Article: The RComm mess & the crisis within the Telecom Industry

Strategic HR

The RComm mess & the crisis within the Telecom Industry

An industry distraught with disruption and steeply increasing tariff rates, only the big and mighty seem to survive. As Rcomm became the latest company from the telecom sector to come in news to file for termination, we take a closer look at how it reached this stage.
The RComm mess & the crisis within the Telecom Industry

The Anil Ambani led telecom company recently announced that it will stop its operation and informed its wireless business employees that November 30 will be their last day of employment. Beginning with its 2G network—the largest subscriber base of the company— the telecom company has planned to pull the brakes on most of its services; only choosing to continue with their 3G and 4G services till they remain profitable. Employees of the debt-ridden telecom company have reportedly been told by RComm Executive Director Gurdeep Singh that the company has reached a "situation where we need to call it a day on our wireless business" which means closing down the "wireless business 30 days from now". That is not a good news for the employees— a  1,000-1,200 people strong workforce— of the company. Come November end, most might face the axe. 

It’s troubling times in the telecom sector at the moment. The vigour with which a company like Jio has brought about both technological and business disruption within the sector, has led to a great amount of consolidation within the Rs 1.5 lakh crore Indian mobile telephony sector. Reliance Communications was the last of the old players yet to react to the incoming changes within the market, after Tata Teleservices narrowly escaped the same fate by merging with Bharti Mittal’s Airtel earlier this month. Although the markets had been had been undergoing significant changes when Anil’s elder brother Mukesh Ambani chose to enter the fray with Reliance Jio Infocomm Limited, the first signs of a major upheaval in the telecom market came earlier this year when two telecom giants in their own right, UKs telecommunications company Vodafone and Birla group’s Idea Cellular chose to merge their operations in India. The precedent seemed to have been set; either merge to bolster services and survive in the increasingly competitive cost structures or perish. 

But not all can be blamed on the changing market dynamics. Although the incoming changes have contributed significantly to the decline of Reliance Communication’s that led to its eventual demise, the signs of the crack had been fairly visible for quite some time now.

Why now? 

With Tata Teleservices being acquired by Bharti Airtel, RComm became the single weakest player in the Indian telecom space, with about 80 million subscribers (2G). This had meant a fall in overall Average Revenue Per User (ARPU) which had been on a decline for quite some years. ARPU for a telecom company is its blood and bones and the higher the better. A high ARPU indicates a healthy performance and good chance to attract investors.  This helps ensure that the company is able to stay afloat gives it a fighting chance. But with evolving market conditions, RComm has witnessed a steady drop in its ARPU, which in turn worsened their financial stability.

According to a Livemint report RComms’ gross revenues have fallen by around 30% since the September 2016 quarter, about three times the rate at which industry revenues have fallen. It has also witnessed the highest number of subscribers leaving the company with its active subscribers falling about 15% between August 2016 and July 2017, at a time when the industry-wide subscriber base rose by around 10%. In a time when Airtel, Vodafone and Idea Cellular have been adding new subscribers despite tough market conditions, losing market share didn’t bode well for the company. But as it turns out, this is just one of the many problems facing the company.

The other reason for its financial debacle has been its increasing debt. Many within the company hoped for a successful deal between RComm and another telecom player Aircel Ltd., but even that doesn’t seem likely to happen at this juncture. It could have been vital for the company providing an option to shift a large part of its debt — which accounts to a total net of Rs 45,000 crore as on March 2017— to the new wireless entity, making it look financially healthier. This, in turn, would have helped the company get in fresh investments and boosted its chance of functioning in what seems to be an increasingly tough market to operate alone in. But now that the deal off the table, RComm is looking at other ways to reduce its debt. This includes looking at the sale of real estate assets and the “optimization” of its Rs 19,000 crore worth spectrum. The only relief for RComm right now seems to be that it still has time before its lenders start converting the debts into equity as under the SDR (strategic debt restructuring) scheme. But this too seems to be a temporary reprieve. 

 What lies ahead?

With the current mess that RComm finds its self in, the future looks bleak for the telecom industry. Its problems are many: falling subscriber numbers, high debt, deteriorating top line and bottom line, and an inability to attract investors for its assets. Some are particular to the company but some are common for many small players within the sector. Market economics dictate that any new change within existing business conditions pushes the market into a disarray, before arranging itself and reaching a new equilibrium point. This is what currently seems to be going on within the telecom sector.

With the onset of newer technology and a new player (Reliance Jio) the companies are now faced with highly competitive tariffs and by the looks of it, only companies with deep pockets would survive the transition. As already witnessed, the way out for companies has been to consolidate. 

But, although companies might just see through this transition period by undergoing consolidations, this economic phenomenon is proving to be a bane for the employees within the sector. Already there seems to be signs of panic within professionals in the industry with many looking for jobs in other sectors, while many face potential exits. This also raises the question of how effectively can the telecom sector bounce back from this period. Newer technologies and a projected increase in mobile usage might just help the sector bounce back eventually but would the sacrifice have been too much? Like the case with many such economic processes, only with time would we be able to know the answers. 

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Topics: Strategic HR

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