Reliance Industries, owned by Mukesh Ambani, is likely to use the towers and fibre optic cables of a telecom company controlled by younger brother Anil to provide high-speed data services, marking the first major collaboration between the siblings after they carved out the Reliance empire between themselves in 2005.
In May 2010, the Ambani brothers terminated a non-compete agreement that had been in place for five years, allowing RIL’s re-entry into telecom. Subsequently, India’s largest private sector company acquired licences for nationwide wireless broadband services for Rs 13,000 crore, the only company to do so.
RIL, which had invited bids earlier this year from telecom tower operators for leasing around 26,000 towers for the first phase of its wireless broadband foray, plans to source most of its infrastructure from Reliance Communications or RCom, the telecom arm of the Reliance ADA Group, the industrial house set up by Anil, two people aware of the development said. RCom’s bid was likely to be favoured over the two independent tower firms, they added.
The partnership between the Ambani brothers would not involve any equity investment by RILin RCom, the people said. They spoke on condition of anonymity because the sensitivity of the matter.
Rumours that RIL would buy into RCom have surfaced at periodic intervals for many months. Both companies have not commented publicly on these rumours. The spokesmen of RIL and RCom said they would not comment on speculation.
But a RIL official said that no decision had been taken. “We had issued a tender and all tower and fibre companies had given their quotes. We have not decided anything so far.”
In August 2010, Reliance Communications was in negotiations with GTL Infrastructure, the largest independent telecom tower operator, for a merger creating a company that would be owned by GTL Infra and RCom shareholders. The valuation of the combined entity was based on a future tower lease agreement with Reliance Industries.
However, in October last year, the merger, which would have resulted in a company owning 80,000 towers, was called off. RIL has sought to lease towers at Rs 19,000 a month, compared with an ongoing rate of Rs 24,000-31,000, said two officials at leading tower companies.
In addition to towers, RIL will use Reliance Communications’ optic fibre network and transmission facilities such as national and international long distance networks to carry its data traffic. The deal will enable RIL to access around 50,000 towers of Reliance Communications that dot 1,500 cities and towns in the country.
The partnership will also enable it to carry data traffic on RCom’s pan-India 2.8-lakh km fibre optic network, which, analysts say, is amongst the largest and most robust in the sector. RIL acquired Infotel, a company that won pan-India spectrum for broadband wireless access last year, and ET reported last month that the group plans to start fullscale commercial operations by mid-2012, by which time it expects to have its networks ready across all major cities.
The company also plans to source wholesale voice services from RCom and offer it through bundled deals to its data customers. Both companies will also work towards launching cheapertablet devices, similar to those offered by RCom that are currently priced at Rs 12,999 apiece. Officials from both companies have said they plan to bring that price down to Rs 6,000 in about one year.
Reliance Industries’ entry is expected to trigger a tariff war in the data services space, say industry experts. The Mukesh Ambani company may offer data at as low as Rs 10 per gigabit of data, say people familiar with its plans, compared with Rs 100 for most operators now.
An industry executive aware of the ongoing parleys between the two companies said RIL would bundle GSM-based voice offerings from RCom to its data customers.
In the first phase, RIL plans to offer fourth-generation or 4G-enabled data cards that can be plugged into computers and laptops, and these devices have the provision to bundle GSM-based voice services, this executive said. The new 4G tablets and prototypes of these devices, that may be sourced from Chinese and Taiwanese original equipment makers, also have the facility to bundle GSM-based voice faculties, the executive added.
Currently, RIL can only offer data services, according to its licence conditions, although technology allows it to easily offer voice services. Telecom Minister Kapil Sibal had recently unveiled a new policy that would allow winners of last year’s broadband auctions to offer voice services, enabling RIL to become a fullfledged service provider.
RIL has also formed a core team, most of whose members were part of its first telecom foray nearly a decade ago, to handle infrastructure sourcing and coordination. Jyotindra Thacker, the brotherin-law of Manoj Modi, has been entrusted with the task of executing the project.
Mathew Oomen, who held several key positions in Reliance Infocomm and Flag Telecom before moving on to become the chief technology officer at US-based telecom operator Sprint-Nextel, will be responsible for bundling voice with RIL’s data offerings, executives aware of the developments said.