BackWith 4G launch, RIL plans to kill many birds with one stone
With 4G launch, RIL plans to kill many birds with one stone
PremiumBig plans: RIL chairman Mukesh Ambani says the company’s digital services will revolutionize the lives of millions of Indians by giving them access and opportunities. Prashant Nadkar/Fotocorp
Mumbai: Reliance Industries Ltd’s (RIL’s) much-anticipated launch of wireless broadband, or the so-called fourth-generation (4G) services, is scheduled for early 2013 in New Delhi and Mumbai, according to one of the company’s executives who did not want to be identified, given the secrecy associated with the project.
Indeed, work on the project is, at least from the outside, progressing much more quietly than it did on two other launches overseen by chairman Mukesh Ambani and his close associate and colleague Manoj Modi—those of the company’s telecom operations in December 2002, and retail business in 2006.
In terms of sheer ambition, though, the 4G project has the trademarks of the typical Ambani initiative.
“In the first two years, we will cover 50 metros and all of India by the fourth year," said the executive. “Various demos are on as we speak."
The project itself would have been in the works for a little over 30 months by the time of launch.
In June 2010, RIL bought out the only winner of wireless spectrum across India, Infotel Broadband Services Ltd, for ₹ 4,800 crore (around $1 billion then) and its total planned investment in the new business was touted to be around $5 billion.
“Our digital services business will revolutionize the lives of millions of Indians by giving them access and opportunities," Ambani emphatically stated at the company’s annual general meeting (AGM) on 7 June. “We plan to provide an ever growing range of digital services in key domains of national interest such as education, healthcare, security, financial services, government-citizen interfaces and entertainment."
Ensuring that this happens is Modi, who spearheads the oil-to-yarn conglomerate’s new consumer-focused businesses such as telecom and retail. He oversees a team of “around 700 employees based out of Mumbai and a few units in other cities" who are working on the 4G project, said the executive mentioned above.
But the dream remains that of Ambani, who led the erstwhile undivided RIL’s entry into telecom with Reliance Infocomm Ltd. In December 2002, Reliance Infocomm launched its telecom services with free mobile handsets and low call rates, transforming the industry and kick-starting a mobile telephony boom that lasted till the end of the decade.
A subsequent family feud saw the Reliance empire being carved up between Mukesh Ambani and his younger brother Anil Ambani in 2005; telecom went to the latter. Mukesh Ambani, however, continued to harbour ambitions of creating a new telecom venture that would “revolutionize lives".
At the core of the RIL strategy is content and the company would appear to have learned from the experience of telcos offering 3G services; 3G has seen poor response in India and the RIL executive said this is because of a shortage of innovative content and value-added services. He attributes this to the way telcos split revenue with content and application creators—around 70% goes to the telco, 15% to the content aggregator and the rest to the content creator.
RIL, this person added, would not work with aggregators and share as much as 50% of revenue with content creators so as to encourage them to create even better content. Almost 70% of the content that RIL will deliver, this executive said, would be videos—video-on demand, live videos, and “catch-up TV". And the company will do this across languages and genres.
Gaining the edge
It is here that RIL’s recent investments in television companies such as Network18 Media and Investments Ltd will help. In return for the investment made by it in the Network18 group through a multi-layered transaction, RIL will gain access to the media house’s news and entertainment content across websites, television channels and print, which it can disseminate through its 4G network.
“RIL is on a winning wicket since it will be the only national 4G platform provider," says Jehil Thakkar, head of the media and entertainment vertical at audit and consulting firm KPMG. “A large part of the data usage is driven by media and entertainment, and the investment in Network18 gives RIL the right edge to get started."
Education is another area of focus. In November, Infotel Broadband, through an “affiliate" Reliance Strategic Investments Ltd, acquired a 38.5% stake in an online tutoring company, Extramarks Education Pvt. Ltd. At the time, the company said in a press release that the acquisition was done keeping in mind its digital distribution model.
Both entertainment and education were part of Ambani’s so-called triple-play strategy for Reliance Infocomm when it launched. The centrepiece, of course, was voice. That may not be the case this time around, at least in the beginning.
