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Indian monolith stirs up telecom
market
By Raju Bist
MUMBAI -
With total sales of Rs 700 billion (US$14 billion),
Reliance is India's largest business group in the
private sector, having interests in textiles,
petrochemicals, oil and gas, petroleum, financial
services, insurance, telecom, media and power. But even
when it was small, Reliance always thought big.
Way back in 1981, it set up a grassroots
10,000-tonnes-per-annum plant on the outskirts of Mumbai
in a record time of 18 months for the manufacture of
polyester filament yarn. Two years ago, it erected a
27-million-tonnes-per-annum refinery at Jamnagar in the
west Indian state of Gujarat. It is the largest
grassroots refinery in the world. Six months ago,
Reliance struck one of the largest gas reserves in Asia,
and one of the group's companies announced that it had
discovered 9 trillion cubic feet of gas in the
Krishna-Godavari river basin in south India.
Now, the Indian business giant is at it again,
this time in the telecom sector. One of its divisions,
Reliance Infocomm, is set to change, through a two-stage
process, the way that Indians communicate with one
another. The company is investing Rs 250 billion in this
new venture.
The services have been classified
into four categories - voice, video, data and "managed"
(end-to-end network services etc). Voice services will
comprise telephony, calling cards, audio conferencing
and mobile (cellular) services. The offerings in the
other categories include video streaming, video
conferencing, virtual private networks, broadband
Internet bandwidth and security services.
US
technology major Qualcomm has expressed interest to
invest $200 million in the project. It is the supplier
of the code division multiple access (CDMA) technology
that Reliance is using for its mobile services. Reliance
has already placed an order worth $500 million with LG
and Samsung for CDMA handsets.
In the first
stage, to be flagged off next fortnight, the company
will introduce a mobile service, being promoted as "the
poor man's mobile" that promises rock-bottom rates and
unheard-of features. The second stage next year will see
the launch of a wide variety of data services when 700
Indian cities and towns will be connected through 60,000
kilometers of broadband optic fiber cable network.
Reliance Infocomm was not an early bird on the
Indian telecoms scene, one of the fastest growing
sectors in India. One of the biggest beneficiaries of
the Indian economic reforms launched in the first half
of the 1990s, the telecom sector has undergone a
complete metamorphosis. The humble telephone, once
considered a luxury with Indians having to either bribe
their way or wait for up to five years for a new
connection, is now commonplace. Today about half a dozen
companies offer basic (landline) services. Another dozen
companies have made huge investments in the mobile
segment.
But even though it arrived late on the
scene, Reliance Infocomm has already created a buzz in
the market place with people talking about its ambitious
plans. Some competitors are worried that the monolith,
with its access to deep pockets, will crush them. The
new company is selling its mobile services and handsets
mostly through 150,000 freshly-appointed agents and
dealers who stock products of rival companies are
worried that customers may simply ignore them now.
Banking and finance circles are wondering loudly if
Reliance Infocomm will be able to meet the target of
garnering a turnover of Rs 40 billion that it has set
for itself for the very first year.
One group is
not having any sleepless nights: users of mobile phones.
Most consumers are salivating at the thought of paying
only Rs 0.40 per minute for long-distance calls compared
to the average Rs 2.50 that the competition is charging.
Reliance is also offering Internet and multimedia
messaging services, downloads of MP3, streaming video
and free SMS service. The handsets can even be used as
modems.
Reliance Infocomm has already tied up
with movie production houses and music video makers for
streaming audio and video trailers to be delivered on
the handsets. Marketing companies are being pitched a
new bait: the delivery of targeted advertisement and
information videos to users of Reliance mobile sets.
For those not in a position to fork out Rs
15,000 up front (for three years), Reliance Infocomm has
tied up attractive financing options with leading banks
and financial institutions. "The Reliance strategy will
initially be aimed at taking as many subscribers as
possible on board with lucrative offers so that the
subscriber base can later be capitalized to earn
revenues from services like long distance traffic," says
telecoms expert Meghna Dasgupta.
Voice services,
to use the words of a senior Reliance Infocomm official,
are "merely the trailer. The main show will begin when
we launch our data services". Unveiling the highlights
of his project before the Mumbai press, Reliance Group
chairman Mukesh Ambani said, "We will offer complete
end-to-end data services so that companies need not
invest in setting up their own network infrastructure
while we get the cost-advantage on scale of economies."
The possibilities are limitless: banks
conducting up-to-the-minute transactions with their
branches all over the country; a teenager downloading
music and video clips to his mobile phone; a consumer
product company knowing its latest stock position with a
nationwide network of dealers; software professionals
using the Reliance network to undertake IT services for
clients abroad; a broker trading in stocks; a family
watching television and surfing the Internet through the
same cable; trucking companies tracking vehicle
movements.
Reliance Infocomm has set itself the
ambitious goal of earning 40 percent of its total
revenue in five years from the data business and 25
percent of mobile services revenue from the data
business in five years.
That there is no limit
to Reliance's marketing shrewdness is evident from the
manner in which the company is tying up with a
hitherto-untapped segment: Public Call Office (PCO)
owners. A typical Indian innovation, a PCO is a small
roadside office offering the common man economical,
under-one-roof services like telephony, faxing,
tele-conferencing and e-mail.
