Weak Bonding

Yearly Subscriber Login

Enter the mail id that you want to use & click on Go. We will send you a link to your email for verficiation
Briefly Speaking: Cashless Crunch



A war between doctors and third-party administrators (TPAs) who facilitate medical...

Premium Content
Monthly Digital Access


Already A Subscriber?
Yearly Digital+Print Access


Moneylife Magazine Subscriber or MSSN member?

Yearly Subscriber Login

Enter the mail id that you want to use & click on Go. We will send you a link to your email for verficiation
Reliance Industries' unfinished telecom agenda: "Kar Lo Duniya Muththi Mein" - II

As voice players become weaker, will Reliance move in for a kill as it did with the much smaller polyester business more than a decade ago?

As Reliance Industries re-enters the telecom business through a side door, it is worthwhile to ponder that this would be the first time RIL would be entering a business as one of the last competitors, especially where established global and local giants already rule. Remember that Reliance simply has no competition in petrochemicals and in exploration. In oil-refining, no major capacities except that of Essar have come up after Reliance decided to enter the sector.
The story is different in telecom. Global telecom giants like Vodafone, NTT and Sistema are in India. Bharti, the Indian market leader, is a global player now with footprints in Bangladesh and Africa. There are deep-pocketed mavericks as well like Shivasankaran (Aircel) and Videocon. Of course, Reliance has not entered voice telephony-not as yet-and there are very few serious players in the broadband business. But if you mix the possible RIL success in broadband, some regulatory changes and oodles if free cash flow-suddenly you have a business that is a threat to the existing giants in more ways than one.
As Macquarie said in a research note, "In a repeat of 2003, we are seeing the birth of four new players in the Indian telecom space. While one could dismiss their entry citing competition only for wireless data, this clearly thwarts the future growth option for incumbents from wireless data during the next five years." And what if wireless data is as big and a more profitable business than voice? With their resources spent on expanding into voice and grabbing 3G licences, the existing mobile players will look like weak lumbering giants.
The timing could not have been worse for existing operators. With more than 50% citizens covered (which essentially is 100% of the market-eliminating many women, the elderly and the bone poor), there are fewer chances of significant growth in subscriber volumes. Instead, operators will have to focus more on higher usage per subscriber. After acquiring 3G licences, mobile operators were looking for an opportunity to create products and tariff plans with data-based services as the base product instead of voice-based services, thus unlocking new revenue segments. (read more http://www.moneylife.in/article/8/5639.html ). "We believe that the revenue contribution of new subscribers and incremental revenue from existing subscribers has a greater importance than subscriber growth.
With the operators adopting minute factory model and the secular fall in average revenues per user (ARPUs) and revenues per minute (RPMs), we believe minutes of usage (MoUs) will be the key metric to watch," said Kisan Ratilal Choksey Shares and Securities Pvt Ltd, in a research report.
But with the kind of money and technology that Reliance is bringing in, the operators may not have a chance to push up their MoUs-certainly not enough to cover their high costs of 3G licences. As it is, nobody makes any money in the cellphone business now except Bharti. As voice players become weak, would Reliance be lying in wait to launch a process of "consolidation?" If it does so, it would be a much bigger repeat of what happened in the polyester fibre business-RIL bought the loss-making fibre businesses of Raymond, ICI, RP Goenka and Deccan Polyester one by one at throwaway prices after they had bled to near-death.
Of course, the path of RIL and the voice players will cross right now itself, in a minor way. RIL Infotel already has an Internet Service Provider (ISP) licence, so it can sell both data and Voice over Internet Protocol (VoIP), although it would need to acquire a UASL licence if it wants to offer circuit-switched voice.

