HELLO! MUKESH AMBANI PLAYS A NEW CALLER TUNE

By Ruma Dubey

In June 2010, a month after the Ambani brothers terminated a non-compete agreement, Mukesh Ambani sounded the war bugle when he bought over a 95% stake Infotel Broadband. This was a company owned by Anant Nahatta, son of HFCL owner Mahendra Nahatta and Mukesh Ambani bought it for Rs. 4,800 crore, and is today a subsidiary of Reliance Industries.  This was an extremely smart move by the elder Ambani as he had bought over the only company which had won a 20 MHz broadband spectrum in all 22 zones in India. And since then speculation has been rife that Ambani would make a big bang entry into the telecom sector and create massive ripples, shaking up the entire sector, more so for the debt ridden Reliance Communication.

There were rumours of both the brothers collaborating but there seems to be no such Hindi filmi style “happy ending” to this story. There was hope that maybe Reliance Infotel will tie-up with Anil Ambani owned Reliance Communication’s tower subsidiary, Reliance Infratel for use of its towers. No such collaboration happened and Mukesh, in April 2012, announced his decision to set up over 1,00,000 towers for its 4G operations in the next three years.

Today, Rcom hit a new 52-week low and the telecom stocks are in the red. This can be blamed directly on Mukesh Ambani and consequently on Credit Suisse which downgraded most of the telecom stocks, citing increased competition from Reliance Infotel. It has stated that prospect for others in the sector would dim once Reliance Infotel enters the wireless voice market. Earlier, Infotel had plans to enter only the wireless data market but this report by Credit Suisse stated that it could benefit more by also entering the voice market.  

For Rcom, as such things were not looking good, what with a debt of Rs 35600 crore and a 88.5% drop in cash at Rs.550 crore. For the past two years, its tower unit, Reliance Infratel, despite getting SEBI’s nod has not been able to raise money from its IPO. It had planned to raise around $3 billion. And in July, it shelved its $1 billion Singapore IPO of its undersea cable unit. Its attempt to sell stake in the tower unit continues and it now contemplating raising around Rs.15,000 crore by diluting 25% stake in its four listed companies – Rcom, Reliance Power, Reliance Infra and Reliance Capital.

Mukesh Ambani has always done everything king style, huge, larger than life. So this 4G roll out is not small boat ride. It has identified 700 cities which includes 100 high-priority markets. He also aims to make Reliance a TV provider by building a superfast fiber-optic network stretching into homes in urban areas and it has already started laying down underground fiber-optic cables in parts of India that will connect cell towers to the core network.

Undoubtedly, there are hurdles, especially on the cost front, which is expected to shoot up to $10 billion. Also the technology which it plans to use, known as "TD-LTE" is not standardized in USA and Japan. This means, global smart phone makers, who would want a bite of this big pie would have to develop devices specifically on this platform. Moreover, 3G itself is still in its nascent stages in India and this jump to 4G and its adaptation might take some time. Reliance is expected to roll out its 4G in the second half of 2012 and is slated to be the largest outside USA and Japan. India is expected to have around 37 million 4G subscribers over the next four years. 4G could help connect entire India as internet can enter every house in all parts of India through a mobile device, through broad band services. Currently only Bharti provides 4G but it is restricted to only data, no voice telephony is allowed.

India is expected to have more 4G wireless subscribers in four years—37 million—than Brazil, Russia or Indonesia, according to consulting firm Ovum. China is on the 4G path, too, and it is expected to have a much larger user base than India eventually, but it has yet to commence any commercial 4G rollouts.

The heat is on. Mukesh Ambani will have to roll out 4G and ensure his network reaches 50% of rural India by 2015 – that was the rule laid out when the spectrum license was acquired. Moreover, RIL has taken a beating on the bourses over the past few quarters and the pressure is immense on the elder Ambani to deliver this hugely ambitious project soon to reinstate his supremacy on the bourses.

Earlier, if the battle was fought just between two brothers, it will now include the reigning Indian telecom king- Bharti Mittal. But the winners will be the people of India, who can be assured of cheaper and faster services.