RCom: The fall of a telecom giant
In 2002 when mobile telephony was nascent and new, Reliance Communications RCom, then known as Reliance Infocom and founded by Mukesh Ambani, created a revolution in the telecom space In those days, both mobile phone tariffs as well as handsets were expensive when compared to the income levels It may come as surprise for some, but incoming calls also used to cost a bomb in the early days of mo
In 2002 when mobile telephony was nascent and new, Reliance Communications (RCom), then known as Reliance Infocom and founded by Mukesh Ambani, created a revolution in the telecom space. In those days, both mobile phone tariffs as well as handsets were expensive when compared to the income levels. It may come as surprise for some, but incoming calls also used to cost a bomb in the early days of mobile telephony.
Reliance Infocom changed the rules of the game by rolling out nationwide network one go and offering mobile handsets on instalments. At that time, the total investment done by the telecom company was pegged at Rs 30,000 crore. Post the entry of Reliance, the usage of mobile phones increased by leaps and bounds.
Three years later in 2005 when billionaire brothers Mukesh Ambani and his brother Anil Ambani split Reliance Group between them soon after demise of their father, Reliance Communications went to Anil and it continued to grow. During its heydays in 2010, RCom enjoyed a market share of 17 per cent and ranked second among telecom companies in India with a staggering market capitalisation of Rs 1.7 lakh crore.
Interestingly, RCom’s dream run ended in 2016 when Mukesh Ambani created tsunami in the telecom sector by launching Reliance Jio with latest technologies and dirt-cheap tariffs. Once a shining star in telecom sector, RCom landed in financial mess as debt ballooned to unmanageable level of Rs 45,000 crore. As consequence, the telecom major defaulted on repayments and reached a stage where it could not even clear vendor payments.
Swedish telecom equipment major Ericsson knocked at the doors of Supreme Court last year, seeking arrest of Anil Ambani as RCom failed to clear its dues totalling Rs 550 crore. However, Anil tried to salvage the company and his image by signing a deal with his brother for selling RCom’s telecom business. But the Rs 23,000-crore deal, touted as lifeline for Anil, got stuck in the spectrum payments controversy, forcing the Department of Telecommunications (DoT) to reject it.
With all doors shut, RCom filed for bankruptcy last week. The telecom major said that it would seek fast-track resolution through National Company Law Tribunal (NCLT), which deals with bankruptcy cases under Insolvency & Bankruptcy Code (IBC), to resolve its debt burden.
Following this, RCom share price went into a tailspin, falling 35 per cent on Monday and 28 per cent on Tuesday. The share closed at a paltry Rs 5.44 apiece on Tuesday. From the peak of Rs 1.7 lakh crore in 2010, RCom’s market capitalisation fell to a low of Rs 2,087 crore on Monday.
Not only that, shares of all other companies owned by Reliance Anil Dhirubhai Ambani Group (ADAG) nosedived to lifetime lows. But will NCLT be able to put RCom on right track? It’s very unlikely, given the debt burden. It is certain that RCom will slip into history and lenders may have to take a huge haircut on their loans. And future of Anil Ambani will not be rosy either.