RIL drawing up plans to foray into telecom space

The board of Reliance Industries (RIL) is believed to have approved plans to enter the Indian telecommunications sector when the opportunity arises, two persons familiar with the development told ET.

India’s largest private sector company is expected to go for only the lucrative corporate bandwidth market, or the business of selling telecom and internet services to companies rather than individuals.

It is likely that the company could unveil its intent to foray into telecom at its annual general meeting on June 18, the people familiar with its plans said.

The government is currently auctioning frequency spectrum for broadband wireless access, or WiMAX, a technology that speeds up internet access and RIL is likely to set up a special purpose vehicle (SPV) to acquire one of the winners.

The RIL board met recently to endorse these plans, says a person who has seen a copy of the resolution passed at the meeting.

It is widely believed in industry circles that Mahendra Nahata-owned Himachal Futuristic’s arm, Infotel Broadband Services, could be a candidate for acquisition by RIL.

Infotel is currently among the bidders in the broadband wireless auction and is competing with the likes of Qualcomm, Anil Ambani’s Reliance Communications (RCOM), and Bharti Airtel, India’s largest telecom company by subscribers.

“Himachal Futuristic doesn’t have enough money of its own to be bidding,” said a telecom analyst with a domestic brokerage. Infotel’s bid is likely to be backed by Reliance Industries, he added.

Mr Nahata declined to comment on whether RIL or any of its arms intended to buy the company. The RIL spokesman declined to comment on the company’s future telecom plans.

The bid price for all-India spectrum was Rs 12,257 crore at the end of 110 rounds of bidding on Wednesday. Bidding for Delhi, Mumbai, Kerala and Himachal Pradesh is still on while there is a surplus spectrum slot in eight service areas. Nearly 37% of the bid amount for spectrum for all circles in India is from areas that are still under contest.

Infotel is separate from the rest of Himachal Futuristic, which operates telecom services in Punjab and offers some leased-line services. Infotel is a two-year-old entity, with the stated objective to roll out WIMAX across all circles in India.

The telecom business is seen as a favourite of Mukesh Ambani, the chairman of who incubated Reliance Infocomm prior to the bifurcation of Reliance in 2006. Now known as Reliance Communications—India’s second-largest telecom company by subscribers—it is owned by Anil Ambani. As part of the division of business in 2005, the two had agreed not to compete with each other, barring elder brother Mukesh from participating in Indian telecom. In May this year, the two brothers called off their non-compete agreements on all businesses other than gas-based power, enabling Mukesh Ambani to enter the telecom sphere.

According to current regulations, the department of telecommunications bars promoters from exiting for three years since receipt of spectrum. However, under a recent proposal by the Telecom Regulatory Authority of India, which seeks to do away with the three-year lock-in, RIL may freely acquire Infotel. “The M&A proposal (by Trai) is likely to get accepted without change,” the analyst said. But even if Trai’s recommendations are not accepted, an investor is free to acquire a stake in a spectrum winner by buying new shares. Once it has wireless spectrum, Reliance Industries need not incur capital expenditure cost on laying fibre optic cables across the country to back-end its services, because there is excess supply of those, industry experts said. “The company can quite cheaply lease national long distance cable network,” said a senior official at a telecom company, asking not to be named.

It is rare for a telecom company to sell only to companies, ignoring retail consumers. The only comparable initiative to what RIL seems interested in would be Tulip Telecom. But Tulip is small and has found it difficult to expand business beyond a point, the analyst with the domestic brokerage said. Tulip offers companies wireless bandwidth solutions, including virtual private networks, on radio spectrum that is free for use. Only last month, the company announced plans to start its own overseas hubs for customers that required access globally.

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Comments

  • khalid  On June 12, 2010 at 12:18 am

    Anil’s R.Com is doing well and now a competitor for him from family itself, lets see how Mukesh succed in this field.

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