Mukesh Ambani’s Big Bang!

The title is not in reference to the recent dandiya played by the Ambani brothers at their ancestoral home. That event did create a huge buzz, whether the two brothers were on the verge of burying their hatchet to come together. However, this is not about that. It is about Mukesh Ambani’s second entry in the Telecom industry. Well, he does plans to use Anil Ambani owned RCOM’s infrastructure to launch his entry. So they are collaborating but where this will lead to is unclear.

Infotel was the only company to bid for and win broadband wireless spectrum (BWA) in all circles. Within a few hours of Infotel winning the spectrum, came the news that Mr. Mukesh Ambani would be acquiring Infotel for $1 Billion. In one masterstroke Reliance became the only pan India wireless broadband player. Reliance would also pay $2.8 Billion for the spectrum won by Infotel. Its total investment in telecom could be taround $5 billion. The seeds of this entry were however laid a few months earlier when the brothers scrapped their non-compete agreement thereby giving the cash rich Reliance Industries more avenues to invest its cash reserves. Mukesh Ambani chose telecom as his first major investment as he was also closely associated with Reliance’s first telecom venture.

Mukesh Ambani re-entering telecom must surely have Mr. Sunil Mittal of Bharti Airtel worried. The first time Reliance entered the telecom market they changed the market dynamics. Bharti Airtel survived that assault. But this time though it looks a tough battle for Mr. Mittal. His problem started when he lost out on the wireless broadband auction (or 4^th generation – 4G) for major markets like Mumbai and Delhi. Bharti was supposed to buy out Qualcomm’s licenses in these two circles. However, due to some technical issues Qualcomm’s bid is in hold and hence Bharti has been left high and dry until Qualcomm sorts the matter out with the government.  These two circles account for major portion of data services. Not being able to launch its 4G services in these circles will be a major loss for Bharti. It seems that it cannot take the first mover advantage in these circles.

The A-Team

To put his big plan into action Mr. Ambani assembled his A-team, led by his trusted lieutenant Manoj Modi. Modi would decide on the highest level of investments. Modi’s brother in law Jyotindra Thacker was also inducted in the team, he was the Chief Information Officer of Reliance at that time. Mathew Oomen, the Chief Technology Officer at US based Sprint-Nextel was brought in to create compelling customer offerings and to ensure that the services and the devices all worked well together. Kiran Thomas, assistant vice president at Reliance and Jagdish kumar, a senior Star TV executive were the other members of the core team.

Another key set of individual’s viz. Bharat Goenka, the MD at SME software maker Tally; Rohan Shravan, the founder of Notion Ink, a tablet making company; and P.K. Bhatnagar he MD of telecom network solutions company Rancore and Kenneth Frank; completed the team.

The Technology

RIL is betting big on LTE (Long Term Evolution) technology for its 4G rollout. Though publicly it has stated that it will be going ahead with LTE, some senior RIL executives say that it is also considering Wimax a rival technology to LTE. While Wimax has the backing of Intel, LTE enjoys support from the GSM club. The problem is that Wimax is ready to be rolled out, LTE, on the other hand is still developing. It will take some time for the LTE to be ratified by International Telecom Union (ITU). LTE handsets are few and the technology costly. RIL won’t be waiting for LTE to mature, if needed it will roll out its services with Wimax. But considering the long term view RIL will eventually have to migrate to LTE as it is faster than Wimax.

Execution

Anil Ambani plays a major role in the execution of elder brother’s ambitious plan. His firm Reliance communication (RCOM) has around 50,000 towers. RIL plans to lease these towers to roll out its 4G services. Further RCOM has a wide and robust fiber optic network which again will come very handy to Mukesh.

The biggest challenge however, is to create compelling service offerings. 4G license terms do not permit RIL to provide voice service. In India voice is the biggest thing. Selling data is hard, which can be seen from the troubles market incumbents are having in selling their 3G data services. Given this background how does Mukesh plan to create a disruption in the market? The answer to this lies in video. Video is as famous as voice and generates a significant amount of traffic, and is easier to sell compared to data. It has been heard that RIL is conducting trials with set top boxes that deliver Television channels, Video on demand and Video conferencing. But for creating something big that will disrupt the market, both supply and demand should match each other. Right now voice is what rules the Indian telecom market. So till the demand for video takes off, Ambani will have to take support of voice.

Selling ‘Data only’ services will be tough. But under 4G license norms players aren’t allowed to sell voice services. This is where Anil Ambani becomes so important to RIL. His network of 50,000 towers will provide Mukesh the ideal base to launch his 4G services.

What devices RIL will launch is still not clearly known. It could be tablet computers or set top boxes. News is that they have tied up with two Taiwanese tablet makers to produce tablets at an attractive price point of Rs. 9000. As of now, the LTE technology hasn't yet matured and devices working on LTE are few. However, the scale of opportunity that Reliance will provide will make vendors to come with products dedicated to its LTE network.

So when is the Reliance juggernaut going to roll into town? Initial launch date was Dec 28^th 2011, the 79^th birth anniversary of Late Dhirubhai Ambani. However, RIL was unable to meet this deadline. Now they plan to launch their service by mid 2012. This launch however is expected to be a muted one with initial rollout in a few metro cities later followed on by complete nationwide rollout.

Mukesh Ambani’s entry in Indian telecom market is sure to be game changer. Existing players are keeping a close eye on the developments at Reliance. Reliance’s second foray in telecom will definitely be a big bang.