Archive for February, 2014

Reliance’s Focus on the Telecom Sector

February 26, 2014

Mukesh Ambani is no stranger to the telecom industry. It was him who brought his father’s dream of bringing a low-cost mobile network to the country into fruition. It came as no surprise when Ambani’s Reliance Industries Limited entered the telecom business in 2010. With many strategic acquisitions and smart investments, Reliance Jio Infocomm Limited (RJIL) has seen the light of day. RJIL is the only company to have a pan-India 4G license.

As a result, with a view to strengthen their position in the telecom sector, RJIL was expected to bid aggressively in the spectrum auctions; and they did just that. At the end of the fifth day of auctions, he total bidding had crossed a whopping Rupees 55,000 crore. The auction covered 46 megahertz (MHz) of spectrum in the 900 MHz frequency band in three telecom circles – Delhi, Mumbai and Kolkata – and 385 MHz of spectrum in the 1800 MHz band in all the 22 telecom circles. Reliance Jio had been an active bidder in both frequencies from day one. A Goldman Sachs report commented, ‘Although no operators have been named, we believe that (based on earnest money deposited) the leading operators in the auction are likely Idea Cellular and RJIL, along with the incumbents Airtel and Vodafone.’

But why does Reliance Jio need the spectrum, when its initial plan was to remain a nationwide data operator in the world’s fastest-growing Internet market with 200 million users, mostly on mobile?

The need for Voice:

India is the world’s fastest-growing internet market. Over 200 million users and that number’s continuously rising. In spite of having a nationwide data plan, RJIL understands the reality of the market and that is that India is primarily a voice-driven telecom market. Voice contributes 87 per cent of all operators’ revenues put together. LTE-led 4G data services still don’t have a proper device ecosystem for consumption. (LTE stands for long-term-evolution, the fourth-generation (4G) technology Reliance Jio is using to deliver data.) Indeed, Reliance Jio is struggling to find device partners. With voice, it can instantaneously scale up operations and later introduce high-end data services to existing customers, creating a dual revenue stream. Market analysts believe that RJIL acquiring spectrum is from a strategic perspective, a very astute move.

Voice does not always seem to have been Reliance Jio’s initial focus. After Reliance Industries Ltd (RIL) bought a 95 per cent stake in Infotel Broadband for Rs 4,800 crore, the company had been busy designing a roadmap for its foray into telecom. Infotel Broadband had acquired BWA spectrum in all 22 circles.

After buying Infotel Telecom in 2010, RJIL established a roadmap for its foray into telecom. That culminated in the company acquiring pan-India 4G licenses and also 2G airwaves. At the onset, putting together a team of professionals seemed to the priority. Many old faces in RIL have been roped in for the same. Manoj Modi and more recently, PMS Prasad are part of the core team.

The Big 2G Entry:

Analysts expect RJIL to compete with the likes of Airtel, Idea and other operators after the acquisition of 900 MHz and 1800 Mhz spectrum. This will mean that it could possibly launch superior quality traditional voice offering along with 4G data offering. An interesting aspect to note about the strategy is that RJIL wants to be a provider for everything inside a home – voice, broadband and television.

RIL’s finances are in excellent health and the company has committed more than 50,000 Crore to the development of its telecom arm. This makes Reliance Jio India’s largest telecom start-up. For all ends and purposes, this means only one thing – Mukesh Ambani is back in the telecom sector. And he means business.

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Soli Sorabjee Comes down Heavily on Kejriwal

February 20, 2014

One of India’s most famous Jurist and India’s former Attorney General Soli Sorabjee has criticized former Delhi Chief Minister for his unsavory comments regarding President’s Rule in Delhi. He has thus welcomed Delhi’s Lieutenant Governor Najeeb Jung’s decision to recommend for President’s rule. Kejriwal had quoted Sorabjee on many occasions to justify his position on the Jan Lokpal Bill. This was tabled without prior consent from the Central Government.

The former Delhi CM has been in the news for his rather unprovoked attack on India’s Largest Private Sector enterprise – Reliance Industries Limited. That, along with a stinging attack on RIL Chairman Mukesh Ambani and Oil Minister Veerappa Moily has divided opinion on the true intentions of the activist-turned-politician.

