OVERVIEW: voice connectivity, and through our subsidiary,

OVERVIEW:
Reliance Communications Limited is the flagship Company of Reliance Group, one of the
leading business houses in India. Reliance Communications is India’s foremost and truly
integrated telecommunications service provider. The Company has a customer base of over
95 million including over 2.6 million individual overseas retail customers. Reliance
Communications corporate clientele includes over 39,000 Indian and multinational
corporations including small and medium enterprises and over 290 global, regional and
domestic carriers. Reliance Communications has established a pan-India, next generation,
integrated (wireless and wireline), convergent (voice, data and video) digital network that is
supporting best-of-class services spanning the entire communications value chain, covering
over 21,000 cities and towns and over 400,000 villages. Reliance Communications owns and
operates the world’s largest next generation IP enabled connectivity infrastructure,
comprising over 280,000 kilometers of fibre optic cable systems in India, USA, Europe,
Middle East and the Asia Pacific region. We are a leading integrated and converged
telecommunications operator in India, and through our international subsidiaries, are one of
the leading global data communications service providers. In India, we own and operate a
nationwide telecommunications network to offer services to retail and enterprise customers,
including mobile and fixed-line services, national and international long-distance
connectivity, broadband services and enterprise solutions. Internationally, we provide retail
and wholesale voice connectivity, and through our subsidiary, GCX, we provide a wide range
of products and services to allow enterprise customers to create, manage and connect global
data networks. We also operate large telecom infrastructure facilities through our ~43,000
telecom towers and nationwide OFC network of ~1,90,000 Kms. We have established a panIndia,
integrated (wireless and wireline) and convergent (voice, data and video) digital
network capable of supporting services spanning the entire telecommunications value chain,
and covering over 21,000 cities and towns and over 4,00,000 villages.
The Company offers 2G, 3G and 4G wireless services and wireline services in India. We
offer Gold Standard 4G services on a Pan India basis on technologically superior
800/850MHz spectrum band, best suited for indoor experience where most of the data is
consumed. We provide 3G services in 18 Circles including in five circles through ICR
arrangements
RELIANCE
COMMUNICATIONS LTD.
CORPORATE GOVERNANCE:
The Company has adopted the “Reliance Group-Corporate Governance Policies and Code of
Conduct” which sets out the systems, process and policies conforming to the international
standards. The report on Corporate Governance as stipulated under Regulation 34(3) read
with Para C of Schedule V of the Listing Regulations is presented in separate section forming
part of this Annual Report A Certificate from the auditors of the Company M/s. Pathak H.D.
& Associates, Chartered Accountants and M/s. BSR & Co. LLP, Chartered Accountants
conforming compliance to the conditions of Corporate Governance as stipulated under Para E
of Schedule V of the Listing Regulations, is enclosed to this Report. Vigil Mechanism In
accordance with Section 177 of the Act and the Listing Regulations, the Company has
formulated a Vigil Mechanism to address the genuine concern, if any of the directors and
employees. The details of the same have been stated in the Report on Corporate Governance
and the policy can also be accessed on the Company’s website.
Reliance Group continually reviews corporate governance best practices to ensure that they
reflect global developments. It takes feedback into account, in its periodic reviews of the
guidelines to ensure their continuing relevance, effectiveness and responsiveness to the needs
of local and international investors and other stakeholders.
• Code of Conduct:
Our code of conduct and business policies encompass the following areas:
1. Values and commitments
2. Code of ethics
3. Business policies
4. Ethics management
5. Prevention of sexual harassment
6. Policy on insider trading
• Compliance with provisions of Sexual Harassment of Women at workplace
(Prevention, Prohibition and Redressal) Act, 2013 The Company is committed to
uphold and maintain the dignity of woman employees and it has in place a policy
which provides for protection against sexual harassment of women at work place and
for prevention and redressal of such complaints. During the year no such complaints
were received.
• Corporate Social Responsibility: The Company has constituted Corporate Social
Responsibility Committee in compliance with the provisions of Section 135 of the
Act read with the Companies (Corporate Social Responsibility Policy) Rules 2014.
The Corporate Social Responsibility Committee has formulated a Corporate Social
Responsibility Policy (CSR policy) indicating the activities to be undertaken by the
Company. The CSR policy may be accessed on the Company’s website at the link;
http://www.rcom.co.in/Rcom/ aboutus/ir/pdf/CSR-Policy.pdf. The CSR Committee
consists of Smt. Manjari Kacker as Chairperson, Shri Anil D. Ambani, Prof J.
