Reliance Industries chairman Mukesh Ambani has once again surprised the market. Ever since RIL re-entered the telecom space last year by acquiring Infotel Broadband, the only company to have spectrum for broadband wireless access across India, there has been speculation as to how Ambani would spread his wings in an overcrowded market. And not without good reason. When Ambani entered into the telecom space with a bang in 2002-03 through Reliance Infocomm, the market certainly changed in terms of affordability of mobile phones and growth leap-frogged. Telecom czar Sunil Mittal is on record to have confessed that those were the days when he was seriously perturbed. But the 2005 de-merger which saw the telecom arm go to younger brother Anil Ambani put an end to Mukesh?s telecom dream. It was the patch up between the brothers in 2010 and ending of the non-compete clause between them which saw RIL once again foray into the telecom space.

On January 3, Mukesh surprised everyone by getting into an arrangement with Raghav Bahl?s Network18 Group to help it tide over its financial constraints and in turn also entering into an exclusive arrangement to offer Network18?s content to its broadband customers when the services are launched. It was a surprise because the market was expecting Ambani to first enter into some kind of arrangement with his younger brother for sharing the latter?s telecom towers and bringing some respite to Reliance Communications? huge debt of around R34,000 crore. Such speculation had also gained strength when last month the brothers had gathered at Chorwad in Gujarat to celebrate the birth anniversary of their father Dhirubhai Ambani.

The Network18 deal is by no means a small achievement for Mukesh who?s planning to launch his broadband services sometimes this year. At one stroke, he?s got content of over two dozen TV channels and over half-dozen web properties of Network18 and TV18, which Infotel?s subscribers can tap on a preferential basis.

Broadband, through landlines, is still in nascent stages in the country with only around 13 million subscribers and talks and efforts are on to make it grow like mobile telephony. Even mobile operators, the bulk of whose earnings come from voice services, are reaching saturation point and therefore data and broadband services are seen as an area of growth by them. The country?s largest telecom operator Bharti Airtel has already declared that it is not a mobile operator but a lifestyle company offering telephony, music, TV, entertainment etc. Therefore, the arrangement sewn by Mukesh is certain to make rivals like Bharti, Vodafone and others to sit up and think of how best they can counter the challenge Ambani may throw at them in future.

It has to be kept in mind that it isn?t going to be a cakewalk for Ambani in the manner it was in 2002-03. He has advantages in the broadband space with 20 Mhz spectrum and pan-India licences. But his biggest limitation is that he does not have voice

services to offer in the near future and has to start acquiring customers from scratch while his

rivals have over 100 million users each?in even the US, where usage of

data services is quite

high, pure-play broadband operator Clearwire couldn?t survive.

Further, it is not possible for Infotel to fully monetise its exclusive content arrangement with Network18 as any services thus offered will have to be priced quite low. An average consumer pays around R150-200 per month for cable TV services and is unlikely to want to pay more than that for any tablet-

enabled broadband services being

offered by Infotel.

Ambani has two options if he wants to offer voice services on his 4G tablets?tie up with an existing mobile phone firm (younger brother Anil?s RCom?) or wait for the new telecom policy which will de-link licences from spectrum. He can then buy 2G spectrum from the market and start providing a full bouquet of services. In both scenarios, he can mount a serious challenge to incumbents like Bharti Airtel and Vodafone.

How are operators like Bharti or Vodafone placed to take on the challenge and compete to protect their turf? The major advantage they have is a user-base of over 100 million each and 3G spectrum. Bharti with a subscriber base of 3.3 million in the broadband segment is already the second largest in this space and has BWA spectrum in four circles. If it enters into big content partnerships with content firms, it is well placed to take on any challenge. Seen objectively, forging content partnership is not difficult with many providers available and it brings only incremental advantages to any operator. The biggest limitation it suffers is that its 3G spectrum is inadequate (at 5 Mhz) to be able to pack both data and voice services, and it does not have BWA spectrum in all 22 telecom circles. Partnership with others to make the most of the scarce spectrum is possible but the way the operators have got into regulatory hurdles with their intra-circle 3G roaming pacts, any such arrangement is fraught with risks. If auction of 2G or 3G spectrum happens in the current year it may throw up an opportunity for them.

To conclude, the coming days are certain to see much excitement in the telecom space as RIL further unveils its moves and incumbent operators like Bharti also ready their strategies to counter such challenges.

rishi.raj@expressindia.com