Blog: Where did it all go wrong for RCom? – Mobile World Live

Blog: Where did it all go wrong for RCom?

16 APR 2018

If the chatter proves correct, Reliance Communications (RCom) is heading towards a full exit from India’s telecoms sector, ending its 16-year stay in the market with a whimper.

After striking a deal to sell wireless assets to Reliance Jio in 2017, which was given the go-ahead by Indian courts within the past fortnight, the debt-ridden operator was expected to remain in the market with the creation of a “new Reliance Communications”, using its remaining fixed-line and wholesale assets to serve enterprise clients.

In an interview with The Economic Times (ET) in January, billionaire owner Anil Ambani even made a point of stating he had informed India’s Department of Telecommunications (DoT) that he was “not quitting telecoms”, but only exiting the mobile business.

“New RCom will be stronger and it will be India’s largest B2B business. It is capex light and we are very conservatively structured…the IDC (international data centre) business is set to explode,” he added at the time.

But, just as the company looks set to complete its sale to Jio (which provides the glorious subplot as the acquirer is controlled by Anil’s older brother Mukesh) and put its B2B plans in motion, reports suggest Ambani junior is now looking to sell RCom’s remaining enterprise and wholesale assets.

ET reported Russia’s Sistema made a $1.2 billion bid for the assets last month, while Financial Times suggested interest in some or all of the assets from five companies in total.

A sale and more importantly, an exit, is certainly a possibility.

Where did it all go wrong?
It is important to note that RCom, after entering the Indian market in 2002, was the most valuable asset to fall under the guise of Anil when the Reliance empire was divided up in 2005 following a bitter feud between the two brothers.

But today, it is RCom which is folding, with a debt load standing at roughly $7 billion, while Mukesh’s Jio, launched at the end of 2016, is going from strength to strength.

And ironically, by acquiring RCom’s infrastructure and assets, which in effect saved RCom from insolvency, Jio is expected to step up the competition even further with market leader Bharti Airtel and the proposed Vodafone India, Idea Cellular joint entity.

Speaking to Mobile World Live, Satyajit Sinha, research analyst IoT and mobility at Counterpoint Research, described Jio’s entry into the Indian market as a “death knell for RCom”, but noted problems started long before Anil’s older brother Mukesh stormed the Indian market with reduced data and voice offers through Jio.

“RCom’s main business model was dependent upon the CDMA technology well suited for voice services, but not so for advanced data services compared to the competition which were on the path to 4G. A lack of flexibility meant the transition from CDMA to GSM was not as smooth and was a setback as Reliance continued to lose subscribers to the likes of Vodafone, Idea and Airtel,” Sinha said.

Providing a bit more background, the analyst noted RCom was also forced to write off INR45 billion ($693 million) in 2006, as a result of its Monsoon Hungama initiative. The plan offered cheap handsets and free incoming calls, and is today widely heralded as ushering increased mobile usage in the country. However, it left the operator with mounting debts.

Finally, Sinha noted a “lack of strategic network evolution vision in addition to a lack of scale has driven RCom to this stage”.

In a last ditch attempt to remain in the game, RCom in 2017 tried to deal with the Jio juggernaut by proposing a merger with smaller rival Aircel, but the tie-up was dropped due to a number of regulatory uncertainties.

Fighting a losing battle
In the event that Ambani junior again u-turns and opts to chase his B2B ambitions, or there is a lack of interested parties in the remaining assets, Sinha warned it will not be that easy for RCom to “recover from this debacle”.

“The shutdown of RCom’s mobile network will only service to shift the cost pressure to its other segments, especially to its overseas business. The company needs a new strategy, business model and a stronger management, in addition to fresh investments to pull this off.”

Market watchers have noted RCom’s situation could have been very different, had Anil been allowed to proceed with a merger with South Africa’s MTN almost nine years ago.

However, Mukesh blocked the deal.

And nine years later, he has been on hand to put the final nail in the coffin of his brother’s mobile business, as part of a wider quest to seize market domination

Families, eh?

The editorial views expressed in this article are solely those of the author and will not necessarily reflect the views of the GSMA, its Members or Associate Members.

Author

Kavit Majithia

Kavit joined Mobile World Live in May 2015 as Content Editor. He started his journalism career at the Press Association before joining Euromoney’s graduate scheme in April 2010. Read More >>

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