Reliance Industries Ltd (RIL), India’s most valued private company, said on Friday it will acquire a 95% stake in Infotel Broadband Services Pvt. Ltd, for Rs4,800 crore, marking the re-entry of Mukesh Ambani into telecom, five years after he exited in favour of his younger brother Anil Ambani to settle “ownership issues”.
Infotel Broadband, which won a licence to roll out broadband wireless services in 22 circles across India for Rs12,847.77 crore, is managed by Anant Nahata, and will now become an RIL subsidiary.
This is Ambani’s first investment in a sector where his younger brother is present, following the scrapping of a non-compete agreement in the last week of May. The two had entered into that agreement during a family settlement in 2005.
“We see this as the next wave of value creation opportunity in the wireless broadband space,” Ambani said.
A Reliance-Anil Dhirubhai Ambani Group (R-Adag) official spokesperson said, “As leading telecom infrastructure and content service providers, we look forward to offering our services to RIL and other BWA (broadband wireless access) players, even while we compete for customers in the marketplace through our choice of different technologies.”
Some analysts expect RIL may team up with R-Adag in telecom. A 24 May report of Goldman Sachs analysts Nilesh Banerjee and Nishant Baranwal said: “We believe RIL could either potentially seek inorganic growth via alliances with existing operators, or could also seek operational synergies of its retail vertical with R-Adag’s telecom business.”
RIL said it would adopt an asset-light approach and would move ahead by forging “several strategic relations with a host of leading global technology players, service providers, infrastructure providers, application developers, device manufacturers and others”.
Significantly, Anil Ambani-controlled Reliance Communications Ltd (RCom) exited the BWA auction a week back as it found the prices too high. Sources at RIL, however, hold a different view. “There is money in data and not in voice,” they said.
Telecom has been an area of interest for the RIL chairman, who incubated the undivided Reliance’s telecom arm (the erstwhile Reliance Infocomm Ltd) that went to his younger brother.
Ambani may be looking for his next big project, given that RIL will generate cash surpluses of Rs25,000 crore every year.
Rolling out broadband services may be more challenging than a telecom network. Bhagwan D. Khurana, a well-known telecom expert who helped RCom roll out its network and put fibre underground across India, said RIL will not set up the network in bits and pieces.
“He (Mukesh Ambani) will roll out the network on a national scale before he launches services across the 22 circles,” Khurana said, adding bandwidth will be leased from existing telecom operators, adding to the challenge.
Others say there may be advantages to entering the industry through wireless.
“The average revenue per user for mobile services providers has been declining and if RIL were to invest in a fully operational mobile services provider, the valuations would have been higher than what it is paying for Infotel,” said Jaideep Ghosh, executive director at audit and consulting firm KPMG. “By gaining access to wireless broadband, it can not only cater to retail users, but enterprises, including other mobile telephony companies, as well.”
The industry will also watch RIL’s use of technology. The two competing systems are worldwide interoperability for microwave access, or WiMAX, and long term evolution, or LTE.
Among the most vocal supporters of WiMAX is chip maker Intel Technologies, while wireless technology chip maker Qualcomm, which has won BWA auctions for four telecom circles, has been backing LTE.
When Mukesh Ambani had rolled out telecom services, he had bet on Qualcomm’s CDMA technology, going against the majority of operators who voted for GSM.
