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India Phone Cards News / India Telecom News
Reliance Infocomm faces rough weather

Date: 11/7/2007 2:51:52 PM

(New Delhi, May 15, 2005) Suddenly, it seems to be pouring on Reliance Infocomms party. It is testing time for Indias largest mobile operator in terms of number of subscribers. The financial projections go haywire. Lower than expected average revenue per user (ARPU) and a subscriber base falling short of projections resulted in the change in the company’s calculations. While the Government of India is looking into the issue of Reliance shares to ascertain whether any law has been violated in the allocation, Indian stock exchanges have asked the Reliance group companies to clarify on reports of the alleged settlement between the warring Ambani brothers, Mukesh and Anil, owners of the group. Whats more Cellular operators have urged the Telecom Regulatory Authority of India (Trai) that the regulator directs Reliance to “withdraw its predatory tariff plans”. Added to the woes, though a settlement between the Ambani brothers is happening, top and middle level executives of Reliance are facing the dilemma on which way to go. Financial Loss Lower than expected ARPU and a subscriber base falling short of projections resulted in the change in the company’s calculations. According to Reliance Infocomm’s projections for 200405 to 200708, which have been submitted to lenders, the wireless subscriber base is estimated to reach 13.58 million at the end of March 2005, 9.7 per cent lower than the earlier projection of 14.9 million. The new projection of 1.1 million wireline subscribers is a third of the earlier estimate of 3.46 million. The company had 11.25 million subscribers at the end of February 2005, of which 11.18 million were wireless subscribers. Reliance Infocomm’s average revenue per user from wireless subscribers is estimated to reach &7.7 at the end of March, twothirds of $11.6 anticipated earlier. For wireline subscribers, the $15.12 anticipated average revenue per user at the end of March 2005 is 72 per cent of the original estimate. As a result, the company’s total revenue projection of $1.57 billion at the end of March 2005 is nearly 47 per cent short of its earlier estimate of $2.95 billion. Reliance Infocomm is closing the financial year 200405 with a net loss (of almost $51.86 million, according to a source inside), against the $543 million net profit estimated earlier. Governemt asks to clear the air Indias Stock Exchanges have asked the Reliance group companies to clarify on reports of the alleged settlement between the warring Ambani brothers, Mukesh and Anil. Newspaper reports said a patchup was around the corner, with Mukesh getting flagship company Reliance Industries Ltd (RIL) and his younger brother Anil Reliance Infocomm, Reliance Energy and Reliance Capital. The spokespersons of the companies headed by the two brothers said they were unaware of the veracity of the reports and declined to make comments. Neither camp commented on the settlement process or its status. Meanwhile, the Government of India is looking into the issue of Reliance Infocomm shares to ascertain whether any law has been violated in the allocation of 0.23 million shares to three firms apparently at the rate of Rs 1 (US 2 cents) each, Finance Minister P Chidambaram said. We are looking to see if any law has been violated in the allocation of shares. The enquiry is not over. We will continue to look into it, he said. Chidambaram said according to information furnished by the Ministry of Company Affairs, three unlisted companies held shares in an unlisted public limited company Reliance Infocomm Limited. Unlisted companies did not fall under the purview of Sebi as they are not governed by Sebi he said and added the Board of Governors of the company was free to allocate shares to anybody. But, if it has violated any guidelines prescribed by Trai, it was for the Communication Ministry to ascertain. The way to go With possibilities of a settlement between the Ambani brothers Mukesh and Anil on the anvil, top and middle level executives of Reliance Infocomm are facing the dilemma on which way to go. A number of executives have been approached by both the camps with offers to join them after the settlement is reached, informed sources in the Reliance Infocomm, headed by Mukesh, said. When contacted some of the executives in various cities said that they have been getting offers to decide as to which brother they would like to work with in case Infocomm goes to Anil as part of settlement of ownership issue in the over $21 billion Reliance empire. These executives are being suggested that they continue with Reliance Infocomm even if the company goes to the younger brother as the differences between the siblings would not come in the way of professional management of the group companies. On the other hand, some executives have been approached to join RIL to work on the flagship companys new business venture of retailing of petroleum products through petrol pumps, they said. Reliance Infocomm spokesperson could not be contacted for comments. Cell players cry foul Cellular operators have urged the Trai that the regulator directs Reliance Infocomm to “withdraw its predatory tariff plans”. This is because the cellular operators Reliance Infocomm’s tariff plans violate the Trai’s orders, the operators have said. In a letter to Trai, the Cellular Operators’ Association of India (COAI) said ‘Plan 700’ of Reliance Infocomm offered unlimited talktime to Reliance phones across