RIL Makes Bold Play for India’s Wireless Future

Mukesh Ambani led Reliance Industries Ltd (RIL) purchased 95% of Infotel Broadband Services Private Ltd for 48,000 crore ($1 billion) on Friday.
Earlier that same day, Infotel was announced as the sole winner of a pan-India broadband wireless access (BWA) license for 12,848 crore ($3 billion).
“The Indian broadband landscape of 2010 is similar to the cellular voice landscape of 1995. India ranks almost at the bottom with under 1% penetration,” a RIL official announced.
“In 1995, India had a cellular subscriber base of only 75,000. Today, this figure is almost 600 million, a phenomenal growth of 8,000 times. India is second only to China in terms of subscriber base.”
RIL will spend an additional $1 billion to build out its broadband access network.  Top executive Manoj Modi and Reliance Industries Ltd (RIL) CFO Alok Agarwal met with 30 analysts in Mumbai on Saturday to provide further details on the plan.

Asset Light Strategy
To cover all of India, RIL will need up to 20,000 towers and is targeting acquiring 100 million subscribers in five years, an eighth of the forecasted total market at that time.  It is likely to pursue a faster “asset light” leasing strategy versus the build-out of a national network that would cost $10 billion and take up to 5 years.
Recent actions by Reliance Communications (Rcom), headed by former younger sibling rival Anil Ambani, such as abruptly withdrawing from the BWA auction as well as their families currently vacationing together, suggest the two companies will now be cooperating closely together.  This potentially gives RIL unfettered access to Rcom’s 50,000 towers and 190,000 kilometers of fiber optic cable while providing a steady revenue flow to cash strapped Rcom.
“Elder brother has wireless broadband, aggressive plans and a point to prove but no fiber optic or tower. The younger brother may have huge debt, but he has infrastructure, 3G and 2G spectrum and CDMA technology. This is a perfect and logical environment for collaboration, a likely combo that can shake up any competitor today,” one banker explained.
Skipping 3G
RIL plans to go live in two years with the fully developed WiMax format and then transition to LTE as hardware costs drop.  “We are likely to migrate towards LTE once that platform becomes ready,” confirms one company official.
Compared to the 3G competition, RIL has significant cost and quality of service advantages.  RIL paid only 6 cents per user per megahertz for its broadband spectrum compared to 32 cents on average for 3G competitors.  RIL’s license covers all 22 service areas in India compared to only 16 for Bharti Airtel and 13 for Rcom, the two largest Indian carriers.
Additionally, the Evolution Data Optimized (EVDO) 3G standard used by the 3G carriers caps out at 9 Mbps per user compared to LTE at up 270 Mbps.  The advanced technology will allow for two-way video conferencing, real-time gaming, and streaming high definition video, among other bandwidth hungry services.
“Increasingly, you will see RIL opt for technology off the shelf and marry some key strategic partners for infrastructure. They will unleash a new revolution. Mind you they have won nationwide 20 MHz spectrum at one third the value of 3G. That gives them tremendous cost and time advantage,” describes one leading industry analyst.
Diversification
In addition to Telecommunications, RIL plans to use the cash generated by its core oil and gas businesses to also expand into Power, Pharmaceuticals, and Financial Services.
India will open bidding for ultra-mega power projects (UMPPs) consisting of large power plants of 4000 megawatts or more at the end of the month.  “RIL will definitely participate in the bidding process for UMPPs,” investment advisor SP Tulsian is quoted as saying.
Reliance Life Sciences is looking to grow into a formidable industry player.  “It is a good business proposition for RIL once a business achieves critical size. You may see the group evaluating options like merger and takeovers to enter the pharma space,” said one analyst.
Financial Services may be more difficult as current Indian laws prohibit industrial companies from opening banks.
Ultimately, RIL is “betting on the company’s data market,” as stated by one company spokesman.  RCR expects to hear much more about RIL’s aggressive expansion plans in the future.