A government panel has recommend that state-owned telcoms company Bharat Sanchar Nigam (BSNL) merge with its smaller sister concern MTNL as well as communications gearmaker Indian Telephone Industries (ITI) as part of the erstwhile state monopoly's attempts to turnaround its loss-making operations and breathe new life into its businesses.

BSNL offers services in all regions of the country, except Mumbai and Delhi, where MTNL operates. So far, the government has failed in its multiple attempts to sell ailing ITI, which makes telecoms hardware, and is also the oldest PSU in the country.

"The board strongly recommends the merger of ITI with BSNL, or its takeover by BSNL as a separate subsidiary, thereby ensuring strategic vertical integration.

This should enable BSNL to combine service-providing with manufacture of the products and thus emerge as a leading global player as come of the Chinese companies have done in recent times," Board for Reconstruction of Public Sector Enterprises (BRPSC), which advises financially troubled state-run companies, said in its report.

The BRPSC report also adds that ITI's product mix could be appropriately changed to enable it to produce mobile phones and other products by bringing in latest foreign technologies.

It also states that ITI's accumulated losses may help BSNL to gain tax advantages.

"Similarly, there is no reason for MTNL to continue as a separate entity. This could be brought under BSNL as a subsidiary," the report adds.

MTNL has also been reporting losses for several consecutive quarters.