India, and ‘Plan 435’ offered unlimited talktime across Chennai, Kolkata and Mumbai, in violation of the regulator’s 33rd Amendment to TTO 1999. “It is submitted that these tariffs are predatory as the same tariffs and rates are not transparently available to the other access providers, who are its (Reliance Infocomm’s) competitors. We believe that by offering such tariffs, Reliance Infocomm is squeezing the margins of it competitors as it has lowered its retail tariffs of competitive services in the downstream market whilst not extending this facility to its competitors for wholesale prices (carriage charges) in the upstream market,” the letter said. “We hereby seek intervention of the Trai to direct that the predatory tariff plans are immediately withdrawn,” the letter added. When contacted, Reliance Infocomm executives refused to comment. Reliance operates in CDMA while the COAI members are offering GSM service. Although the Trai had earlier clarified that that vertical price squeeze was a recognized anticompetitive practice, it had also said if the retail price was lower than the (wholesale) price offered to operators, it would intervene as such vertical squeeze unfairly limited competition. Blow from tribunal and regulator TDSAT, the telecom sectors quasijudicial dispute settlement and appellate tribunal, recently threw out Reliance Infocomms case challenging the penalties slapped on it by stateowned telecom giants BSNL and MTNL. TDSAT also ordered Reliance Infocomm to pay $34.9 million, at the maximum possible rate of $11.63 million per circle for the three circles of Chennai, Mumbai and Kolkata. The money has to be paid within 15 days to the government. The TDSAT judgment is also a blow to the stance taken by telecom regulator Trai, which had argued that ADC violation was outside its jurisdiction and refused to investigate the case. However, the TDSAT judgment takes the wind out of this position. TDSAT says that RIC breached interconnect regulations. Interconnect lies squarely in the Trais jurisdiction. TDSAT has also said that there was a total breach of license conditions. Section 11 of the Trai Act says that one of its jobs is to ensure compliance of license conditions and investigate lapses. Creditworthiness and credit line Reliance Infocomm drew its first instalment from a $750 million loan facility provided by ExportImport Bank of the United States and Export Development Bank of Canada (EDC) during March last week. The loan facility that Reliance negotiated in December last year is the largest telecom installations loan for any company worldwide in 2004. While EXIM Bank of US has guaranteed $500 million, EDC has given a direct loan of $250 million, according to a release issued by international firm Milbank which represented both financial institutions. Having successfully met all conditions to borrowing, Reliance Infocomm drew down its first funds last week from a $750 million facility provided by EXIM Bank of US and EDC, the release said. It did not, however, mention size of the first installment. The loan supports purchase of telecom equipment from Lucent and various Canadian exporters, including Nortel. The financing, which was arranged by Citigroup Global Markets, will be used by Reliance for installation, operation and development of its mobile telecommunications network over substantial part of India and rollout of its broadband services. Meanwhile, saddled with huge bad debts, Reliance Infocomm has decided to disconnect 930,000 postpaid customers across the country, sources familiar with the development said. The drastic step to cut off nearly 10 percent of its subscriber base is the result of an exercise in recent months to strictly enforce customer creditworthiness and subscriber data verification parameters, the sources said. The company has sought to clean up its creditunworthy base once and for all in the new financial year. However, a Reliance Infocomm spokesperson has declined to comment. The company will now upgrade or downgrade the creditworthiness of a customer based on payment schedule. Asked how the mobile instrument would be retrieved, sources said the company has appointed a battery of lawyers to fight its case. Explaining the rationale, sources said, This is a standard practice followed by telecom operators the world over. For several months now, the company has been reviewing its credit policy for customers and has decided to part ways with the chronic defaulters. Reliance Info has also instituted very stringent address verification norms before new connections are issued, sources added. Expansion drive Amidst all problems, Reliance Infocomm Ltd plans to expand its network to tap galloping demand in the worlds fastest growing major wireless market. Reliance Infocomm, 45 per cent owned by Reliance Industries Ltd, started offering wireless services in 2002 and has a presence in 1,850 towns and cities and 75,000 villages in the worlds second most populous nation. Reliance Infocomm plans to cover 5,700 towns and cities and we should be there by the last quarter of this year, Kamal Nanavaty, chief operating officer of the Bombaybased firms wireless business, stated recently. By March 2006 we should be at 20 million. Reliance Infocomm aims to use wireless technology to provide education, healthcare and access to agricultural information in Indias villages, besides helping people to stay connected.

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Source: http://www.indiatelecomnews.com/newdetails.asp?newsid434


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