Why Reliance Communication Filed For Bankruptcy; What Went Wrong?

Reliance Jio has recently filed a petition against the Reliance Communication tower unit in the bankruptcy court. The telecom operator wants disclosures of the audit reports of Reliance Infratel, as its accounts were addressed as fraudulent by some of the company's lenders.

"We want a copy of the forensic audit report disclosed to us so that we can make an assessment of how it will impact the resolution plan," said senior counsel Vikram Nankani who is representing Jio.

In its petition, Reliance Jio asked that why three banks addressed its accounts as fraudulent. Reliance Infratel is the tower unit of Reliance Communication. Notably, Infratel and Reliance Telecom are the two units of the RCom; however, both have been collapsed along with the parent company.

RCom Shut Down Its Business

Notably, Reliance Communication was forced to shut down its wireless business in 2017 due to its decreasing revenue and debt. For the unaware, Anil Ambani's net worth was $45 billion in 2007 and he used to have a 66 percent share in Reliance Telecommunications.

Furthermore, Reliance Communication used to have a 17 percent market share in 2010, but in 2016, its market share was declined to 10 percent. Besides, the debt of the company has been increased by many folds during the same period.

What Went Wrong With Reliance Communication

Reliance Communication had already announced financial bankruptcy; however, the main question comes here what exactly went wrong with Reliance Communication.

It is worth mentioning that debt, price wars, and declining profit affected the entire telecom sector. Similarly, the business of Reliance Communication has been affected, which is why the telco announced bankruptcy.

In May 2017, Ericsson filed insolvency petitions against Reliance Communication. The company filed three petitions in the Mumbai bench for recovery of Rs. 1,100 crores dues. Other than Ericsson, Reliance Communication has to clear Rs. 232 crores to some of the investors of its tower business. NCLT is also looking at the same matter.

RCom had already cleared Rs. 458.77 crores to the Ericsson. "Ericsson has received the payment along with up to date interest and it will accordingly be withdrawing the petitions filed for insolvency," said senior advocate Anil Kher representing Ericsson.

Reliance Jio Changed The Telecom Industry

As we all Reliance Jio has changed the entire telecom industry, which is why several telecom operators left the sector already. In fact, other telcos such as Airtel and Vodafone-Idea are also suffering because of Reliance Jio's affordable plans.

So, we believe that the cheap tariff packs of Reliance Jio are also the main reason behind telcos are filing bankruptcy and leaving the industry.