‘RCom's transformation is well under way'

A few months after Mr Syed Safawi took over as the CEO of Reliance Communications in 2009, he launched the vision R2.0 aimed at a complete overhaul of the way the company functioned. R2.0 — stood for resurgence, reformation, revival and reliance. In an exclusive interview with Business Line he talks about the success of R2.0 in improving the debt-laden financials, declining market share and the future direction in which he is steering RCom to. Excerpts.

What is the status of the transformation that you had envisioned under R2.0?

On the journey of transformation, we have come from a rating of 2-3 on 10 to a 7 on 10 today. There's still work to do. But in terms of the major transformations the focus on data is a huge transformation that we have brought about. One year back at the AGM we had unveiled the Wirefree India vision where we had 65 towns of high speed data, and today, we have more than 1,200 towns with high speed data and 3G. Focus is on not just customer numbers but quality of customers, quality of minutes and quality of portfolio resulting in revenue and profitability. This was our aim and so if you see the wireless business track record, in the last two quarters we have been able to drive more than 3 per cent consumption led growth quarter-on-quarter which is the best we have done in the last seven-eight quarters. We had the initial challenges of settling down coming into GSM, industry price drop of 20 per cent is behind us and we are seeing consistent growth now. So the transformation journey is well under way but we still have work to do.

Do you think RCom's GSM thrust came at a time when the overall financial parameters of the industry is looking down?

The timing of the GSM entry for us as well as for the other six or seven players who entered at the same time and the tariff base drop by 20 per cent for the industry caught the whole industry off guard and impacted all players, including the incumbent GSM players. If we had two years of growth at the earlier tariffs the whole industry would have been at a better place today. I think the industry learned in the process. Today, after two years finally, the tariffs have gone up and there is a realisation that the earlier tariffs are not sustainable. How can any player lose money on every minute that they sell. Every minute that you sell you are losing at a marginal cost basis and you can never make money then and this is why a lot of the new players are losing between Rs 1,000 and Rs 2,500 crore per annum. The combined loss of the bottom six or seven players is about Rs 10,000 crore per year.

So you think the worst is behind now?

Yes, the most difficult times are behind us. For eg, for us we can say for the first five years of our existence capital intensity was huge because we built three networks — CDMA, GSM and 3G .When people talk about our debt we tell them this is the model we chose, we never chose to dilute equity and we still own 68 per cent of the company. We could have gone down the equity dilution route and not taken on debt but we decided to use the debt route and because we were efficient in debt we got it at very good rate. We invested Rs 50,000 crore in the last five years on building these three networks. Even as recent as last year we spent about Rs 4,300 crore, including 3G. So now, the peak capital expenditure is behind us. Tariffs which dropped 20 per cent are recovering for the first time which is good news and the third thing which is beginning to happen is that portfolio itself is changing. Non-voice as a contribution to revenue especially data is becoming significant. For us, non-voice is almost 20 per cent now and some of the leading West operators are at 30-35 levels so if I can in the next 12-18 months move to those levels then my portfolio changes significantly. My dependence on voice profitability then gets balanced out with data and data incremental EBITDA is much better because within the same tower I am putting data electronics and within 120-180 days there is payback. India is desperately data hungry.

In terms of profitability are the numbers getting better now with data revenues coming in?

This quarter we grew wireless revenue by about 3-3.1 per cent and grew EBITDAs by about 2.1 per cent, so now I am getting a steady Rs 1,100-1,200 crore of EBITDA levels at 27-28 per cent which are very decent. The good news that has happened is that pricing has stabilised. We have held pricing at 44 paise per minute for the last six quarters about which I said when we started transforming that its not about the price. So RPMs we've held and with the price change which we've recently done, we expect at least a paise increase in RPM over the next two quarters. So there is no reason why you should not see steady improvement in EBITDAs, all other things remaining the same.

But on the tariffs side you think voice will go up and data will come down? Is that how its going to pan out in the next 12-18 months?

I think voice tariff should increase and correct itself further upwards.

Recently you undertook restructuring internally. Are you planning any more such restructuring in the future?

More strengthening of the field operations will continue. For example, at the hub level is where the P and L management sits. Our vision is to take it down to the circle level and even the next level. So how do you enable that, how do you build capabilities around that and how do you strengthen the field because that's where the execution happens as that's where the customer is. Sometimes we need to calibrate our thinking in not about the number of people one adds or reduces, but about the right number of people in the right place. So redeploying resources would definitely continue.

Do you expect a lot on consolidation happening in the next one year or so?

I cannot say one year specifically but consolidation yes, no doubt. Indirectly consolidation is happening today. If somebody has 22 licences and they have not rolled out 20 of them, its indirect consolidation. At the end of a definitive period we are going to be back with five to six private players and one Government-owned. If today we calculate the negative EBITDAs of the industry we find that only four players actually make money. So I think 6-7 players is what you are looking at and the time period would depend on the guidelines and ease of exit in the NTP and so on.

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