The Indian government has recommended that the country’s three struggling state-owned telecoms firms – operators BSNL and MTNL and equipment vendor ITI – merge together in a bid to shore up losses. “The board strongly recommends the merger of ITI Ltd. with BSNL, or its takeover by the BSNL as a separate subsidiary, thereby ensuring strategic vertical integration,” India’s Board for Reconstruction of Public Sector Enterprises said this week, reports Dow Jones Newswires. The panel said BSNL can claim tax breaks if it merges with a loss-making ITI and suggested BSNL can also merge MTNL with itself. “There is no reason for the MTNL to continue as a separate entity,” it said. BSNL provides telecoms services in 20 of the country’s 22 telecom service areas, while MTNL provides services in the remaining two: Delhi and Mumbai.

Both BSNL and MTNL are struggling to compete with privately-owned operators in India’s fiercely competitive mobile market. According to the report, BSNL posted a net loss of INR18.23 billion in the fiscal year ending 31 March 2010, the first time the state-run company had slipped to a loss since it was hived off as a separate company in October 2000. It does not expect to return to profitability until 2013. In the same period, MTNL posted a net loss of INR26.11 billion and ITI posted a net loss of INR4.59 billion. The panel has now asked BSNL and the telecom department to submit a revival plan for the company within the next four months. A merger would need to be approved by India’s Department of Telecoms.