Project Report on Reliance Communications-Strategic Management Topic
Case Study on Financial and Strategic Analysis of Reliance Communications
Research Proposal on Reliance Communications-Strategic Management Topic
SWOT ANALYSIS OF RELIANCE COMMUNICATIONS
Strengths
Reliance
Communications
|
Company
Performance
Financial Data:
Operational
Indicators
Company Address
|
- Fully integrated service provider offering local (fixed wireless), mobile, long-distance and internet services, and IPTV
- India's second-biggest wireless operator, having surpassed the 117mn subscriber mark by the end of September 2010
- Strong net profit growth driven by increases in its mobile subscriber base
- Migration to increased prepaid usage has an impact on ARPU and non-voice revenue size
- GSM customer base still low, at just less than 17%, but this is likely to change as Reliance invests in its GSM network
- Deployment of FLAG and FALCON cable networks gives the operator a global presence
- High-speed mobile network enables significant value-added revenues from mobile content
- Approval for nationwide GSM services gives Reliance the opportunity to extend GSM subscriber base
- Need to invest heavily towards expanding in rural India could impact profitability and create a need for network-sharing agreements
- Investment necessary in extending GSM network could hit profitability in the short term
- Vodafone Essar continues to grow its subscriber base and, with its investment programme, could soon catch up with Reliance
India's Reliance Group operates throughout the country and across the
spectrum of wireless, wireline and long-distance voice, data, video and
internet communications services. Reliance also has an international presence
via its submarine cable network infrastructure, which connects 40 countries
from the US to Europe, the Middle East, India, South East Asia and Japan.
The operator is split into three business units, namely Wireless, Global and
Broadband. Reliance offers wireless services through its CDMA (20 circles) and
GSM networks (eight circles). In 2009, the carrier also announced the launch of
a pan-India GSM network.
Reliance's Global Unit offers national and international long-distance
calling services, mainly on a wholesale basis. The operator has some retail
services with a significant ILD business in the UK, Canada, the US, Australia
and New Zealand. The operator's managed network services are available in more
than 40,000 locations across 163 countries. Reliance also owns 22,000kms of
metro fibre network in the US in 14 metros, allowing the company to offer its
customers seamless end-to-end connectivity to these key business markets.
Within India, Reliance is also a significant broadband operator, offering enterprise
voice, data, video and internet services.
In August 2008, Reliance launched nationwide satellite TV services under its
wholly owned subsidiary Reliance Big TV Limited. These services are available
on the DTH format to consumers in India. Reliance Big TV is available at more
than 100,000 outlets across 6,500 towns in the country. At the end of December
2010, it reported having 3.3mn subscribers, representing 11% of India's DTH
market.
Recent Financial Results
Reliance Communications reported total revenues of INR50.041bn in the three
months ended December 2010, a decrease of 2.2% q-o-q and 5.8% y-o-y. Mobile
revenues had a similar weakness over the quarter to reach INR40.644bn, down
from INR41.613bn in September 2010. Perhaps more worryingly, its quarterly
churn rate increased by 5pps to 4% in December 2010. Meanwhile Reliance
Communications' blended ARPU fell by 9% q-o-q and 25.5% y-o-y to INR111, which
partially offset the net addition of 8.315mn subscribers that brought the
operator total to 125.652mn in December 2010. Net profit increased by 7.7%
q-o-q to INR4.803bn, which was the strongest result in 2010. However, this was
down 56.6% from December 2009 and 65.9% from December 2008.
Reliance Communications' other business segments did not fare significantly
better, which contributed to the overall decline in its total revenues.
Revenues from the broadband business division fell to INR6.184bn in December
2010 from INR6.617bn in the previous quarter. Other revenue sources also posted
weaker performances and posted a total of INR3.106bn, a 22% decline from
September 2010. Reliance Communication's global business was the only segment
to report growth after registering a 4.6% q-o-q increase to INR19.233bn.
In the quarter ended September 2010, Reliance Communications posted
consolidated revenues of INR51.183bn, an increase of 0.2% from the previous
quarter, while mobile revenue saw a similar growth to INR41.613bn. Although
Reliance's blended ARPU continued to trend downwards to INR122, down from
INR130 in the previous quarter, and net additions also came in weaker at 6.531,
compared to 8.384mn, the operator posted a net profit of INR44.592bn. This was
a significant improvement from the previous quarter net profit of INR2.509bn,
largely due to lower financial charges.
Although wires revenue increased to INR41.613bn in September 2010, an
increase from INR40.100bn in the previous year, the operator posted lower
revenues for its global, broadband and investment segments. Income from
operations fell by 10.2% to INR51.183. Meanwhile, all of Reliance's business
segments reported lower net profits, with its wireless business revenue
declining by 30.4% to INR7.135bn. Similarly, broadband revenues fell to
INR1.263bn, a decrease of 38.4% y-o-y.
Ownership
In June 2010, Reliance was reported to be in talks with South African
telecoms company MTN on a deal to create one of the world's 10 largest telecoms
companies, worth an estimated US$70bn and with 116mn subscribers worldwide. The
talks were said to have begun in May 2010 after rival Indian operator Bharti
Airtel dropped out of negotiations with MTN. However, there is some confusion
surrounding the alleged talks, which have been denied by MTN and which would
have to be approved by South Africa's regulatory authorities before being
allowed to proceed.
Reliance first initiated tie-up talks with MTN in 2008 in what was
ultimately a thwarted deal. Meanwhile, Reliance confirmed in June 2010 that the
company's board had approved selling up to a 26% stake to strategic or private equity
investors. The cellco did not give any timeframe or details for a possible
deal, but according to Reuters, the UAE's Etisalat, MTN and AT&T are
potential partners. As noted above, MTN has publicly denied that it is in talks
with Reliance. Meanwhile, AT&T declined to comment on the rumours. Reliance
-- the only major Indian wireless operator without a foreign partner -- is
believed to be keen on selling the stake to help address its net debt, which
stood at INR199bn (US$4.2bn) at the end of March 2010. In February 2010, the
operator paid INR85.85bn to purchase 3G mobile concessions.
Wireless Network Development
In August 2008, the TRAI ordered the incumbent Indian GSM operators,
including Bharti, IDEA, Vodafone, Spice and state-controlled BSNL, to provide
interconnection with Reliance Communications' new GSM network. India's leading
GSM operators had been trying to delay interconnection, claiming that they need
to negotiate separate commercial agreements with Reliance, as their existing
interconnection agreement only covers its CDMA network. The regulator rejected
these reasons and has threatened to seek criminal proceedings against the GSM
operators if they did not interconnect with Reliance as ordered. The regulator
can levy fines of US$4,600 per day until compliance is reached. The TRAI
subsequently announced that all of India's GSM operators had signed an
agreement with Reliance to resolve all pending issues related to
interconnection.
For the financial year ending March 2009, Reliance planned to invest US$6bn
following up on its network roll-out plans. As part of its investment pledge,
Reliance planned to expand its network to cover every Indian town with a
population more than 1,000.
In another innovative move, there are suggestions that Reliance is aiming to
become a global MVNO platform, creating a single network across some 60
countries. It is in discussions with several operators over the possibility of
renting capacity from Reliance's network.
In February 2009, it was reported that Reliance was planning to launch a
rural version of its Net Connect wireless internet service. The service, which
uses the operator's CDMA network to provide internet access at speeds of up to
144kbps, is currently available in more than 20,000 towns, with prices starting
at INR650 (US$13.28) per month. It plans to offer the rural service at about
INR500 per month. Reliance will partner with Huawei for the roll-out.
In March 2009, Reliance announced the launch of a new wireless broadband
service, which it claims will be the fastest in India to date. The new service,
marketed under the Reliance Netconnect Broadband Plus banner, is based on CDMA
technology, and it will provide downstream speeds of up to 3.1Mbps and upstream
speeds of up to 1.8Mbps. Initially it will be available in 35 cities, including
Guntur, Hyderabad, Kakinada, Bangalore, Mysore, Mumbai and Delhi. The operator
said that it expects ARPU from the new service to be approximately INR600-850
(US$11.44-16.21) per month; ARPU on Reliance's existing wireless internet
offering, Reliance Netconnect, is reportedly between INR500 and INR800 per
month. The new broadband connections will cost between INR299 and INR1,750 per
month.
