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RIL to infuse additional $1 bn in Infotel for broadband network

RIL to infuse additional $1 bn in Infotel for broadband network
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First Published: Sun, Jun 13 2010. 11 26 PM IST

Graphic: Ahmed Raza Khan / Mint
Graphic: Ahmed Raza Khan / Mint
Updated: Sun, Jun 13 2010. 11 26 PM IST
Mumbai: Infotel Broadband Services Pvt. Ltd, the vehicle that will spearhead billionaire Mukesh Ambani’s re-entry into the telecom sector, will become operational in the next two years with an additional investment of $1 billion and a target of 100 million subscribers in five years.
In a meeting with analysts late Saturday, Ambani’s close associate Manoj Modi and Reliance Industries Ltd (RIL) chief financial controller Alok Agarwal gave analysts an outline of the business they acquired the previous day for Rs4,800 crore (around $1 billion), on top of the Rs12,848 crore ($3 billion) that Infotel spent for a pan-India licence to roll out broadband across India.
Modi and Agarwal discussed the company’s plans with 30 analysts in a two-hour presentation made in the boardroom on the 10th floor of Maker Tower E in Mumbai’s Cuffe Parade area.
The executives said in the course of the presentation that the company plans to invest an additional $1 billion in rolling out a broadband network and will aim for 100 million customers—around one-sixth of India’s current wireless subscriber population—within five years of launch, according to analysts who attended the meeting and requested anonymity.
That will take RIL’s total investment in the broadband business to at least $5 billion.
Graphic: Ahmed Raza Khan / Mint
RIL plans to use an “asset light” strategy to “provide end-to-end data solutions for business enterprises, social organizations, educational and healthcare institutions and Indian consumers”, according to the analysts. The company wants to reach out to customers both in rural and urban markets.
The purchase, which will turn Infotel into a subsidiary of RIL, marks the re-entry of Mukesh Ambani into the telecom sector that he exited five years ago in favour of his younger brother Anil Ambani, who went on to keep control of Reliance Communications Ltd, now India’s second largest mobile phone company by subscribers.
This is Mukesh Ambani’s first investment in a sector where his brother is present, following the scrapping of a non-compete agreement in the last week of May.
Brothers in the know
RIL’s decision to enter the telecom market for the second time may have surprised the media and analysts, but the two brothers knew about it when the non-compete agreement was torn up, according to a group executive familiar with the development.
“Both camps knew about the plan at the time of dissolution of the pact,” said the executive.
Bhagwan Das Khurana, a telecom technocrat who worked with the older Ambani and later with his younger brother, isn’t surprised by RIL’s return to the telecom sector. “Whenever we (Mukesh Ambani and Khurana) met at social occasions, the talk veered to what is happening in the telecom sector,” he said.
Khurana, who is currently in Nairobi, on Friday said the latest venture would be more challenging, as Mukesh Ambani would have to depend on the infrastructure of other telecom companies, unlike his earlier telecom venture when he rolled out the entire network of fibre network and telecom tower stations.
RIL would need 15,000-20,000 telecom towers and erecting towers was not as expensive as made out to be, Modi told an analyst. To another query on whether RIL would be willing to share the infrastructure owned by Reliance Communications, Modi said: “We’ll work with whoever is willing to work with us.”
People familiar with developments at RIL said these are early days yet.
“We have to select a technology, build a team and prepare a business plan,” said a person involved in the roll-out in 2002 of Ambani’s Reliance Infocomm, now Reliance Communications, who still remains an executive in the Mukesh Ambani group.
RIL launched Infocomm’s network in late 2002, billing it as the world’s “largest and most complex roll-out in the history of the IT (information technology) and communication sector.”
A public spat between Mukesh and Anil Ambani over “ownership issues” then led to the carving up of the Reliance business empire, with the younger Ambani taking control of the telecom firm just a year-and-a-half after it was born.
Passion for telecom
It would have been galling for the older brother, whose dream of providing data, video and value-added services to telecom users in the world’s fastest growing wireless market seemed to have crashed overnight. Reliance Communications went on to build a subscriber base of 100 million. Still, spectrum shortage meant that the country’s large number of cellphone users could not access high-speed data services such as video streaming.
“Telecom is his passion, and Mukesh excels in project execution, scale and speed,” Khurana said in an earlier interview.
The elder Ambani used to often talk about the “triple play” of offering voice, video and data services when the brothers divided the business empire founded by their late father Dhirubhai Ambani.
“This (broadband) to our chairman is the unfinished agenda,” said the group executive quoted earlier.
Now, the company is trying to leapfrog the 3G (third-generation) revolution before it even begins. Mukesh Ambani’s bet on 4G services aims to offer speeds as much as five times faster than 3G networks. Almost all network operators say that data services such as broadband access is the road ahead for carriers to boost revenue.
“It would be very interesting how this market opens out. There is room for everyone,” said Hemant Joshi, telecom head with Deloitte Touche Tohmatsu India.
Telecom slug-fest
RIL will find India a changed telecom market since its last venture in the sector. In 2004, there were six telecom service providers nationally with a handful of local entities competing for subscribers. Now, the telecom market is witnessing a slugfest between more than a dozen competitors caught in a price war that’s leading to profit erosion at most service providers.
Back then, network operators were trying to get more people to buy a cellphone. Now, the number of cellphones has more than doubled to 600 million and the country continues to add 17 million users every month.
“When we first entered, we were fighting to create a market. Industry is maturing now,” said the person cited above, who was involved in the roll-out of Reliance Infocomm. “The total (number of) wireless subscribers when Reliance Infocomm was formed was less than 10 million subscribers. All that changed as tariffs came down. Something similar could happen now, as RIL scales up.”
RIL indicated on Friday that it would use Qualcomm Inc.’s LTE, or Long Term Evolution, technology for wireless broadband services rather than the rival WiMax standard. If the company does so, it would mark an important victory for US-based Qualcomm, which won spectrum in two cities—Mumbai and Delhi—in the auction of spectrum for mobile broadband services that closed last week.
The company is rolling out an LTE-based network, a 4G technology that allows users to access data at speeds of 1 Gbps (gigabit per second).
RIL could find that it had dialled the wrong number if other operators roll out planned 3G networks sooner than Mukesh Ambani does the 4G network on which he is betting.
There are other aspects, too, that have some analysts worried. The speed and scale at which Mukesh Ambani executes projects at times exposes the company to risks.
For instance, when the whole industry wooed pre-paid subscribers, Mukesh Ambani chased post-paid customers and paid the price as cheques bounced and the billing system failed to cope.
“When you move with speed, there would be mistakes, but we are also capable of making quick course corrections with speed,” an RIL official said on condition of anonymity.
“With the experience we have in telecom, we’ll not repeat some of the mistakes we made earlier and some made by our peers,” the same official added. “We’ll actually have no legacy (issues) as we’ll approach the business with a clean slate.”
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First Published: Sun, Jun 13 2010. 11 26 PM IST
More Topics: RIL | Infotel | Broadband | Telecom | Mukesh Ambani |