New Delhi/Mumbai: Reliance Industries’ re-entry into India’s telecom sector will help the conglomerate tap opportunities in the untapped wireless data market as it aims to replicate growth of the mobile phone sector.
On Friday, the energy major, controlled by Mukesh Ambani, the country’s richest man, unexpectedly agreed to buy Infotel Broadband, the only company to win a nationwide license in India’s auction for wireless broadband.
The move by the deep-pocketed group would mean more competition for Indian telecoms firms, for whom voice has been the primary source of revenue so far, but are now also expanding into wireless data.
“I don’t think Reliance is looking at this business being profitable in at least the next two years,” said Sonam Udasi, head of research at IDBI Capital in Mumbai.
“Their past track record in areas apart from their core business has not been great,” he said, referring to the petrochemicals-to-refining conglomerate’s foray into businesses such as retail.
Mukesh been quick off the blocks to pursue deals after a long-running feud with his younger brother Anil ended last month and the brothers revoked a non-compete agreement.
Reliance, India’s largest-listed firm, aims to offer wireless broadband connectivity to both retail and corporate clients across a vast geography, the company said.
A spokesman for Reliance said company would invest about $5 billion in the telecom venture over the next two years, including the broadband spectrum fee to be paid by Infotel.
Reliance will take a 95% stake in start-up Infotel Broadband, the only firm to win a nationwide licence in India’s broadband wireless spectrum auction.
Infotel’s offer of $2.75 billion for the license topped forecasts while US chipmaker Qualcomm and India’s biggest mobile operator, Bharti Airtel, also won spectrum in parts of the country in an auction that saw some of the biggest players in Indian telecoms emerge empty-handed.
Growth in wireless broadband
Reliance aims to replicate India’s mobile phone growth story in the broadband segment and expects broadband connections to grow rapidly in the next three years, according to a corporate presentation on its website.
India is the world’s second-biggest and the fastest-growing mobile market with more than 600 million users.
Analysts however said it won’t be easy for India’s top conglomerate to start making money immediately as next-generation broadband technologies such as long-term evolution (LTE) haven’t yet been launched and the catch up in a price sensitive market such as India could be slow unless services are affordable.
HSBC Securities analysts wrote in a note they expected the broadband business to contribute less than 5% of the company’s EBITDA and less than 2% at the earnings per share level, even assuming an aggressive business approach.
“But here I think they (Reliance) have taken a call because this is the lowest point in the telecom sector in India,” Udasi said.
Shares in Reliance Industries, valued at $74 billion, were up 1% by 0820 GMT, in a Mumbai market up 0.8%.
Analysts say it is possible for Reliance to offer voice services using the wireless spectrum Infotel has won in the auction, but the company is likely to focus on the high-margin data business first.
“The intent is clearly data,” said Kamlesh Bhatia, principal analyst at technology research firm Gartner. “Voice clearly is highly commoditised.”
India’s broadband penetration -- connections per 100 people -- is extremely low at 0.74, whereas more than half of the population have a telephone, according to the Indian telecoms regulator.
Just 4-5% of the country’s mobile subscribers access Internet on their phones, analysts estimate. Mobile operators currently get only 10% of their revenue offering data services.
China, the world’s biggest telecoms market, had 130 million broadband subscribers, Reliance said in the presentation, expecting India to catch up in three to four years.
Mukesh, the world’s fourth-richest man, is not new to telecoms and had in fact built Reliance Communications before giving control to Anil after the brothers split up the family empire in 2005.
“Reliance’s entry is going to create a disruptive sort of impact on the market in terms of pricing for data access,” said Gartner’s Bhatia.