In September 2009, Reliance announced plans to revive the IPO of its towers
unit and could raise US$900mn for a 10% stake. Reliance Infratel, operating
more than 48,000 telecoms towers, is to file an application with the country's
capital markets regulator. However, these plans were shelved after Reliance
agreed to merge with GTL Infrastructure.
That said, the mobile tower deal between Reliance and GTL collapsed after
both parties failed to reach an agreement on terms. The deal would have reduced
Reliance's debt by US$3.9bn and created a company with 80,000 towers and an
enterprise value of US$11bn. The company has been unsuccessful in selling its
26% stake in order to reduce its debt burden but it was reported by the Economic
Times that Reliance could raise up to US$500mn by selling bonds through
Reliance Globacom.
In January 2011 Reliance Communications was reportedly in talks with three
operators to establish a 3G roaming alliance. Local rivals such as Bharti
Airtel, IDEA Cellular and Vodafone Essar were finalising a strategic agreement
to offer 3G services on a pan-India level bar Odisha state.
Wireline Network Development
I
n February 2007 Vodafone unveiled a high-growth five-year strategy for
India, which involved bringing ultra-low-cost handsets and wireless
connectivity to rural India as well as contributing to community development.
Vodafone has made the availability of low-cost handsets a core part of its
Indian strategy. Its basic thesis is to make mobile telephony more affordable
to more Indian consumers. It is able to capitalise on its position as a major
international company in order to do this. The operator is also channelling
several billion dollars of investment into rural India on the back of
network-sharing agreements with operators such as Bharti Airtel and IDEA
Cellular.
The Reliance network encompasses 24,000 towns, 600,000 villages and all
major railway routes and highways, which cover 90% of the country's population.
The national inter-city long distance network consists of more than 160,000
route kilometres of ducted fibre-optic cables. The entire inter-city and metro
fibre optic backbone network is deployed in a 'ring and mesh' architecture and
is MPLS-enabled. The Reliance Data Network has more than 180 MPLS integrated
network nodes.
In a further investment plan, Reliance announced it will inject US$500mn in
the building and acquisition of WiMAX networks across Asia, Europe, Latin
America and Africa, as part of its purchase of eWave World, a London-based
operator with WiMAX licences in several countries. It hopes to launch services
in another 30 countries by 2012 (eWave already serves 20 countries).
The operator has already outsourced the management of its wireless networks,
having inked a deal with Alcatel-Lucent Managed Solutions in July 2008; RCOM
holds approximately 33% of the joint venture (JV). In the initial phase of the JV,
between July 2008 and September 2008, it handled CDMA and GSM operations and
maintenance for five circles for RCOM. In the second phase from October 2008,
RCOM handed over the rest of India's operations. Within its first year of
operation, it claims the JV has achieved operational cost savings of between
20% and 25%.
In July 2009, Reliance revealed that it was considering outsourcing the
management of its fixed-line and broadband services as it looked to cut costs.
It is believed that the operator could finalise a contract for the outsourcing
within the next three to four months, with any deal worth more than an
estimated US$1bn. Commenting on the possible course of action, Sandip Biswas,
head of managed services at RCOM, said: 'We want to outsource the management of
our optic-fibre, broadband and fixed line services. We are in discussions with
interested parties and should be able to finalise it in the next three months'.
In May 2010, India's Economic Times newspaper reported that RCom was set to
launch IPTV services in Delhi and Mumbai within the next three months. The
newspaper cited comments made by RCom's CEO (DTH and IPTV) Sanjay Behl. 'We
plan to start our proposed IPTV service initially in Delhi and Mumbai in the
next three months. In the second phase we also have plans to introduce it in
six other cities', Behl said.
Strategy
Like Vodafone, Reliance has pursued a strategy that seeks to expand mobile
telephony within rural India using low-cost handsets and flexible prepaid
tariffs. It, too, has been implementing a major network expansion programme
that seeks to combine the benefits of both GSM and CDMA technologies. Reliance
is looking to challenge the dominance of state-owned BSNL in rural regions,
with the company stating it aims to capture 30% of the rural internet
subscriber base within one year.
Like its major rival Bharti, Reliance also has ambitious plans for Sri
Lanka. In April 2008, it was reported that Reliance had formed a joint venture,
named Reliance Mobile Lanka, with local firm Electroteks. The company intended
to start offering GSM services in Sri Lanka before end-2008.
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