Ramachandran, Shri Deepak Shourie, Shri A. K. Purwar and Shri R. N. Bhardwaj,
Directors as members. The annual report on CSR activities is annexed as Annexure G.
Orders, if any, passed by Regulators or Courts or Tribunals No orders have been
passed by the Regulators or Courts or Tribunals impacting the going concern status
and the Company’s operation.
• Internal Financial Controls and their adequacy The Company has in place adequate
internal financial controls across the organisation. The same is subject to review
periodically by the internal audit cell and by the audit committee for its effectiveness.
During the year, such controls were tested and no reportable material weakness in the
design or operation were observed.
• Business Responsibility Statement Business Responsibility Report as stipulated under
the listing regulations is presented in separate section forming a part of this Annual
Report.
• Acknowledgement Your Directors express their sincere appreciation for the
cooperation and assistance received from shareholders, debenture holders, debenture
trustee, bankers, financial institutions, regulatory bodies and other business
constituents during the year under review. The Directors express their sincere thanks
to the lenders of the Company for continuous support during the year. Your Directors
also wish to place on record their deep sense of appreciation for the commitment
displayed by all executives, officers and staff, resulting in the successful performance
of the Company during the year.
• Significant consolidation in the industry: For the Indian telecom sector this has been
the year of consolidation. RCOM announced the first consolidation in the Indian
telecom sector and is now in the final stages of regulatory approval for the acquisition
of the Indian wireless business of Sistema Shyam Teleservices Ltd. (SSTL). This was
followed by the announcement of the combination of its wireless business with
Aircel. Elsewhere in the industry Airtel bought Videocon and Tikona’s unutilised
spectrum and is in the process of acquiring Telenor India; while Vodafone and Idea
have announced a merger. All these combinations are expected to drive synergies,
reduce cost overlap and strengthen balance-sheets of the telecom operators. This is
expected to improve the overall health of the industry. • The Year of 4G – Cheaper
Data, Explosion in Data Consumption, Data Driven Pricing and Unlimited Voice
Plans.
• This has been the year of 4G rollouts in India. RCOM has also launched 4G services
for its customers through its strategic partnership with Reliance Jio. With a severe
competition in the market with pricing strategy, the industry has moved significantly
into a data driven pricing model with unlimited voice bundled in. Accordingly,
Revenue per Minute (RPM) and Revenue Reliance Communications Limited 39 per
Megabyte (RMB) have lost relevance as performance indicators; Average Revenue
per User (ARPU) is now the key measure of performance along with Subscriber Base
count. Data prices have also come down significantly consequent to the disruptive
offers– benchmark prices for data has come dome drastically from the earlier ` 250
per Gigabyte (GB) and is expected to settle down at around ` 50 per GB in the
medium term. Driven by this new affordability, data consumption – both number of
data users and data consumption per data user – have gone up significantly. The data
consumption boom has been driven significantly by personal consumption of video
content by consumers. The smartphone ecosystem has also been supportive – all new
smartphone launches in India today are 4G-LTE enabled.
• Falling Revenues Are a Concern- Unfortunately this explosive growth in mobile data
consumption has not contributed to revenue growth. In fact, industry revenue has
significantly declined in recent months. This was primarily due to promotional tariffs
of free voice and data services launched in the sector which forced incumbent
operators to sharply lower voice and data prices to retain their users. If we use the
impact of license fee paid to the government as a surrogate for impact on industry
revenue, the magnitude of the fall for January-March 2017 is 30 percent over the
previous quarter October-December 2016 and this was the second successive
quarterly decline. The current prices are unsustainable and unless corrected soon, the
investment and debt repayment capacity of the industry will be affected. This could
also impact the government’s ambitious Digital India initiatives since enhanced
telecom connectivity is the platform on which all such digital services will ride on.
• Regulatory Regime- In recent times the government and the regulatory authorities
have repeatedly indicated that they are sensitive to the pain the industry is currently
going through. There have been assurances extended by the ministry and the
regulators of their commitment to improve the “ease of doing business”. One such
encouraging initiative is the announcement of the “Common Duct Policy” which
seeks to provide a time and cost effective model to telecom companies to lay fibres
and cables in cities – such communication infrastructure will be shared by telecom
service providers, while the owner of infrastructure (local government) will earn
revenue. We are encouraged by the recent statements of the Telecom Regulatory
Authority of India (TRAI) which state that “Our overarching principle is to regulate
the sector to ensure consumer protection, quality of service, transparency, growth of
the sector and a level playing field for stakeholders.”
