Mumbai / New Delhi: The flagship of Anil Ambani’s business empire, Reliance Communications Ltd, (RCom) plans to invest more than $3 billion (Rs13,980 crore) for the November launch of mobile phone services based on the global system for mobile (GSM) technology standard.
The company plans to introduce GSM services initially in 250 big cities and expand by mid-2009 to other parts of the country, matching the coverage of its current services based on the rival code division multiple access (CDMA) standard that has nearly 47 million customers.
RCom is the country’s second largest mobile services provider by subscriber base, trailing only Bharti Airtel Ltd, and has a market capitalization of Rs75,690 crore.
“The first phase of launch will start towards the end of this year, could be on Diwali or a few weeks after it, (and) almost 80% of the electronic equipment required for the first 250 cities is already in place,” said a person with knowledge of the development but spoke on condition of anonymity. Equipment for the next 1,750 towns where RCom plans to introduce GSM services has also been arranged, the person added.
Telecom firms are expanding into smaller towns and villages as cities such as Mumbai and New Delhi reach saturation levels.
“Rural India is a big potential (for RCom) and they are marching towards that,” Madhusudan Gupta, an analyst at consulting and research firm Gartner Inc., said over the phone from Singapore.
RCom also plans to start retailing GSM handsets bundled with its service after the roll-out or even without it, a business strategy that would earn bigger margins for the Mumbai-based company and make the handsets available at lower prices, said the person mentioned earlier.
The company has already tied up with manufacturers such as Motorola Inc., Sony Ericsson, LG Group, Bird International, Fly Mobile Ltd and Huawei Corp. to exclusively launch some handset models in India or offer them to its subscribers just before they hit the market.
Talks are also under way with Nokia Oyj and ZTE Corp.
GSM is a popular platform for offering mobile services in India, the world’s fastest growing market for mobile phones and the largest wireless market after China.
The GSM market serves 75% of the about 300 million mobile customers in India, and adds about eight-nine million users every month. CDMA transmits simultaneous digital signals over a shared portion of the spectrum—a technology that RCom currently uses for providing cellular services.
RCom’s entry into the GSM space was probably driven by the fact that it delivers higher Arpu, or average revenue per user, than CDMA, said Harit Shah, an analyst at Angel Broking Ltd.
The company’s overall GSM investment will likely be higher than $3 billion, the person cited earlier said.
RCom has already spent $1.2 billion on the electronic equipment required and paid a license fee of Rs1,651 crore.
It will also need to invest significantly in the new towers needed to offer the dual service. Reliance Infratel Ltd, an RCom unit that is to build, own and operate telecom towers, is ramping up the number of towers from 36,500 by the end of fiscal 2008 to 50,000 by the end of the current fiscal year and will invest $2 billion in it. A part of this spending will be for the GSM service.
Offering dual services poses difficulties. “Intensifying competition, pressure on pricing, high capex (capital expenditure) and lower quality of incremental subscribers will make value accretion from GSM expansion extremely challenging,” Kotak Securities Ltd analysts Kawaljeet Saluja and Rohit Chordia wrote in a July report.
An RCom spokesperson said the nationwide GSM rollout “is progressing as planned and is currently under advanced testing stages”, and that it is slated to commence from end-2008 as planned. Trial runs are already under way in New Delhi.