In the east Indian
city of Kolkata, for example, Reliance Infocomm is
luring PCO owners away from the government-owned BSNL
(Bharat Sanchar Nigam Limited) by offering a higher
fiscal incentive (25 percent as against the 20 percent
they are receiving now). In addition, Reliance has
assured the PCO owners that their faults will be
repaired within six hours as against the minimum 24
hours that BSNL normally takes. In Kolkata, the company
is laying 1,500 kilometers of optic fiber cable.
The competition, however, puts on a brave face
and predicts that Reliance Infocomm's stress on data
services will come to nought. "Today, data constitutes
only 3 percent of mobile companies' revenues. The
worldwide average is only 10 percent," says T V R
Ramachandran, director general of the Cellular Operators
Association of India. "India will remain a voice market
for many years to come."
Some competitors also
argue that Reliance will not be able to outperform in a
service business (as opposed to the commodity businesses
it has operated in so far). Other players take comfort
in the fact that the Indian affiliates of foreign
cellular companies (Hutchison, Orange, AT&T) with
their deep pockets can match tariff for tariff and
subsidize mobile users if need be to beat Reliance at
the telecom stakes. Says a senior manager at a
multinational cellular operator, "There is no reason to
think we will be dead. We will be able to take on
Reliance Infocomm."
The competition's real
grouse, however, is not against Johnny-come-lately
Reliance Infocomm but against the government, which,
until recently, had a firm stranglehold on all telecom
activities in the country, starting with legislation. To
better understand the gripe, a little bit of historical
perspective is in order.
Mobile telephony first
arrived in India eight years ago. The government divided
the country into a dozen different "circles" and
auctioned the mobile licenses to two of the highest
bidders in each circle. Simultaneously, it also threw
open cheaper tenders for basic (landline) licenses for
major parts of the country. The new players, Indian as
well as foreign, adopted the Global Systems for Mobile
(GSM) technology and made exorbitant bids.
Indian consumer durables companies, BPL, for
example, picked up the license for Mumbai, India's most
commercial city, for a whopping Rs 30 million. American
telecom giant AT&T got Maharashtra (excluding
Mumbai), the state of which Mumbai is the capital, for a
similar amount. The licenses would be valid for 15
years. Curiously, Reliance Infocomm, (then called
Reliance Communications) picked up the basic licenses
for nearly the whole of India but opted for cellular
licenses only in the circles falling in northeast India,
eschewed by other players due to perennial insurgency
problems there.
To people who asked, Reliance
said that it already had basic licenses to cover a major
part of the country and would use the latest Wireless in
Local Loop (WLL) technology to provide the crucial
"last-mile" connectivity for its mobile users. Five
years into the GSM game, however, the cellular operators
realized that they had overestimated the size of the
market and turned to the government for help. "They [the
GSM players] lobbied successfully and entered into a
revenue-sharing arrangement with the government," says
telecom analyst George Mathew.
The fracas is now
between the GSM camp (with AT&T, Hutchison, BPL,
Orange and Airtel as its major players) and the WLL
lobby (dominated by Reliance, with Tata Tele Services
and the government-owned Mahanagar Telephone Nigam Ltd
bringing up the rear). Both jointly cater to 10 million
cellular subscribers. The GSM camp accuses the
government of not setting a level playing field.
"WLL players like Reliance Telecomm stand to
gain because they have not paid the exorbitant license
fees that we did initially," says the communications
manager at a major GSM cellular firm. To which a rival
from the opposite WLL camp retorts, "Who asked them to
be so greedy in the first place? Anyway, their costs
dropped drastically once they got into the
revenue-sharing mode with the government." He then
bestows a parting shot, "The GSM players are only crying
wolf. Haven't they made enough money by fleecing the
Indian customer in the initial years, charging him up to
Rs 17 for every minute of air talk?"
Reliance
and controversy have always gone hand-in-hand and the
top honchos at the business group are taking the latest
episode in stride. "I always tell my team that in an
open market, the competition will try to generate better
value for the customer. So we always have to be on our
toes," Ambani has been quoted as saying. "If at all
anybody is at a disadvantage, it is Reliance which is
entering the sector as a 100 percent Indian company."
Unfazed by the latest round of bickering, Ambani
and his senior team are putting in 18-hour days, giving
the finishing touches to the final rollout from their
offices in the National Network Operations Center of
Reliance Infocomm at the Dhirubhai Ambani Knowledge
City, spread over a sprawling 140 acres in Navi Mumbai
Speaking at the soft launch last December,
Ambani said that he planned to add 1 million subscribers
every month once Reliance Infocomm's services had been
fully launched. The chairman said that Reliance was
hopeful of gaining a 25 percent market share by the end
of 2004.
Apart from the regular cell phone
dealers, Reliance has also changed the ground reality at
the retail level as well. It has tied up with businesses
like bakeries and chemists as part of an aggressive
marketing strategy.
Within two days of the
bookings being thrown open, Reliance Infocomm had roped
in a million customers in 100 cities and had garnered Rs
12 billion worth of revenue.
Reliance notched up
big figures - once again.
(©2003 Asia Times
Online Co, Ltd. All rights reserved. Please contact content@atimes.com
for information on our sales and syndication policies.)
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