The influence of Reliance Infocomm on the Indian Telecom Scenery

Reliance industries have straddled the Indian economy like a giant. Dhirubhai Ambani knew the value of political contacts. There was a write up on him recently, which Rediff had carried out. It is clear from his public pronouncements that he valued political contacts for furthering the established businesses. For the same, he was known to have “managed the environment”. In effect getting regulatory approvals from the hair brained idiots who had choked the growth of the industry because of their narrow vision. How he created the world’s largest grassroots refinery at Jamnagar, Gujarat is a story in itself. Reliance has always thought big and achieved its aims; the one it sought out to do.

However, platitudes apart, the thrust of the post is on the telecom venture. I had earlier mentioned the concept of choke point. Having interests in the petrochemicals, Reliance has artificially raised the ceiling prices for its products. This has a detrimental effect on the economy. The monopoly does not affect us directly, and out of scope here. Yet the basic ingredient of this post is that Reliance is capable of leveraging its might to capture the market at any cost.

Realizing the potential in Telecom early on, Reliance set out its GSM network in the Northeastern states. However, that was the pet project of the younger brother and is not really much in the news. I had heard someone that the customer service remained excellent, yet the prices were excessively high. I may be wrong since it was not a direct experience. However, these people know the value of first mover advantage that I have been repeatedly mentioning. This explains their breakneck expansion in areas where BSNL had set up their exchanges. By the end of the year, they hope to cover 3/4th s of Indian land mass.

Reliance got a fixed operator license and used the same to provide “mobile” services. The head on collision arose with the GSM operators when Reliance offered, “Roaming” facility using its call divert feature. After the outcry settled down, the government of the day announced a change in the telecom policy and ushered in the ear of unified services. The timing of course is a suspect. Reliance got the spectrum dirt-cheap by paying the license fees for fixed line services. They converted the same into full-fledged mobile services by paying a meager amount that did not hurt them in any way; given the massive plans of 25000 crores investment. Contrast the existing GSM operators who outbid in their enthusiasm to provide “cheap” services to Indians.

The initial foray to provide services was a dampener. The demand projection was over projected and advertising was slack. Then came in the all-infamous Monsoon Hungama scheme, which saw the fastest addition of mobile customers’ Indian telecom ever saw. The reason why it was “infamous” was that people signed on in little realizing the fine print when they would have had to surrender their phones. The billing system threw up glitches that took a long time to rectify. I feel that Reliance’s strategy was right considering that it has healthy mix of post paid and pre paid customers. In fact, unlike GSM operators, who relied on pre paid services to ramp up volumes, Reliance has a winner at its hands.

The launch of pre paid created the real buzz in the market. The prices saw a real drop across board for all the customers. I believe that part of the reason why people remain with the previous operators is that they do not wish to change their numbers. If the number portability across the networks becomes a reality, it would be a serious competition to other established GSM players.

Driving the growth is Reliance’s strategy to dominate the entire spectrum of Telecommunications market. With this objective, it bought over Flag telecom. It laid down its optic fiber throughout the length and breadth of the country. Very soon, it may be launching its broadband. In fact, from insider sources I gather that it may be as early as next month. Yet, the same can be postponed, and cannot be said with certainty. In the scheme of the things, they plan to offer streaming video and triple play over the optic fiber.

All this points towards their quest for dominance and act as choke points. Any ISP needs a gateway; it would have to go to Reliance. Any operator needs a gateway to route its international calls, would have to go to Reliance. Any customer down the line needs to access cable TV services would have to go to Reliance. It is a distinct possibility because Reliance is very aggressive in its approach towards customers.

The financial engineering that its owners did is a case that stands out like a sore thumb. By routing investments illegally, Mukesh Ambani made sure that the Reliance investor indirectly invested in his telecom business. The same was reported extensively in Business World. Though the company has denied such claims, it remains to be seen how this could be sorted out. The matter had barely settled when Reliance was accused of diverting the international calls as local in order to avoid paying the Access Deficit Charge. It is surprising that despite all these events, Reliance managed to get award for corporate excellence! None other than by Business World! Irony of fate; sad reflection on the state of media.

Admittedly, there many issues that need to be pointed out, yet this venture of Reliance is worth looking out for. If media reports are to be believed, Ambani might just sell this off given the right valuation. This remains the topic of speculation and I do not wish to go further in the same.

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This post was submitted by Dr. Abhishek Puri on the Broadband Blog on Techwhack.