Ambani, younger brother to Mukesh Ambani — the chairman of Reliance Industries — said the mobile telephony business had changed into a new beast, and that this new beast was something that cannot be tamed by just anybody.
As such, Reliance Communications — one of India’s oldest telecom brands — is ending its consumer mobile business.
He said the consumer business has become more cash hungry, and the hunger for currency can only be met if one has a pipeline direct from the Reserve Bank of India’s printing press.
“We have to realize the technology evolution, the very large capital expenditure that is required on a daily basis,” he said, explaining the move.
“A new village, a new college, a new shopping mall means more network, more fiber etc. etc. So you are on a perpetual treadmill. Capex (capital expenditure) never ever stops, it’s everyday.”
Because it’s become a perpetual investment business, there wasn’t enough space for many players at the table, he said.
“You’ve got to be really geared in terms of your cash flows, your balance sheets, your financial structure to (keep investing). The shrinking of the mobile landscape is a clear signal that this is something which is not for 10 players to enjoy.
“This is more for 2,3,4 players to enjoy: Those who have either unlimited amount of money or those who have the ability to raise unlimited amounts of money… staggering amounts of money. That’s the way I look at the landscape going forward.”
The statement is a rather dramatic admission by one of India’s richest persons, and is the latest indicator of the upheaval caused by the entry of his richer sibling, Mukesh Ambani’s entry into the space.
When Jio went live, it is estimated to have started off with more data carrying capacity than all other players combined.
This was followed by a crashing of telecom data prices from about Rs 220 per GB to about Rs 6 per GB in a year, causing massive upheaval in the market.
Besides Reliance Communications, players such as Telenor, Tata DoCoMo and Aircel have either partly or fully shut down or sold off their businesses since the elder of the two siblings came in with his ‘Jio’ brand of services.
NEW RCOM SCHEME
Anil Ambani had made his previous comments about the emerging monopoly when it was becoming increasingly clear that his grand scheme of merging his business with two of his rivals may not work out.
Subsequently, in November, Ambani announced a new plan involving selling some, but not all, the assets of his consumer-facing business including towers, telecom spectrum, real estate and fiber optic networks.
In the scheme, he promised to raise about 17,000 cr by selling some of the infrastructure and an additional Rs 10,000 by selling real estate. In turn, the banks were expected to ‘convert’ about Rs 7,000 cr of their into shares in his company.
In his scheme announced today, he raised the amount he was raising from the sale of his equipment and assets to 25,000 cr from Rs 17,000 cr in November. Combined with the proceeds of around Rs 10,000 cr from the sale of his real estate assets, he would generate enough money to pay off most of his debt.
With about 35,000 cr of debt paid, his company will be left with only about Rs 6,000 cr in debt, and the banks and investors who lent him money would be paid in cash, not shares, he added.
The total exit from the consumer-facing business of RCom seems to be the price that he is ready to pay for the new scheme.
“RCom is going to be transformed to a b2b business,” he said,”90% of the revenue (of the new entity) is from annuities.”
He also seems to have given up on his plans to offer 4G services to retail customers using RCom’s sharing agreement with Reliance Jio.
A previous spectrum sharing agreement gave RCom the right to use Jio’s network to provide LTE services to millions of its own customers. Under the new scheme, the sharing agreement will be used to round out the enterprise offering, rather than to offer 4G services to individual customers.
“We have the 4G agreement with Reliance Jio to offer any form of wireless solutions to our enterprise customers,” Ambani said.
He also said that the new RCom — which will have a global submarine cable division, an India datacenter division and an enterprise connectivity division — has also got proposals from nine strategic investors for acquiring a stake in the company.
These players have indicated an enterprise value of around 15,000 cr for the company, he added.
The entry of a new strategic investor “will take it to the next stage,” he added.
RCom shares have doubled over the last one week or so in anticipation of the new restructuring deal. From Rs 11.85 on Monday, Dec 18, they’ve risen to Rs 23.00 at the end of trading today.
You can also read the full RCom announcement.