservative measure, deferred tax

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 Analysis of Operating Performance of BSNL

provision has been made in respect of the period when only 30 per cent of the profits would
be tax free assuming that only 70 per cent of the timing differences would reverse. The BSNL
has not recognised any deferred tax asset during the year following the notified Accounting
Standard 22 ―Accounting for taxes on income‘, only reversal relating to deferred tax assets
and deferred tax liability created during the earlier years have been made. The Table – 4
presents the data of EBIDT, Tax Expense and Profit After Tax.

Table 4 Analysis of EBIDT, Tax Expense and Profit After Tax (Rs.in Lakhs)
Earnings Before Tax Expenses/
Interest Profit After
Year Interest, Depreciation Depreciation Deferred Tax
Expenses Tax
and Tax Benefit
1501019 86254 969610 144216 300939
2007-08
(-) (-) (-) (-) (-)
1023829 44325 852341 69678 57485
2008-09
(-31.79) (-48.61) (-12.09) (-51.68) (-80.90)
735092 35161 919679 37483* -182265
2009-10
(-28.20) (-20.67) (7.90) (-153.79) (-417.07)
353648 38986 972543 19455* -638426
2010-11
(-51.89) (10.88) (5.75) (-48.10) (-250.27)
53751 18412 917432 2977 -885070
2011-12
(-84.80) (-5 2.77) (-5.67) (115.30) (38.63)
73254 35147 833643 7092* -788444
2012-13
(36.28) (90.89) (-9.13) (-338.23) (-10.92)
-88138 21964 602317 10443* -701976
2013-14
(-220.32) (-37.51) (-27.75) (47.25) (-10.97)
47527 50189 881680 60933* -823409
2014-15
(153.92) (128.51) (46.38) (483.48) (17.30)
350919 54339 713511 28939* -387992
2015-16
(638.36) (8.27) (-19.07) (-52.51) (-52.88)
169117 14679 633042 0 -479321
2016-17
(-51.81) (-72.99) (-11.28) (-100) (23.54)

Source: Various issues of BSNL Annual Reports.

Note: Figures in bracket are growth rates; * Deferred tax benefit.

4.4.1. Findings and Discussion

i. The earnings before interest, depreciation and tax were registered at Rs.15, 01,019
lakhs in the year 2007-08. Then after it was gradually reduced from 28.20 per cent in
the year 2009-10 to 84.80 per cent in the year 2011-12. In the year 2012-13 the
EBIDT was registered with the amount of Rs.73, 254 lakhs with a growth rate of
36.28 per cent. At immediately in the year 2013-14 the EBIDT was drastically
declined at 220.32 per cent. However, in the year 2014-15 and 2015-16 there was an
abnormal growth by 153.92 per cent and 638.36 per cent respectively. Again in the
year 2016-17 it was declined by 51.81 per cent.
ii. With regarding to interest expenses, in the year 2008-09 and 2009-10 they are
declined by 48.61 per cent and 20.67 per cent. But in the year 2010-11 the interest
expenses was increased by 10.88 per cent when compared with its preceding year

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 Prof. M. Yadagiri and B. Rajaram

2009-10. Then after in the year 2011-12, it was declined by 52.77 per cent, that in the
year 2012-13 it was abnormally increased by 90.89 per cent. In the year 2014-15 and
2015-16 the interest expenses were increased by 128.51 per cent and 8.27 per cent
respectively. But in the year 2016-17 the interest expenses declined by 72.99 per cent.
Though there was no clear cut trend in the interest expenses, we can say that the
company has taken necessary measures to minimise the interest expenses during the
period of the study.
iii. The total depreciation charged by the BSNL in the year 2007-08 was Rs.9, 69,610
lakhs. But it was declined by 12.09 per cent in the year 2008-09. Then there was a
slight increase in the year 2009-10 and 2010-11 by 7.90 per cent and 7.57 per cent
respectively. Then after there was a continuous decline up to the year 2013-14.
Whereas in the year 2014-15 the depreciation charged by the company was increased
by 46.38 per cent. Again there was a slight decline continuously in the year 2015-16
and 2016-17.
iv. The company has paid tax expenses only in the year 2007-08, 2008-09 and 2011-12
with an amount of Rs.1, 44,216 lakhs, Rs.69, 678 lakhs and Rs.2,977 lakhs. In the left
over years the BSNL has received the deferred tax benefit because of deferred tax
assets are recognised and carry forward to the extent there is a virtual certainty that
such deferred tax assets can be realised.
v. As EBIDT declined year after year the profit after tax also declined year after year.
The company has registered profit after tax only in the first two years i.e., 2007-08
and 2008-09 with an amount of Rs.3, 00,939 lakhs and Rs.57, 485 lakhs, except these
two years in every year the profit after tax is negative.

5. CONCLUSIONS
The following are the broad conclusions drawn from the study:
i. It can be concluded that the revenue from sale of telephone services declining year
after year and the number of basic telephone connections greatly affected by
cellular phone connections .There was a clear cut increasing trend emerged in
cellular services revenue during the period under study. A continuous fall in
number of WLL connections noticed from the year 2010-11 onwards due to
introduction of GSM. An increasing trend is observed in revenue generation from
the broadband services during the entire period of study. With regard to the
revenue of leased lines there is an increasing trend. It can be concluded that there
was no clear cut trend emerged in the revenue form sale services during the period
under review.
ii. It is also observed that the basic segment revenue declined from 66.62 per cent to
33.17 per cent during the study period. The cellular segment revenue will be
overcome the revenue of the basic segment of BSNL total revenue. The revenue
from broadband segment was moved from 12.21 per cent to 17.14 per cent from
2011-12 to 2016-17. As per the internet usage data from the BSNL, it can be
forecasted that the significance of this segment will be increased in the near
future. It can be concluded that the revenue generation capacity of BSNL has been
in increasing trend year after year from 2013-14 onwards.
iii. It is noticed that employee benefit expenses represents the highest percentage of
total expenses followed by administrative, operating & other expenses, non-cash
expenses, licence and spectrum fee and finance cost in the entire period of study.
Based on fluctuations of total expenses year to year it can be concluded that there
is no clear cut trend was emerged in the growth rate of total expenses of BSNL.

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 Analysis of Operating Performance of BSNL

iv. The BSNL has paid tax expenses only in the year 2007-08, 2008-09 and 2011-12
and in the left over years it has received the deferred tax benefit because of
deferred tax assets are recognised and carry forward to the extent there is a virtual
certainty that such deferred tax assets can be realised.

SCOPE FOR FURTHER RESEARCH

This paper is limited to the analysis of operating performance with the help of absolute
figures of sources of income and operating expenses of BSNL for the period from 2007-08 to
2016-17. One can analyse the operating performance of firm by using other different types of
statistical tools and comparison may be made between BSNL and other telecom service
providers. The comparison can also be made with industry also.

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 Prof. M. Yadagiri and B. Rajaram

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WEBSITES
[24] www.bsnl.co.in
[25] www.dot.gov.in
[26] www.trai.gov.in
[27] www.deloitte.com/in
[28] www.icra.in
[29] www.pwc.in
[30] www.ijar.in

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