Reliance’s Focus on the Telecom Sector

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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