The revered jurist praised Lt. Governor Jung for following protocol and turning to the centre to seek permission before imposing President’s Rule. Sorabjee was quoted as saying, “He (Jung) did not make the rule. As far as the rule is there, As far as the rule is not stayed or struck down by the court of law, the Lt Governor has to follow it. “LG did not make the rule. So the rule is there and one is supposed to follow it.” This came on the back of India’s newest political party seeking Sorabjee’s advice on whether it had the power to introduce the Jan Lokpal Bill in the assembly.

Sorabjee added that it was improper to blame the LG for his decision to not permit the introduction of the bill without Centre’s prior permission.”Attributing this whole thing to him is very improper. My opinion is not the about the legality of the bill. It is about the power of the Lt Governor,” he said.

The Delhi Government, ruled by the Aam Aadmi Party had asked India’s former Attorney whether Rule 55(1) of Transaction of Business Rules violates the Constitution and does the Central government have the power to make that rule under section 44 of the Government of NCT of Delhi Act. “My opinion was that Rule 55 (1) of the Transaction of Business Rules is ultra-vires(Latin for beyond power). That rule requires a Lt Governor’s reference to the Central government,” said the eminent jurist.

He added that although his opinion was taken, which may be “good and sound weighty” but it was not a Supreme Court judgment. “So, till the rule is said or struck under the court, I think the LG has to follow the rule,” he said. He also expressed his disappointment the way AAP has chosen to deal with this whole situation.

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Reliance Jio hits a home run: Acquires spectrum in the 1800 MHz Band

February 14, 2014

Reliance JioInfocomm Limited (RJIL) has announced that it has acquired the rights to use 1800 MHz in 14 key circles across India. This band was purchased in the recently concluded spectrum auction in Delhi. RJIL plans to use this spectrum, ranging from 2×5 MHz to 2×7 MHz in each of these 14 circles, in conjunction with its pan India 2300 MHz spectrum to address the expected surge in demand for digital services as well as to enhance in-building coverage. The company plans to provide seamless 4G coverage for which it has a pan-India license.

Reliance Jio has acquired this spectrum in many circles. It won the 1800 MHz spectrum in the three urban areas that were under the purview of this auction – Mumbai, Delhi and Kolkata. The company also won the right to this band across 10 States – Andhra Pradesh, Gujarat, Karnataka, Maharashtra, Tamil Nadu, Kerala, Madhya Pradesh, West Bengal, Assam and Orissa. It also has won rights in many States in the North-East of India.

Mukesh Ambani has always had a huge interest in the telecommunications industry and he was the brains behind the launch of a communications company at the start of the millennium. The Chairman and Managing Director of Reliance Industries Limited, India’s largest private sector enterprise was obviously ecstatic at after the auction. In a statement, the RIL Chairman was quoted, “With this acquisition, Reliance Jio will be the holder of the largest quantum of liberalized spectrum and with the longest residual spectrum life. Reliance Jio’s seamless 4G services using FDD-LTE on 1800 MHz and TDD-LTE on 2300 MHz through an integrated ecosystem, aims to provide unparalleled high quality access to innovative and empowering digital content, applications and services.”

The overall cost that Reliance Jio is going to bear to have the exclusive right to use this spectrum is Rupees 11,054 Crore. This is estimated to be over a 20 year period. RJIL plans to opt to make an upfront payment of 33% with the balance payable in 10 equal annual installments after a two year moratorium, as per the provisions of the Notice Inviting Applications issued by DoT.RJIL has acquired the 1800 MHz spectrum at 31% premium to reserve price. An interesting thing to note is that the winning bidder’sof the 900 MHz spectrum paid between 55% to 110% premium over the reserve price.

RJIL is offering some great services. In addition to high speed data, the 4G network will provide voice services from / to non-RJIL networks. The great thing about 4G services is that there are many mobile phones in the market today that have the capability to operate both TD-LTE and FD-LTE technologies in the 1800 MHz and 2300 MHz bands as well as conventional 2G / 3G networks. In any case, Wi-Fi enabled 2G / 3G device can access RJIL’s services through an affordable pocket router.

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Reliance Retail gets New CEO

February 13, 2014

Reliance Retail has got a new man at the helm. The Mukesh Ambani owned retail giant has named Damodar Mall as the new CEO. Mall, an IIT Bombay and IIM Bangalore alumnus will be taking over Rob Cissell as chief executive of Reliance Retail’s supermarket and hypermarket division. Cissell is the former COO of Wal-Mart China and is leaving his post after three years. According to a statement released by Reliance Retail, Randall Guttery will continue to remain in-charge of the cash and carry business.

