The government is considering the option of handing over operations of Mahanagar Telephone Nigam Ltd (MTNL) to BSNL through an agreement, instead of pursuing a merger route, a source privy to the development said.

A final call on this is likely to be taken in a month's time.

The source said the option of handing over debt-laden MTNL's operations to Bharat Sanchar Nigam Ltd (BSNL) through an agreement is being looked into. The source said that given MTNL's high debt, a merger with BSNL was not a favourable option.

Once the decision is taken, the proposal would be placed before the Committee of Secretaries, and thereafter taken to the Cabinet.

Amid mounting financial woes, MTNL this week informed in a statutory filing that it is unable to make interest payment to certain bondholders "due to insufficient funds".

"The second semi annual interest with regard to 7.59 per cent MTNL's bond series...is due on July 20, 2024. As per the structured payment mechanism of Tripartite agreement (TPA) signed among MTNL, Department of Telecom and Beacon Trusteeship Ltd, MTNL has to fund the semi-annual interest into the Escrow account with adequate amount 10 days before the due date," it said.

In view of the provisions of TPA, it is informed that due to insufficient funds, MTNL could not fund the Escrow account with adequate amount, the corporation said in the BSE filing.

While MTNL offers services in Delhi and Mumbai, BSNL runs all India operations (except Delhi and Mumbai).

Even as private telcos like Reliance Jio and Bharti Airtel have scaled their subscriber tally in past months capitalising on Indian users' massive appetite for data and voice services, the customer base of MTNL has been dwindling - from just 4.66 million (wireless and wireline) in January-March 2023 to 4.1 million a year later.

MTNL's losses mounted to ₹3,267.5 crore in FY24 from ₹2,915.1 crore in FY23.

Revenue from operations in last fiscal year was ₹798.56 crore, down 14.6% from a year ago.