The proposal floated by DoT under Communications Minister Kapil Sibal gains significance because the merger plan was given a quiet burial under former telecom minister A Raja for the last three years.
In its draft strategic plan, the department while showing concern over the deteriorating performance of BSNL and MTNL, said: "BSNL and MTNL should be merged as they have complimentary operations and can combine their strengths for synergies".
Increasing competition in the telecom sector has also led to a dip in the performance of the PSUs. "The structure of BSNL and MTNL make it difficult for them to be accountable for their performance. DoT should set up a multi stakeholder committee to develop a restructuring plan for both firms," the department said in the note.
The committee should have members from public enterprises, DoT and department of IT and ministry
of finance, the note said. The telecom PSUs should focus on enterprise business, services to government and public sector, value added services and new technologies like 3G.
The talks for merger of BSNL and MTNL had been going on for around three years, but due to different organisational structure and MTNL being a listed company, the talks were abandoned. There was a proposal to list BSNL, but following opposition from employees, the plan was shelved.
While MTNL offer services in Delhi and Mumbai, BSNL operates in rest of the country. Both companies also received third generation spectrum, ahead of auction for private players but could not take advantage of it.
For the first time since inception, BSNL had posted a loss of about Rs 3,000 crore (Rs. 30 billion) last year. MTNL's revenues have also been declining steadily. Due to stiff competition from private operators and low tariffs, both companies have lost substantial amount of their market share and seen a dip in their revenues.