K. Venkatasubramanian | Updated on August 27, 2011


BL28 COL Flop RCom.eps

Among the top telecom players, especially in the listed space, Reliance Communications (RCom) leads the way in underperformance.

First, it was the global slowdown in 2008, then the hyper tariff war happened in 2009 and finally, huge payouts and piled up debt as a result of 3G license payout as well as continuing capex in 2010 posed severe challenges.

Apart from eroding realisations and average revenues per user (ARPU), the company also grapples with stiff interest outgo on its debt, thus affecting margins. Despite offering both GSM and CDMA services, its ARPU has continuously slid and is the lowest among peers.

RCom had three years of anaemic growth in revenues and witnessed a steep decline in profitability.

The overhang of the 2G investigations too is not helping matters for the stock.

The bid to sell its tower arm (Reliance Infratel) to GTL Infrastructure, which was subsequently called off was not taken too kindly by the markets.

In the near-term, in order to reduce its net debt of over Rs 32,000 crore, the sale or an IPO of Reliance Infratel seem to be the best bet to shore up cash and reduce the interest burden of RCom. The failed deal with GTL Infrastructure saw the tower business of RCom commanding an enterprise value of Rs 50,000 crore.

The company has recently reduced the pace of subscriber additions and has also hiked tariffs, as it strives to improving realisations.

Published on August 27, 2011

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