The 4G technology that RIL is planning to adopt, TD-LTE (Time Division-Long Term Evolution), was developed primarily for high-speed wireless data services and is considered inefficient for voice services. “They need back-up spectrum specifically meant for voice to be able to provide voice. They may be able to provide some voice services through apps such as Skype and Viber or VoIP (voice over Internet protocol) if the handsets allow it," said a Mumbai-based analyst at a multinational investment banking firm, who asked not to be identified.
On 31 May, the Union cabinet approved the National Telecom Policy (NTP) 2012, a document that sets out goals and objectives for the sector in the next 10 years. NTP 2012 allows almost universal VoIP, a change that is expected to directly benefit RIL. Currently, Indian laws only allow VoIP calls to a telephone in India under strict conditions. They allow such calls between computers within the country’s borders and between a computer in India and a telephone (fixed or wireless) outside India.
But voice is no longer a lucrative stream of business.
“We don’t see significant risks from VoIP, given little progress elsewhere globally. In addition, voice tariffs are the lowest in India, limiting the scope for VoIP to compete on price," Rajiv Sharma, an analyst with HSBC Securities and Capital Markets (India) Pvt. Ltd, wrote in a 23 April report. “LTE handsets don’t support voice today, which will be essential in the Indian context in our view."
Such reasoning may explain why the minority view among analysts is that RIL will launch 4G services with voice as one of the offerings and the majority view is that it will acquire a telco.
In 2002, RIL had also planned to make its platform an open one and encourage developers and others to create applications for it, taking a leaf out of the strategy of Japanese telco NTT DoCoMo Inc.
Things didn’t really work to script back then, but RIL is convinced it will with its 4G operations.
“Our platform will be an open one," the RIL executive said. “We wish to encourage product brands to set up applications for their customers. Dedicated applications for tablets and smartphones will be created."
Taking retail online
And much like in the plan it had in 2002, RIL hopes for some e-commerce play, too; it helps that it has already entered the modern retail business. Indeed, the company gave a hint of its desire to take its retail business digital when its 2011-12 annual report said: “Reliance Retail (Ltd) seeks to add alternative channels to reach out to customers. These channels will provide convenience of any time, anywhere shopping with an access to wide variety of products."
Ambani singled out retail as one of the future “engines of growth" for RIL at the company’s 2011-12 AGM on 7 June, saying revenue from the business will grow six times in the next three-four years to reach ₹ 40,000-50,000 crore.
Bijou Kurien, president and chief executive of Reliance Retail’s lifestyle business segment, said on the sidelines of a conference in May that e-commerce would be a part of the multi-channel strategy of the conglomerate’s retail arm, and become large and sustainable over a period.
“We have various customers across our retail formats catering to retail and institutional customers," a Reliance Retail executive said, speaking on condition of anonymity. “We will try and develop alternative shopping channels for them where orders can be taken and deliveries made any time and anywhere." This person added that “broadband wireless will obviously bring in new avenues, thanks to the high speed that it will offer".
RIL appears to be looking at international success stories in this area. Three RIL executives, including the aforementioned Reliance Retail official, cited the example of Tesco Plc’s virtual store format in South Korea that was launched in March when queried on retail models possible with 4G.
Tesco Homeplus, the UK-based retailer’s South Korean arm, opened the world’s first virtual store in a subway station in Seoul to help commuters shop using their smartphones while on the move. The search for suitable business models seems to suggest that RIL will do more than just launch an e-commerce website.
“Our e-commerce model will not be plain vanilla," the Reliance Retail executive said.
According to a November 2011 report by Avendus Capital Pvt. Ltd on the digital consumer industry, e-retailing is set to become a ₹ 53,000 crore market by 2015 from the current ₹ 3,600 crore.
Ashish Bhide, head of digital media and technology at Avendus Capital, said that e-commerce accounted for less than 0.3% of the overall retail business till March 2011, but was likely to become 1.4% of the total market by fiscal 2015. “One of the biggest enablers of e-commerce is good quality and affordable broadband," Bhide said. “Both 3G and 4G are expected to drive penetration in India. However, the advantage of 4G is that it would be a big enabler for Internet commerce on devices such as mobile phones."
