THE FALL OF RCoM

“WHO HAS CREDITS ENOUGH IN THIS WORLD TO PAY FOR HIS MISTAKES?”
-EDWARD DAHLBERG

The above statement is very well said by an American novelist. Enormous amounts of credits are sometimes not enough to pay for the mistakes made in Business. The telecommunications firm named Reliance Communications which is associated with the ‘royal’ Ambani family also landed up in a similar situation. It was quite hard for anyone to digest the fact that such an iconic business firm reached a stage of bankruptcy!
Reliance ADA Group, initially founded under the name of Dhirubhai Ambani, holds its pride in providing many major services under its name, related to infrastructure, capital, health, entertainment, communications, etc. But this compounded business was split up into two, amongst his two children after his death. Out of these two divisions, the younger son, Anil Ambani got control over the Telecommunication business and named it as RELIANCE COMMUNICATION LTD (RCom).
RCom, very soon gained its place in the emerging industries as an efficient mobile network provider, under the guidance of Anil Ambani. Earlier Reliance Communications was founded as ‘Reliance Infocom Limited’ on 31 July 2002. Later, it became ‘Reliance Communications Limited’ on 15 July 2004.

HOW THEY MARKED THEIR ENTRY-

They made their presence felt in the market with nationwide CDMA services and further with the introduction of its GSM services. The company gained attention when it successfully launched a smart-phone in association with another firm. It expanded to obtain the emerging 3G and LTE spectrums. Further, it also ended its CDMA services by accommodating its users in the 3G and LTE services. These events show the rise of the enterprise in the telecom industry right from its birth to its peak. But within a short period, the tables turned, and it all went downhill for them so much so that they were unable to sell their assets to repay the debts they had accumulated by 2019.

THE GROWING MOMENTS-

In January 2016, RCom announced that it had acquired SSTL-Sistema Shyam TeleServices Limited (which operates as Mobile Telephone Service in India) in an all-stock deal, in which SSTL received a 10% share in RCom after paying off its existing debt. RCom assumed the liability for instalments that SSTL had to pay the government from purchasing spectrum. This deal gave significant momentum to their expansion as they gained MTS India’s subscribers and also SSTL’s spectrum in the 850 MHz band.
Similarly, Rcom acquired unlisted cable television service provider Digicable and created Asia’s largest triple play-digital TV, broadband and voice services provider. They decided to merge its direct-to-home services, internet protocol television services and retail broadband services with Digicable. The new entity named as Reliance Digicom was expected to start with a subscriber base of 11 million homes.

THE INITIAL HARD PHASES-

The other half of that same year didn’t turn out to be in their favour as they failed to accomplish their merger goals with Aircel. This deal, the largest consolidation till that time in the Indian Telecommunication history, would have produced the fourth largest mobile network provider in the country in subscribers and revenue. Both the partners had agreed upon to have equal stakes in the firm thereby, and also to have to equal representation on its board comprising the Directors and Committees. All the approvals came at the right moment along with the nod from the CCI. Also, the Reliance shareholders gave their consent to the merger, and the deal was expected to be completed by mid-2017.
Unexpectedly, RCom had to let the merger agreement lapse owing to delays caused by entrenched competitions. This deal was their way to get out of debts, but they were again forced to find an alternative to this.
As a result, Reliance had to discontinue its voice services and provide only the 4G data facility. And this unsuccessful event marked the beginning of the downfall of this firm.

THE ULTIMATE MISFORTUNE-

Earlier in 2013, RCom had signed a multiyear Managed Services Agreement (MSA) with Ericsson. As per the deal, Ericsson was entitled to manage services of wireline and wireless networks for Reliance Communications covering about one lakh kilometres of fibre and mobile infrastructure in many telecom circles which included the names of many metropolitan cities like Mumbai and Delhi.
Ericsson kept their side of the agreement for three years, but things were now about to go south for RCom. Reliance couldn’t clear the dues towards Ericsson which led them into terminating the MSA, and Ericsson accusing RCom to have breached the agreement. The Anil Ambani led firm landed themselves in hot soup when Ericsson approached the National Company Law Tribunal (NCLT) to recover their dues worth 1100 crores of rupees. As NCTL had started their legal proceeding owing to the petition filed by Ericsson, RCom gave them an upfront offer of Rs. 550 crore to make Ericsson withdraw the insolvency application filed by them.
Further, the issue sought legal proceedings at the Supreme Court, which set a deadline for RCom to pay the agreed amount. The Court finally found Anil Ambani along with three RCom companies to be guilty of contempt of Court for not complying to their given consent to settle dues before the fixed dates. They get a final date to clear their dues, along with a clause that failing to do so would result in his imprisonment for a term of 3 months.

“Family means no one gets left behind or forgotten.”
-David Ogden Stiers


Family always has your back. Fortunately for Anil Ambani, his elder brother Mukesh Ambani swooped in as his knight in shining armour. Mukesh Ambani paid Rs 580 crore to Ericsson, and Anil Ambani avoided imprisonment.


THE TOPIC CONTINUES…

His troubles didn’t end here, as the bailout given to him by his big brother accounted for just a small share of the overall debt of Reliance Group, which was pretty huge. RCom also defaulted on its deadline to pay India’s Department of Telecom (DoT). No solutions to all these issues have appeared on the horizon.
A ray of hope had emerged in December 2018, when Anil Ambani was on the verge of selling RCom’s tower, fibre and airwaves assets to his brother, Mukesh Ambani’s business, Reliance Jio Infocomm. This deal fell through because of the Department of Telecommunications objection that RCom still owed money to it. If this deal had gone through, Anil Ambani would have been able to raise $2.4 billion, which would have enabled him to keep his empire afloat for some more time.

THE CONCLUDING LINES-

These newer age businesses under the control of Anil Ambani could have made him the Big Man in this field provided he had not borrowed aggressively and in hindsight recklessly. It is believed that misfortune in the life of Anil Ambani started since 2010, following the scrapping of the non-compete agreement between the two brothers, which ensures that none of the sibling’s steps on to each other’s toes. This enabled Mukesh Ambani to enter into telecom industry and launch his telecom firm with the name Reliance Jio, which acquired a very good market share. This, along with cut-throat competition in the market and aggressive tariff war, made RCom close down their shutters. To think that this firm once held the second position in the market.

And so, this is how one of the biggest telecommunication firms in India went bankrupt.