Reliance Industries Ltd’s (RIL) plans for its wireless broadband business, bits and pieces of which have become clear over the past few months, bear a striking resemblance to the company’s original plans for its telecom business in the early 2000s, when the Ambanis were one big, happy family and there was only one Reliance.
RIL has completed field trials with equipment vendors such as Ericsson India Pvt. Ltd for the roll-out of commercial broadband services in the second half of 2012 and is now in talks with cable companies and broadcasters to push content on multiple fourth-generation (4G)-enabled devices, three persons familiar with the development said.
According to one of them, RIL could be looking to acquire a significant stake, up to one-third of the equity, in cable companies, though it is yet to ink any deal. This person, who did not want to be named, explained that RIL plans to run exclusive content from broadcasters such as UTV Software Communications Ltd, Zee Entertainment Enterprises Ltd, which runs Zee, and Multi Screen Media Pvt. Ltd (MSM), which runs Sony. The company has had discussions with these firms.
It is also looking at regional broadcasters and is in talks with Warner Bros India for content.
Indeed, details that Mint has put together, from scraps of information collected from several people and companies, many of whom wanted to remain unnamed, paint an ambitious picture that spans content, including entertainment, information and education, and commerce—almost identical to the so-called triple play strategy Reliance had for telecom in the early 2000s.
A key component of the plans is access. India’s cable companies reach 100 million households, streaming television channels to them. A recent law has made it mandatory for them to digitize their services, at significant investment, which, analysts say, may make the prospect of a partnership with RIL that much more attractive.
Mohit Rana, a partner at consulting firm ATKearney, said that by exploring the television and cable space, RIL was looking to tap another potential 100 million screens for its broadband services and drive the triple play offering.
Emails sent to Zee group and Warner Bros did not elicit any response, while an MSM spokesperson declined comment.
Rohit Gupta, president of MSM, said he’s not surprised about the fact that RIL is talking to broadcasters. Terming 3G telecom networks “a disappointment” in this context, he added that his company “as a broadcaster is geared up for media convergence and will deliver content to any new platform”.
RIL spokesman Tushar Pania declined to offer any comment for the story. An RIL official, speaking on condition of anonymity, said: “We are still in the process of finalizing our broadband plans and there may be some announcements around April. Our services will be location- and device-agnostic, and we will target both wired and wireless devices.”
Ambitious as the plan may be, it has its doubters. Some analysts say RIL doesn’t have a fibre-optic backbone to support it. Nor, they add, does it have enough telecom towers.
There has been some talk of RIL piggybacking on the network and towers of Reliance Communications Ltd (R-Com), controlled by Anil Ambani, who was given the business as part of a family settlement in 2005, after a bitter fight with elder brother Mukesh Ambani, who controls RIL. The brothers have since reconciled. Analysts said a partnership seems logical because to build a national network from scratch at this point, RIL will have to pump in at least $10 billion (Rs. 50,300 crore), and wait at least four-five years.
The analysts also point to the failure of R-Com and the indifferent performance of Reliance Retail Ltd to reiterate an oft-voiced criticism of both Reliance groups—that they aren’t good in consumer-facing businesses.
Still, there is a genuine sense of excitement in the market about RIL’s big push.
On Thursday, shares of Den Networks Ltd hit the upper circuit on BSE following reports that Reliance Strategic Investments Ltd, an RIL subsidiary, bought a 1.14% stake in the company.
Sameer Manchanda, chairman and managing director of Den Networks, did not revert to Mint’s calls or text messages.
Ashok Mansukhani, president of MSO Alliance, a lobby of multi-system operators (large cable companies), said RIL was creating a walled garden for content, which will give new opportunities to VAS (value-added service) providers and open up space for new niche channels.
While analysts are sensing behind-the-scenes action now, RIL has been preparing itself for the big leap into the space steadily for quite some time.
In November, Reliance Strategic Investments acquired a 38.5% stake in an online tutoring company, Extramarks Education Pvt. Ltd; it plans to use this company’s content on its 4G platform.
Ahead of that, in 2010, it paid $1 billion to acquire 95% in Nahata-family controlled Infotel Broadband for broadband wireless access spectrum. In June 2010, RIL’s top executive Manoj Modi and chief financial officer Alok Agarwal had told analysts that their total investment, including the acquisition of 95% of Infotel Broadband, would come to around Rs. 22,000 crore.
Renamed Reliance Infotel, a subsidiary of RIL, Infotel Broadband became a pan-India player after winning licences in 22 circles. In July 2011, it had stated its plan to roll out “an asset-light strategy” that would involve forging “several strategic relations with a host of leading global technology vendors, service providers, infrastructure providers, application developers, and device manufacturers”, according to a 25 July 2011, RIL release.
Tablets plus data
RIL’s 4G play, according to people familiar with the deal, is expected to be launched with competitively-priced tablets across 700 cities bundled with data plans priced around Rs10 per gigabyte. This approach is, again, similar to the one the company used in the telecom market where it launched a bundled offering (phone plus service) at a very competitive rate, setting off a price war that many people hold responsible for the exponential growth the mobile telephony market in India saw.
Analysts say that TD-LTE (the wireless broadband technology platform chosen by the company) holds promise, and just that.
Rajiv Sharma, telecom analyst with HSBC Securities and Capital Markets (India) Pvt. Ltd, wrote in a 16 January report: “TD-LTE is still at a nascent stage with the ecosystem not developed to offer voice and limiting the scope to participate in mass market data offerings.”
Reliance Infotel doesn’t have a licence to offer normal telephone services, but will probably provide Internet telephony services.
While HSBC is increasingly confident that TD-LTE will be a viable global technology, it doesn’t expect RIL to benefit meaningfully until 2014.
“A possible commercial launch towards end-2012 by RIL cannot be ruled out, but only data cards followed by high-end handsets in 2013. Not until 2014 could TD-LTE volumes enable handset prices to fall within reach of the mass market,” Sharma wrote.
ATKearney’s Rana said it will be a challenge for RIL to profitably roll out a completely greenfield pan-India 4G network on TD-LTE, “as that requires a massive network infrastructure, which will take time to deploy and stabilize”.
“RIL could base its strategy on partnering or acquisitions, wherein it gets an existing 2G and 3G footprint, and offer its 4G services as an overlay in select pockets,”he said. “I do not expect them to go fully mobile with 4G to start with—they may begin with nomadic services and mobility option may be added as the device ecosystem evolves.”
Sanjay Dhawan, vice-president at Ericsson India—which has conducted TD-LTE field trials for wireless broadband companies—agreed that the TD-LTE ecosystem has to evolve. However, he pointed out that his company is ready with commercial TD-LTE products for mass deployment.
Augere Wireless Broadband India, which won a licence for the Madhya Pradesh circle, selected Ericsson in October to provide an end-to-end LTE solution.
Kamlesh Bhatia, research director with Gartner, a research firm, said wireless broadband companies start off at an advantage because “3G operators went overboard when bidding for spectrum, and now are left with less money to innovate”. He added that the spectrum given to telecom companies with 3G licences, 5 megahertz, is inadequate to support services such as streaming, video and gaming.