In Japan and China, transactions on mobile devices account for 15-20% of the e-commerce market.
Doing its own thing
But even as it makes sure to get the product right, RIL hasn’t lost sight of one source of its competitiveness across businesses—cost. Two RIL executives, including the one mentioned in the first instance, said the company’s pricing of 4G services would remind consumers of the “Monsoon Hungama" offer launched by the erstwhile Reliance Infocomm in 2003, wherein it offered a multimedia mobile phone and a connection for an upfront payment as low as 501.
Thakkar of KPMG said a disruptive pricing strategy can ensure the success of the venture, with the use of tablets and smartphones among middle-class Indian already on the rise.
After initially calling for bids for towers and networks, RIL has now decided to build its own, according to a third RIL executive, who spoke to Mint on the sidelines of the company’s shareholder meeting and on condition of anonymity.
This person claimed the company would soon start work on its underground cable network and towers. “It will be cheaper for us to build this network organically since the valuation and rentals of such assets is unviable at present. If we can bring down the cost, we can pass on the benefit to the consumers as well. We have built it once while rolling out telecom services in 2002, and we can do it again," he said.
A New Delhi-based telecom expert, formerly a senior executive at a top telco, subsequently said that this could be a negotiating position to force tower companies to bring down their rates.
“There are enough and more tower companies and OFC (optical fibre cable) network owners who are looking for tenants. So it is not as if we are short on infrastructure, and I don’t see why rentals will be unreasonable," said the head of the telecom practice at an international consulting firm, who declined to be identified. “Building own infrastructure, especially towers in urban areas, can be a challenge in terms of cost, space and getting permissions."
Still, a senior government official familiar with the development, who did not want to be identified, said RIL has already started laying back-end optical fibre on the so-called trunk routes, or those that connect network traffic from one part of the country to another, across the nation, and that it would start on the cities later. This person confirmed that RIL had sought and received bids from tower and network companies, but said he didn’t know whether it was the price quoted or some other factor that convinced RIL to do its own thing.
If the company insists on building its own infrastructure, it will take longer to roll out its service. The head of the telecom practice with another international audit and consulting firm said RIL should look to leverage the existing towers and OFC network in the country to begin with and look to build its own capacity, if it so wants, gradually over a period of time.
The government official also said that RIL is yet to decide on a device or tablet of choice that it could bundle with its service. Still, while gaps remain in terms of what the world knows of Mukesh Ambani’s 4G plans, it is evident that many of the pieces are in place and that a bigger picture is slowly beginning to emerge.
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RIL’S CHOICE: TD-LTE
TD-LTE is a fourth-generation (4G) mobile communication technology that allows a peak download speed of 100 megabits per second (Mbps) on wireless devices, against 20 Mbps for 3G technologies. Its main advantage, in addition to speed, is that it is an extension of the popular GSM wireless technology and is compatible with both 2G and 3G networks. This essentially means that when a user moves out of an area covered by a 4G network, he will still be able to access communication services in wider 2G or 3G networks using the same device. It has a variant called Frequency-Division Long-Term Evolution (FD-LTE).
State-run telcos, Bharat Sanchar Nigam Ltd and Mahanagar Telephone Nigam Ltd also operate WiMax technology-based wireless broadband services, but all other operators that won spectrum in the 2010 broadband wireless access (BWA) spectrum auction are rolling out TD-LTE-based services. The US-based mobile chip maker, Qualcomm Inc., recently announced that it was selling its BWA companies in India to Bharti Airtel Ltd in a staggered deal ending in a complete acquisition by end-2014. Bharti has already launched 4G services in Bangalore and Kolkata. Other companies expected to launch services soon include Tikona Digital Networks Pvt. Ltd, Aircel Ltd and Augere Ltd.
aveek.d@livemint.com
Shauvik Ghosh in New Delhi contributed to this story.
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