• Increase in internet subscribers to boost data revenue- The number of mobile Internet
users in the country at the end of March 2017 was at 401 million (34% of total mobile
subscriber base). It is expected to continue increasing at a faster pace with affordable
handsets and cheap tariffs. The growth in user base is faster in rural parts of the
country as the addition is propelled by falling data charges and smartphones
becoming more affordable. Urban users mostly consume communication, social
networking and entertainment on mobile Internet; while in rural India, entertainment
rules the roost. Going forward ARPU will be the key KPI for telecom companies as
bundled offers (voice and data bundled together) would become prevalent. The
younger consumers in urban India are spending a greater proportion of their monthly
bill on data usage, while voice component increases steadily with age – the average
monthly bill is highest for the age group of 45 years and both mobile data and voice
expenditures for this age group are the highest. Thus, while in terms of uptake, the
younger generation is driving the growth of telecom services in urban India; senior
generations provide higher average revenue per user (ARPU) for telecom companies.
While we are seeing a competitive “more for less” offering by all players in the
industry, including your Company, we see ARPUs improving in the medium to long
term.
• Industry friendly regulation by the government will help the sector to grow faster
Government policy and the telecom regulatory authorities will continue to play a key
role in the industry’s journey into the future. Industry players expect that policy
makers would take requisite steps immediately to infuse financial and operational
vigour in the sector.
CONTINGENT LIABILITIES:
Contingent Liabilities and Capital Commitment (as represented by the Management) (` in
crore)
As at March 31,
2017
As at March 31,
2016
As at April 1, 2015
(i) Estimated
amount of
contracts
remaining to be
executed on
capital account
(net of advances)
and not provided
for
486 685 781
(ii) Disputed
Liabilities not
provided for –
Sales Tax and
VAT
27 16 20
Custom, Excise
and Service Tax
6 10 23
(iii) Guarantees
given by the
Company on
behalf of its
Subsidiaries
5,540 5,723 5,237
(iv) Guarantees
given by the
Company on
behalf of other
companies for
business purpose.
– – 10
Income Tax 391 385 451
Based on a petition filed by the Company, the Hon’ble High Court of Kolkata, vide its order
dated February 14 and April 19, 2013 has stayed the operation of such impugned demand till
further order. The Company is of the view that the said demand, inter alia, is an alteration of
financial terms of the licenses issued in the past and has also been advised so legally.
Accordingly, no provision in this regard is required. (vi) License Fees and Special Audit
Pursuant to the Telecom License Agreement, DoT directed audit of various Telecom
companies including of the Company. The Special Auditors appointed by DoT were required
to verify records of the Company for the years ended March 31, 2007 and March 31, 2008
relating to license fees and revenue share. The Company has received show cause notice
dated January 31, 2012 and subsequently, received demand note dated November 8, 2012
based on report of the Special Audit directed by DoT relating to alleged shortfall of license
fees of ` 300 crore and interest thereon as applicable. The Company has challenged the said
notices, inter alia demanding license fee on non telecom revenue based on Special Audit
Report before the Hon’ble Telecom Disputes Settlement and Appellate Tribunal (TDSAT)
and also before the Hon’ble High Court of Kerala. The impugned demand has been stayed by
Hon’ble High Court of Kerala during the pendency of the Petition. Meanwhile, Hon’ble
TDSAT vide its judgement dated April 23, 2015 has set aside all License fee related demands
and directed DoT to rework the license fees payable by the operators for the past periods, in
light of the findings, observations and directions made in the said judgement and to issue
fresh demands, which the operators will pay within the time prescribed under the law. DoT
has challenged the said TDSAT judgement in Hon’ble Supreme Court and has not
revised/raised any fresh demand. The matter is pending before Reliance Communications
Limited 99 Notes on Accounts to the Abridged Financial Statements Hon’ble Supreme Court,
though Hon’ble Supreme Court vide its order dated February 29, 2016 allowed DoT to raise
demand as per its understanding but not to enforce the same till the appeals are finally
decided by the Supreme Court. As per the judgement of Hon’ble TDSAT dated April 23,
2015 which is operative as on date and other judicial pronouncements directly applicable to
the issues of License fee dues raised by Special Auditors, there shall not be any liability of
License fee and hence, no provision is required in the accounts of the Company.
CASH FLOW ANALYSIS:
A. Cash flow from/ (used in) Operating Activities outflow of Rs. 241 cr
B. Cash flow from/ (used in) Investing Activities inflow of Rs. 316 cr
C. Cash flow generated from/ (used in) Financing Activities inflow of Rs. 249 cr
=Net Increase/ (decrease) in Cash and Cash Equivalents (A+B+C) Rs. 324 cr
COMPARISION OF RATIOS WITH COMPETITIORS: