Profit Maximizing Strategy for RCom

I am not here to argue whether the report of VERITAS is right or not! But I feel that the clock is ticking for a company which has a huge respect in the world of business, not only India but also the whole world. Somehow I feel that there has to be a turn-around strategy for this company, and it is now. Please read on!

 

RCom or Reliance Communications has reported a 3% rise in its quarterly profit. Its consolidated net profit rose 3.2% to Rs 162 crore for its quarter ended June, from Rs 157 crore a year earlier. Revenue rose an annual 8% to Rs 5,319 crore.

 

Let us see the facts first. Given below are the facts and the analysis following the facts, which is some way of analysing and recommending more areas!

  1. Reliance Communications (RCom) announced 61% slashing of 3G rates across 13 circles in 333 cities. RCom’s 3G services users will have to pay Rs 250 for high- speed internet usage up to 1 GB and then have to pay 20 paisa for each MB data used.

Analysis: How far will the slashing of prices give credibility in the market for better subscription is a question? Will it entice customers with a CDMA or an Android against a better experience of GSM handsets? The CDMA gets more heated with data transfer services, but I guess that RCom will have to devise a method to fan out heat during talk time or long hours. Google has just joined the bandwagon, but I guess that it will take 5-6 years’ time to break even in profits in the Indian scenario.

  1. The company’s current debt to equity ratio is 1.1 against 0.9 a year ago.

Analysis: The company has taken monetary resources from foreign players. Now, is it just to open FDI in telecommunications to the next level, only for RCom so that the cash inflow is made sure?

  1. RCom partnered with Google to promote android devices in India for the next two years. The deal is expected to boost data consumption and its non-voice revenues even further.

Analysis: This is definitely a good move by RCom. But will the expectations be met? Will RCom start again with bidding in the auctions for the GSM bandwidth and develop dual-sim handsets with CDMA and GSM both. I guess that the irate of Google will have to be reckoned with. But there needs to be a standard paradigm shift in realizing that RCom has a better future in GSM in India.

  1. Of over 152 million users, less than 70% are said to be active (going by the latest report of industry regulator TRAI). In comparison, the active subscriber base of RCom’s closest peers Idea Cellular and Bharti Airtel is over 90%.

Analysis: This might mean that the user experience is not that good. The opportunity cost is low for RCom and the switching costs are low to another technology or carrier.

  1. RCom is planning a public listing of its Singapore-based sub-sea telecom infrastructure business. It is also planning a strategic stake sale of its tower business to deleverage its balance sheet.

Analysis: This is not the time for more doing public listing. RCom should wait at a peak period when the profits have been realized at the level of 10% for RCom India at least and the debt-equity ratio is less than 0.7 at least in RCom India.

  1. RCom has a debt of more than Rs 35,600 crore and it has barely managed to narrow down its losses in the first quarter this fiscal.

Analysis: This might mean substantial investment in the network and infrastructure. This has to be done in the GSM network rather than the CDMA. The investments should be limited till the profits are raised till 5% quarter on quarter.

  1. Five years from now, data business will be Rs 37,000 crore, about 20% of the Rs 1,85,000 crore market.

Analysis: This implied a huge opportunity for RCom: The core services. Instead of reacing to customers with bundling, RCom should cater to the core data offering first.

  1. RCom plans to increase its revenue from data business to Rs 9,000 crore from Rs 1,400 crore at present in the next 5 years, he said. It will invest Rs 1,500 crore in network optimisation and data services this fiscal.

Analysis: This is a very good move. Given the operation optimization of the other players, RCom should work out to draw maximum profits after proper R&D.

  1. Since RCom tied up with Android, around 3,000 handsets get on board RCom’s network everyday compared to 800 before the tie-up. The new focus on devices comes on the back of its successful tie-up with Google.

Analysis: Again, this is just a tip on the ice-berg. More will follow. CDMA is best drawn with the USA and other advanced countries in technologies. How far will this partnership succeed is a question!

  1. RCom has also created a specialised vertical and an exclusive sales team for data and devices that will take its dongles, tablets and handsets to the market through 1.5 lakh dedicated retail outlets.

Analysis: Very good move this is. I think that an effort on sales has to be concentrated on those areas where the sale is maximum. No point in maximizing efforts with less sales, and not-so-good network.

 

 

References: 1. More Speed for RCom 2.  Pluses and Minuses for RCom

 

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