Loss of 1,357 crores to BSNL, all the hard work of the government in water

BSNL, the country's largest telecom giant, has suffered a major loss. According to a Mint report, the state-owned telecom company suffered a loss of ₹1,357 crore in the quarter ended September. Previously, the telecom company had suffered a loss of ₹1,049 crore in the June quarter. This figure is significantly higher than the same quarter last year (₹1,241.7 crore). As a common user, you might be wondering why losses are increasing when the company is launching 4G and improving its network.

The main reason for the loss is increased depreciation and interest expenses due to 4G expansion. However, the company's revenue has increased by 6.6% due to the 4G launch.

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Why BSNL is incurring losses

There's not just one reason behind BSNL's increasing losses, but several. The biggest reason is depreciation and network maintenance costs. Simply put, BSNL has invested heavily to upgrade its network. When a company incurs such a significant expenditure, depreciation and interest expenses increase. Looking at the figures, the company's depreciation and amortization expenses amounted to ₹2,477 crore, a 57% increase over last year.

Union Minister Jyotiraditya Scindia had already indicated that BSNL had incurred a massive capex (capital expenditure) of ₹25,000 crore this year, which would be reflected in its balance sheet. Scindia had clearly stated, "We may not see that period of profitability again, as the ₹2,500 crore non-cash hit will be solely due to depreciation."

There is also good news for BSNL

Amidst all the challenges, there is some good news for BSNL. The company's operational revenue has improved. The impact of the launch of 4G services is now visible.

Changes in accounting methods

An interesting aspect is that BSNL has changed its accounting methods to manage its expenses. Employee salaries, which previously accounted for 43% of total revenue, have now dropped to 37%. This does not mean that salaries have decreased. In fact, the company has started attributing employee expenses during network expansion to 'Capital Work-in-Progress' (CWIP) instead of directly attributing them to 'expenses'.

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Summary

BSNL clarified that this type of "capitalization" of overhead expenses is common practice in the telecom industry during major expansions. This expense will be reflected in the profit and loss (P&L) account only when the project becomes fully profitable.