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RCom To Liquidate Cellphone Tower Business; Too Difficult To Recover Costs?
Reliance Communications, one of India’s select players to have both the GSM as well as CDMA mobile businesses is planning to sell-off its Cellphone access Tower business by next year. The company is presently sitting on a hefty debt pile of Rs. 35,000 Crores (USD 6,275 Million) & wishes to lighten the load. It would also have to worry about the forthcoming auctions for the spectrum allocation.
In a country just brimming with subscribers to mobile telephony, it is really hurting to know that companies have to resort to liquidation of assets to stay afloat. Recently, RCom cancelled its IPO plan for Rel Flag, a subsidiary which carries 12% of global data traffic. Interestingly, this IPO was not be dealt on Indian Stock Exchanges, but was to be hosted on Singapore Exchange. Reliance cited bad market conditions as the sole reason for the pull-out.
We tried to analyze the current Catch 22 situation that the telecom companies routinely find themselves in India. Owing to huge competition from multiple players, companies have to resort to cutting tariffs. Though this attracts customers in the short-run, it also means a huge cut in the profits. While operating & infrastructure costs continue to spiral upwards, the added burden of putting up serious sums of money for the auctions, literally burns the path to progress. No wonder, even other payers are bickering.
Not to mention, in the case of Reliance, the Department of Telecommunications (DoT) is already threatening additional punitive action. Even market leaders Airtel have had to face the music of the Indian economics where you have to play a very long-term game. Losses in the immediate present & future simply have to be borne quietly.
So what’s the way out? The industry is currently reeling under a massive debt of Rs 3.5 Trillion (US$ 6,27,577 Million). Hence the companies’ first priority should be improvement of services. A happy customer is also a paying customer. If these telecom giants continue to serve them better, the non-performing assets should start generating revenue, thereby lightening the debt burden. What do you think?
Image Courtesy | hbjcapital
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2012-09-05 10:57:45
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