Currently, ISPs are not subjected to any revenue-share licence fee. However, on 19th May, telecom regulator TRAI has recommended bringing all ISPs under a uniform licence fee regime, suggesting licence fees of 4%, 5% and 6% of revenue in FY11, FY12 and FY13, respectively. Nevertheless, this should not be any hindrance for big players such as RIL. More importantly, this foray into broadband services has given RIL a virtual free hand compared with incumbent players in mobile and wireless data services. Who knows, tomorrow we may get a data-based tariff plan which may offer unlimited or free talk time.
While RIL does not have any legacy network or technology to burden itself with, all other 2G operators will have to continue 2G services. Operators who have won 3G spectrum may think they have an advantage over broadband, but the technology which RIL is planning to use for its broadband services, is already 4G-ready, leaving incumbent operators in a 'helpless' situation.
Globally, technology has started its progression towards 4G networks. At present, 4G technologies include LTE, ultra mobile broadband (UMB) and WiMAX. For WiMAX, operators have to build a new network whereas LTE only needs an upgrade in existing mobile infrastructure which is already used by over 80% of mobile subscribers globally. This is one of the reasons that many carriers intend to support LTE-which RIL is adopting. Interestingly, according to an RCom spokesperson: "RCom prefers LTE standard, offering a single evolution path for both CDMA and GSM networks."
RCom, of course, is controlled by Anil Ambani, until the other day a fierce rival of Mukesh Ambani on the natural gas issue. Now the junior Ambani is making extremely friendly overtures such as this. Welcoming the entry of RIL into broadband services, a spokesperson of Reliance ADA group said, "We welcome the entry of Reliance Industries into the high-potential wireless broadband space.

As leading telecom infrastructure and content service providers, we look forward to offering our services to RIL and other BWA players, even while we compete for customers in the marketplace through our choice of different technologies." If recent reports about the Ambani brothers spending 'quality time' together in Africa are any indication, we may soon see more than "co-operation" between RIL and ADA group companies-possibly a takeover by RIL of RCom?
In 2003, there were four new entrants in the cell-phone market, the most notable of which was RIL, which began the remarkable telecom foray in 2003 of what is now called RCom. Eight years later there are again four, led by RIL moving into broadband. It is going to be the start of another big wave of changes, the contours of which we can only imagine now.



Manjeet Singh

6 years ago

very good n comprehensive report. The author seems to have thorough knowledge of this subject, like mr. Mukesh Ambani has about this businees. For sure he has played a master stroke and would give existing operators a run for their money.

lalit soni

6 years ago

good & well researched article

Shantidev Mohanty, PhD

6 years ago

Your claim about: " For WiMAX, operators have to build a new network whereas LTE only needs an upgrade in existing mobile infrastructure which is already used by over 80% of mobile subscribers globally." is ABSOLUTELY WRONG. Its shocking to see you are writing false claims in your articles. Can you provide technical materials "not claims by other ignorants like you" to justify your claim.

If you are interested to know the truth here it is:

1. It is easier and less costly to upgrade CDMA networks (deployed by TATA and RCOM) to WiMAX than to upgrade these networks to LTE.

2. India has no 3G networks. But anyway, the cost of upgrading 3G to WiMAX or LTE is about the same.

I can provide you technical materials about my points. So let me know if you are interested to learn and correct your article which you SHOULD DO as a journalist.

It will be nice if you don't write wrong information to pass wrong information.



In Reply to Shantidev Mohanty, PhD 6 years ago

Dear Shantidev Mohanty, PhD
Thanks for posting your comment.
Globally, technology has started its progression towards Fourth Generation (4G) networks. LTE is an upgrade on Universal Mobile Telecommunications System (UMTS). The technology development path is 2G-3G-HSPA-LTE. UMB is an improved technology based on CDMA2000 platform supported by Qualcomm. However, Qualcomm itself has favoured LTE over UMB. (FYI....Qualcomm has more than 3,000 patents of CDMA related technologies to its name.)
Also there are some key differences between LTE and WiMAX which has resulted in operators favouring LTE over WiMAX globally. For WiMAX, operator requires to build a new network whereas LTE only needs to make upgrade for the existing mobile infrastructure which is already used by over 80% of mobile subscribers globally. This is one of the reasons that many carriers intend to support LTE. Also, for WiMAX the spectrum available is still limited to 3.5GHz or 5GHz. The higher frequency spectrum increases the number of base stations WiMAX requires to cover the same area than LTE.
Another point as mentioned by you is CDMA networks. FYI, there are not two but three CDMA operators in India, Tata Tele, Reliance and MTS. All these operators are offering high speed wireless internet services. So there is no incremental benefit coming from WiMAX services as of now. I think WiMAX in India will be just other, additional option to customers apart from DSL, cable internet and FTTH services. Hope this clears your doubts.

We are listening!

Solve the equation and enter in the Captcha field.

To continue

Sign Up or Sign In


To continue

Sign Up or Sign In



The Scam
24 Year Of The Scam: The Perennial Bestseller, reads like a Thriller!
Moneylife Magazine
Fiercely independent and pro-consumer information on personal finance
Stockletters in 3 Flavours
Outstanding research that beats mutual funds year after year
MAS: Complete Online Financial Advisory
(Includes Moneylife Magazine and Lion Stockletter)