The proposed merger of telecom giants Bharat Sanchar Nigam Ltd and Mahanagar Telephone Nigam Ltd has been put on the backburner mainly because of complex labour issues affecting around 400,000 employees of the two corporations.

"We believe that merging the two companies at this point of time will raise a number of issues for which there are no immediate solutions," a communications ministry official said.

Officials in the ministry, however, insisted that the proposal has not been scrapped and may be revived later. However, the urgent need to merge the two companies has diminished because they are both looking at new areas to expand into.

"Some of the concerns which led to the merger proposal have been addressed with MTNL focusing on the international market and BSNL doing well in the mobile market," a source in the communications ministry said.

The proposal to merge the two companies was originally floated by former Communications Minister Pramod Mahajan last year and a committee under the department of telecom secretary was formed to look into its feasibility. BSNL has around 450,000 employees and MTNL has around 50,000 people on its rolls.

Seven international consultants including McKinsey, JM Morgan Stanley, DSP Merill Lynch, JP Morgan and KPMG Consulting had backed the proposal and suggested different ways it could be implemented.

One suggestion was that BSNL's assets should be acquired by MTNL in a phased manner. Alternatively, they had suggested that MTNL should be merged with BSNL or vice versa.

Another suggestions was that MTNL should acquire a controlling stake in BSNL or a combination of these.

Mahajan had floated the proposal in order to strengthen the two firms and help them take on competition from the private sector. MTNL's growth, for instance, had stagnated since it was not allowed to offer services beyond Delhi and Mumbai. The company was also not given a licence to offer international long-distance services.

However, the merger proposal had lost steam after Arun Shourie took over as communications minister early this year. Within just a few days of taking on the telecom portfolio, Shourie said that he would study afresh the BSNL-MTNL merger.

Merger move

• The merger plan had been floated by former Communications Minister Pramod Mahajan last year to strengthen the two firms and help them take on competition from the private sector.
• Seven international consultants including McKinsey, JM Morgan Stanley, DSP Merill Lynch, JP Morgan and KPMG Consulting had backed the proposal and suggested different ways it could be implemented.
• The initiative lost steam after Arun Shourie took over as communications minister early this year.
• Communications ministry officials now say the urgent need to merge the two companies has diminished because they are both looking at new areas to expand into.
• Officials in the ministry, however, insisted that the proposal has not been scrapped and may be revived later.