Reliance Industries Ltd.

RIL has set the cat among the pigeons in the overcrowded telecom services sector by acquiring Anant Nahata's Infotel Broadband Services. The RIL announcement comes within 20 days of the scrapping of the non-compete agreement between the brothers.

Earlier it made entry into mobile telephony through the CDMA platform in late 2002, this time entry is through the broadband route. RIL said it was acquiring 95% stake in Infotel, which is an Internet Service Provider, for Rs 4,800 crore. This came after Infotel on Friday emerged the only player to have bagged spectrum in all the 22 telecom circles in the broadband wireless auctions for Rs 12,872 crore. Anant Nahata is son of HFCL promoter Mahendra Nahata, but the two do not have stakes in each other.

The acquisition is seen as a masterstroke by RIL, since instead of becoming a plain vanilla voice operator the market for which is overcrowded it has opted for the largely untapped territory of broadband where subscriber base is a meagre 9 million. Broadband also offers huge scope for providing bandwidth to corporates. Currently, India's top 100 cities account for 80-90% of the bandwidth market, providing rich margins. RIL could look at partnering device manufacturers to come out with low-cost devices and enter into alliances with service providers to resell airtime through Reliance Retail outlets.

Given the capex requirement for a rollout, there is no case for WiMAX on a purely data basis. Efficiencies of capex may not be achieved by providing the service on a standalone basis. The business case of entrants in BWA will have to be examined since the massive payouts don't really match business prospects as there is no market on a standalone basis. However, there's a huge market for data services in the years to come. For a ambitious company like RIL, it is in character to start its foray in telecom through entry in data services. In the long run, RIL is bound to be a part of the bigger game. Current regulations prohibit voice services on BWA, but with the passage of time, this can be relaxed. Globally, voice on BWA is at a nascent stage with companies like Sprint in the US trying certain applications.

Compared to 3G players, RIL would have an edge rolling out broadband services since the cost of deploying a WiMAX base station is lower than deploying a 3G network. For instance, the cost of setting a WiMAX BTS is around $14,000 as against $35,000 for a 3G base station. Deployment of services is also faster in BWA than 3G. After spectrum allocation, a WiMAX BTS can be deployed by operators within 90-120 days, whereas 3G network will take at least six months.