The Fall of Reliance Communications
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Case Code: BSTR599 Case Length: 13 Pages Period: 2005-2019 Pub Date: 2020 Teaching Note: Available |
Price: Rs.300 Organization: Reliance Communications Industry: Technology & Communications Countries: India Themes: Competitive Strategy, Growth Strategy, Market Entry & Exit, Restructuring |
Abstract Case Intro 1 Case Intro 2 Excerpts
Excerpts
The Market Dynamics
The Indian government set up a task force in the year 1998 to suggest measures for the development of the telecommunications industry. The task force was of the opinion that the sector needed an overhaul to improve its scope. The primary objective was to develop physical infrastructure and a regulatory mechanism, and improve usage of the internet . The first step toward achieving this objective was the removal of the fixed licensing system and introduction of the revenue sharing model, under which the telecom operators had to pay a percentage of 15% from their revenues towards licensing fees. Though the move was initially opposed, it was finally accepted by the industry. Later on, this led to the growth of the sector...
RCom's Strategy
When the business was divided, Anil wanted to independently manage the telecom business, and the amount of Rs.45 billion incurred on the handsets sold through the introductory offer was written off as a loss. By then (between the years 2005-08), the competition had become intense and a large number of telecom companies had already entered the market and were offering quality services at affordable prices. It was during the year 2008 that RCom started offering services on both CDMA and GSM technologies. GSM would also function as a complementary service to the existing CDMA services offered by the company. As on December 30, 2008, the GSM services covered 11,000 towns and 340,000 villages, while the CDMA services were offered in 20,000 towns and 450,000 villages....
Debt Crisis
After Anil got control of RCom in 2005, the company mainly experimented with CDMA technology while its rivals invested on the GSM technology. Though CDMA provided the benefits of a GSM technology, it was only restricted to 2G and 3G wireless technologies; it did not support 4G and 5G standards...
Impact of Reliance Jio
From the time Anil helmed the affairs of RCom, there were drastic changes in the industry. New players started entering the market and there was a focus on new technologies. Anil’s telecom business was at its peak in the initial years and remained in the second position for a long while, while competition increased. By 2015 RCom fell to the fourth position in the market behind Airtel, Vodafone and Idea...
Recovery Measures
In a move to overcome the debt burden and withstand the competition, RCom initiated measures for consolidation and sent proposals to the Telecom Regulatory Authority (TRAI) for approval of the merger of RCom with another India-based telecom company, Aircel, in December 2016. Both the companies decided to merge their wireless businesses. Besides this, RCom also made a proposal for the sale of its tower business. The wireless and tower businesses constituted around 60% to 70% of RCom's revenues. Further the strategic merger and sale of both the businesses was expected to reduce the debt burden of RCom from Rs.450 billion to Rs.220 billion...
Chairman's View
Addressing shareholders at the 14th Annual General Meeting of the Reliance Group, Anil said that to clear the dues to various stakeholders, the group would quit the telecom business and venture into the reality sector. “As we have moved out of the mobile sector, we will monetise at an appropriate stage our enterprise business....
Exhibits
Exhibit-I: The Structure of Reliance Group (RG)
Exhibit-II: Debt Composition of Various Lenders
Exhibit-III: Rating by Credit Rating Agencies
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