Mall is currently chief customer strategy officer for the value retail business. He’s an industry veteran having previously worked at Future Group. Reliance Retail, which operates more than 1,500 stores in 141 cities, posted sales of 10,857 crore in the nine months ended December 2013. Reliance Industries owned Reliance Retail runs supermarkets and hypermarkets across India. These as well as grocery and cash-and-carry stores accounted for 53% or, 5,700 Crore of revenues in the first nine months of the fiscal year.

A statement from the company said, “After a stint of three years leading our consumer grocery business, Rob has decided to relocate outside India to pursue other opportunities.” Cissell will work with the Indian retail giant till March 31st 2014.

These changes are part of an organizational makeover by the retail chain. Guttery, another former Wal-Mart executive who joined with Cissell will now double up as a mentor for the grocery unit that includes the Reliance Fresh convenience chain, besides the Reliance Super and Reliance Mart supermarkets. A statement put out by the company reads, “To be in line with our stated objective of simplification, we would be creating a common executive management structure for grocery business. This will allow us to leverage the complementary skill sets available within the business.”

“However, to continue the focus on consumer and wholesale nature of the formats we will continue to operate with two separate executive councils providing leadership to these formats respectively.” A Reliance Retail spokesperson declined to comment on the developments.

During Cissell’s tenure, Reliance Retail has focused on larger supermarkets rather than the smaller convenience store format that competed directly with India’s formidable neighbourhood shops. Cissell took over in 2011 from Gwyn Sundhagul, another expatriate with global experience who’d worked at Tesco Lotus in Thailand.Cissel and Guttery are both ex-Wal-Mart employees and their track record in this domain is nothing short of stellar. They led the firm’s expansion there to 333 outlets and generated $7.5 billion in revenue. That’s 1.8% of theBentonville, Arkansas-based company’s total sales of $420 billion in 2010.

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Mukesh Ambani in Prime Position to lead a Telecom Revolution in India

February 7, 2014

For Reliance Industries Limited (RIL), Oil & Gas represents the biggest source of revenue with new ventures such as retail, polymers, and petrochemicals also contributing a big chunk. However, the Mukesh Ambani owned behemoth seems to be focusing a large part of their resources toward the telecom sector.

If you remember, it was Mukesh Ambani who was primarily responsible for the launch of Reliance Communication at the start of the decade. Now running his own ship, the older Ambani scion looks set to make a huge mark on the telecom sector with his forays. Ambani’s Reliance JioInfocomm was the first to acquire pan-India 4G licenses and they also looked toward getting right for voice calls.

While industry analysts have for long been claiming that RJIL was in a prime position in the industry due to its pan-Indian 4G license and also the company entering the voice segment, the intent from the company’s side has never been stronger than what was seen in the recent spectrum auction. If India’s richest man does indeed bet big, he will emerge from this week’s airwave auction armed with spectrum that could make his Reliance Industries Ltd a formidable rival to market leaders Bharti Airtel Ltd and Vodafone Group PLC. If not, he can still walk away with airwaves that would allow his Reliance Jio to compete in the cut-throat market for basic phone services. The company plans to offer 4G services but has yet to launch any.

While this may be music to the ears of consumers who for long have complained about growing tariffs, major players such as Vodafone Plc and Bharti Airtel are worried. Shares in India’s biggest cellular carriers lost between 4-7 per cent in a single day after Reliance threw its hat in the ring for the spectrum allocation Auction in the first of February 2014 and do not look poised to recover. Just looking at the numbers, it’s clear that RJIL is going for the kill. The end of Day 1, the government received $7 billion or nearly Rs. 40,000 Croreworth of total bids and looked set to top its minimum target of raising $1.8 billion or Rs. 11,300 crore initially.

Analysts say that competition in the telecoms sector will heat up with the entry of RJIL and crucially for the consumer, lead to a decline in tariffs. Reliance has invested roughly $5 billion or Rs. 31,000 crore in the business so far without seeing a return, to the annoyance of some of its investors.Reliance has disclosed little about its plans for 4G, but with $14 billion (Rs. 87,000 crore) in cash and telecoms in his blood, no one in the industry is taking Ambani lightly.

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