Anil Ambani’s Reliance Communications (RCOM) has posted a loss of Rs 2700 crores for the quarter ended September 30th 2017, more than doubling from the Rs 1221 crore loss reported last quarter. In the same quarter last year, RCOM had reported a profit of Rs 51 crore. RCOM, which was always far less profitable than other major telecom operators, slipped into losses after the launch of Reliance Jio, and its rollout of cheaper data plans. Remember that RCOM’s pitch throughout had been of being a data-led company, and they got beaten at their own game.

In its earnings release, RCOM has said that its asset monetization programme is “at an advanced stage” and RCOMs assets “derive significant interest from Indian and overseas telcos, strategic investors and PE firms. A large number of potential investors participate in the transparent and competitive process for monetization of:

  • Wireless spectrum and related assets
  • Tower, Fiber and MCN (Media Convergence Notes) Assets.”

Some highlights from financials

  • Total consolidated income: For the September quarter, total income was at Rs 2667 crores, down from Rs 3,591 crore, down 25.7% quarter on quarter. Last quarter, it had slipped 20.6% QoQ from Rs 4,525 crore in Q1. Year on year, it’s total consolidated income declined 48.1% from Rs 5142 crores.
  • India share in revenues: India operations contributed about 80% of the overall revenue during the quarter. The contribution increased from 78.4% last quarter, and at Rs 2160 crores, was down by 51.8% year on year, from Rs 4488 crores.
  • International revenues: What’s important here is that while India revenues are declining, international revenues have also been declining for RCOM. Year-on-year, global operations reported a decline of 37.4% at Rs 681 crores, down from 1089 crores for the same period last year.
  • Regional profits/losses share: Both Indian and global operations are running at losses: India operations suffered a loss of Rs 1669 crores, up from a loss of Rs 576 crores last quarter. Global operations reported losses of Rs 3 crores crore during Q2FY18, which is an improvement over the Rs 65 crores of losses reported in Q1.
  • Expenses: Access charges, license fee and network expenses contributed to 56.88% of RCOM’s total expenses of Rs 5488 crores during the quarter at Rs 2,402 crore.
  • Liabilities: India operation liabilities were at Rs 16470 crores during Q2FY18, accounting for 65% of total liabilities for the company.

Sale of DTH business

During the quarter, RCOM entered into an agreement to sell its Reliance BIG TV business to Veecon Media and Television Ltd. Veecom will take over all of Reliance BIG TV’s contingent liabilities. Reliance BIG TV has 1.2 million customers and around 500 employees.

Telecom updates

  • Acquisition of Sistema’s business completed: RCOM has completed the merger of Sistema’s India business (MTS) on 31st October 2017, selling about 10% of equity shareholding of RCOM to SSTL. Following this acquisition, according to the company, “RCOMs Spectrum portfolio is enhanced by 30 MHz of superior 800/850 MHz spectrum valued at Rs.7,400 Crore as per latest auction prices. This will also result in extension of the validity of RCOM’s spectrum portfolio in the 800 / 850 MHz band in eight important Circles (Delhi, Gujarat, Tamil Nadu, Karnataka, Kerala, Kolkata, UPWest and West Bengal) by a period of 12 years”, from 2021 to 2033
  • Merger with Aircel collapses: RCOM’s merger with Aircel fell through. The two companies had signed binding agreements in September 2016. “Legal and regulatory uncertainties and various interventions by vested interests have caused inordinate delays in receipt of relevant approvals for the proposed transaction. The 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. As a result of the various factors aforesaid, the merger agreement has lapsed.”
  • Telecom business not shutting down: following a news report which said that RCOM will shut down most of its mobile business by November 30th 2017, the company told the stock exchanges that it has decided to “adopt a 4G-focussed strategy for profitable growth of its wireless business. Accordingly, RCOM will be optimizing its 2G and 3G footprint, and related infrastructure and human resources, with effect from 30 November 2017. The Company’s 4G-led strategy will be executed, as at present, on the back of capital-light access to India’s most extensive 4G mobile network, through already operational spectrum-sharing and ICR arrangements with Reliance Jio.
  • Tech Mahindra’s insolvency case filed, withdrawn: Tech Mahindra had filed cases under the Insolvency and Bankruptcy Code (IBC) against RCOM, and its subsidiaries Reliance Telecom and Reliance Big TV, with the National Company Law Tribunal (NCLT) for non-payment of dues. According to the petition, RCOM owes Tech Mahindra Rs 3.6 crore, Reliance Telecom owed Rs 3 crore, and Big TV owes Rs 1.5 crore. This case was subsequently withdrawn, in favor of an out of court settlement.

Focus on B2B business at RCOM

RCOM says that a “strategic transformation” of the business is underway, and post the sale of assets, “New RCOM” will have a “sustainable level of debt”. Apart from that, it says that “Significant Interests have also been received from strategic investors for stake in New RCOM.”
So what is New RCOM? The company is looking at itself as a B2B business, which will have Enterprise, Carrier, Internet Data Centre and global submarine cable network spanning continents. It says that these B2B businesses are “stable, capital-light with sustained and predictable annuity revenues and profits, and immense growth potential amidst low
competitive intensity. These businesses generate equal revenues from domestic and overseas operations.”

Last available metrics

As per the latest TRAI report, RCOM had 77.25 million connections, of which 60 million were active. Active connections were down 4% month on month.

Note that RCOM did not reveal subscriber numbers or usage metrics in this quarter, like in the last quarter. We have the following data from Q4-FY17:

  • Mobile broadband (3G + 4G) connections: 20.8 million in last quarter Q4FY17, down 11% QoQ from 23.4 million in Q3FY17.
  • Drop in Internet subscribers: RCOM lost 3.7 million mobile Internet subscribers during the last quarter, 3.1 million mobile Internet users in Q3FY17, and another 3.8 million data connections in Q2FY17 as the company switched off CDMA services.
  • Data usage: Total mobile data traffic generated on RCOM’s network was 79.55 billion MB during Q4FY17, down 15% QoQ from 104.8 billion MB in Q3FY17. Data usage per customer also decreased to 880 MB from 931 MB per data customer during the period.
  • Average revenue per user (ARPU): Rs 141 in Q4FY17, down significantly from Rs 154 in the Q3FY17.

Financials: Release / Financials