Mumbai: Mumbai-based Internet service provider Tikona Digital Networks Pvt. Ltd, which owns broadband wireless access (BWA) licence for five telecom circles, will choose the same technology as Reliance Industries Ltd (RIL) to offer services, a senior company official said.
“We will go the RIL way,” Tikona chief executive and managing director Prakash Bajpai said last week. “It makes sense for us to follow the big guys. Whatever RIL does, we will follow their footsteps.”
RIL currently holds a pan-India BWA licence. In June, Tikona paid Rs1,058 crore, or 8% of a pan-India BWA licence, for spectrum in Gujarat, Uttar Pradesh (east and west), Rajasthan and Himachal Pradesh, that are home to around 30% of India’s urban population.
Expanding services: Tikona CEO and MD Prakash Bajpai says the firm will follow RIL’s footsteps. Ashesh Shah/Mint
Telecom operators can choose between Worldwide Interoperability for Microwave Access, or WiMax, and Long Term Evolution, or LTE, for offering wireless broadband services. Intel Corp., that makes electronic chips for WiMax-enabled phones or laptops, backs WiMax, while Qualcomm Inc., that makes chips for LTE-enabled devices, is an LTE backer. RIL has already indicated its preference for LTE.
Tikona currently offers wireless broadband services in 30 cities using unlicensed 5.8MHz spectrum, commonly used for smaller spaces such as homes or offices. The company claims to have customized its service to develop proprietary technology for use in much larger spaces such as residential neighbourhoods.
Bajpai intends to use the expensive, licensed spectrum to connect consumer premises with the service provider exchange, replacing optical fibre cables.
Telecom analysts say Tikona enjoys competitive advantages in the form of its lower cost of operation on account of unlicensed spectrum and customized technology.
In addition, India’s extremely low broadband penetration level—less than 1%—means everybody has room to play. Tikona, for example, has a subscriber base of 150,000, of which around 6,000 are small-and medium-sized companies, according to Bajpai.
“Tikona is operating in a space where there is lot of room to grow, given the current low levels of broadband penetration,” said Kamlesh Bhatia, principal research analyst at technology researcher, Gartner Inc.
But they also warn these advantages could be eroded as competition pushes tariffs down.
“Once price points start coming down with increasing competition, as it happened with mobile call tariffs, it needs to be seen if Tikona can sustain its competitive advantage,” said a consultant with a multinational firm that tracks India’s telecom sector. He did not want to be named because his company does business with Tikona.
Bajpai said he is not worried by the entry of his former boss—he was hired by Mukesh Ambani in 2002 to head mobile phone services provider Reliance Infocomm—into the wireless broadband space.
RIL last month acquired Infotel Broadband Services Pvt. Ltd for Rs4,800crore, and an additional Rs12,848 crore for Infotel’s pan-India BWA licence.
“There will always be competition and there is no business where there is no competition. We will have our own niche, and we’ll have our market share,” Bajpai said.
He added that RIL’s entry was good for the industry. “Whenever such a player comes into the market, because of their sheer volumes and the focus they bring in, the industry goes three notches up,” he said.
Analysts, though, expect price wars to be part of such a scenario
“We do not rule out a disruptive pricing strategy (recall erstwhile Reliance Infocomm’s ‘Pioneer Offer’ in 2002). However, a similar strategy bundling data access may have a limited medium-term impact given that mass-market users are still at an early stage of the technology adoption cycle,” wrote Pankaj Kapoor and Srinivas Seshadri, analysts with RBS Equities (India) Ltd in a 14 June report on RIL’s entry into the market.
That is something that Bajpai has factored in, expecting a repeat of 2002 and 2003, when Reliance Infocomm forced the industry to cut tarffis after it offered cellphone services as low as 40 paise a second.
Still, “they will beat up the cost structure so bad, the benefit is going to be there for the entire industry”, Bajpai said
Meanwhile, Tikona has been building its reserves. In February, it raised $110 million (around Rs514 crore today) by selling a 70% stake to a group of foreign and Indian private equity (PE) funds. In June, it raised $250 million through debt and from PE firms to pay for the five licences.
Currently, PE investors, including Goldman Sachs Investment Partners, Indivision India Partners, Oak India Investments and L&T Infrastructure Finance Co. Ltd, own around 74% in Tikona.