Opinion

Changing dynamics of Indian telecom industry

Mahesh Singhi Mahesh Singhi - 15th February 2018
Anil Ambani-led Reliance Communications (RCom) has decided to shut down its 2G mobile phone operations as the business is no longer viable due to the price war unleashed by elder brother Mukesh Ambani's Reliance Jio (part of USD 50 bn , Reliance Industries, an Indian conglomerate engaged in energy, petrochemicals, textiles, natural resources, retail, and telecommunications) which is offering free voice calls and dirt cheap data. The younger sibling- Anil Ambani had inherited the telecom business of the Reliance group following the division of the family empire between the two brothers.



However, with the non-compete clause in the agreement coming to an end, elder brother Mukesh has made a dramatic entry into the telecom sector and shaken up older players with his disruptive pricing.



RCom will be giving its 2G-based customers the option to switch to 3G or 4G based technology and has asked most of its employees to exit the company. The debt-ridden company will continue to operate 3G and 4G services till the time they remain profitable. Almost 60% of RCom customers, who are using 2G-based technology will switch to the RCom's higher technology or else port to another operator.



RCom is also shutting down its direct to home television services from next month after it failed to find any buyer for the business.



The company continues to operate ILD voice, consumer voice and 4G dongle post paid services and mobile tower business till the time they remain profitable and all the other business being shut down. RCom is optimizing its 2G and 3G footprint, and related infrastructure and human resources.

The company's 4G-led strategy continues on the back of capital-light access to India's most extensive 4G mobile network, through already operational spectrum sharing with Reliance Jio. The company's tower business will remain operational since it is bringing in business .



RCom is also in talks to sell its stake in its tower unit to Canada's Brookfield to raise funds which it wants to use to repay banks and reduce its debt burden. RCom has a whopping INR.44,000 crore in loans on its books and is facing problems repaying its dues as earnings have been eroded due to the disruptive pricing by Reliance Jio which is offering voice for free.



In a major setback for Anil Ambani, Reliance Communications had been forced to called off the move for a merger with Aircel due to various interventions by vested interests which caused delays in receipt of relevant approvals for the proposed transaction.



Unprecedented competitive intensity in the Indian telecom sector, together with fresh policy directives adversely impacting bank financing for this sector, have also seriously affected industry dynamics. This move adds to the consolidation and price wars in the telecom industry largely leaving 3 major players – Reliance Jio, Airtel, Vodafone.


Mahesh Singhi
Managing Director - Partner,
Singhi Advisors Pvt. Ltd.


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