MUMBAI - With total sales of Rs 700 billion (US$14 billion), Reliance is India's largest business group in the private sector, having interests in textiles, petrochemicals, oil and gas, petroleum, financial services, insurance, telecom, media and power. But even when it was small, Reliance always thought big.
Way back in 1981, it set up a grassroots 10,000-tonnes-per-annum plant on the outskirts of Mumbai in a record time of 18 months for the manufacture of polyester filament yarn. Two years ago, it erected a 27-million-tonnes-per-annum refinery at Jamnagar in the west Indian state of Gujarat. It is the largest grassroots refinery in the world. Six months ago, Reliance struck one of the largest gas reserves in Asia, and one of the group's companies announced that it had discovered 9 trillion cubic feet of gas in the Krishna-Godavari river basin in south India.
Now, the Indian business giant is at it again, this time in the telecom sector. One of its divisions, Reliance Infocomm, is set to change, through a two-stage process, the way that Indians communicate with one another. The company is investing Rs 250 billion in this new venture.
The services have been classified into four categories - voice, video, data and "managed" (end-to-end network services etc). Voice services will comprise telephony, calling cards, audio conferencing and mobile (cellular) services. The offerings in the other categories include video streaming, video conferencing, virtual private networks, broadband Internet bandwidth and security services.
US technology major Qualcomm has expressed interest to invest $200 million in the project. It is the supplier of the code division multiple access (CDMA) technology that Reliance is using for its mobile services. Reliance has already placed an order worth $500 million with LG and Samsung for CDMA handsets.
In the first stage, to be flagged off next fortnight, the company will introduce a mobile service, being promoted as "the poor man's mobile" that promises rock-bottom rates and unheard-of features. The second stage next year will see the launch of a wide variety of data services when 700 Indian cities and towns will be connected through 60,000 kilometers of broadband optic fiber cable network.
Reliance Infocomm was not an early bird on the Indian telecoms scene, one of the fastest growing sectors in India. One of the biggest beneficiaries of the Indian economic reforms launched in the first half of the 1990s, the telecom sector has undergone a complete metamorphosis. The humble telephone, once considered a luxury with Indians having to either bribe their way or wait for up to five years for a new connection, is now commonplace. Today about half a dozen companies offer basic (landline) services. Another dozen companies have made huge investments in the mobile segment.
But even though it arrived late on the scene, Reliance Infocomm has already created a buzz in the market place with people talking about its ambitious plans. Some competitors are worried that the monolith, with its access to deep pockets, will crush them. The new company is selling its mobile services and handsets mostly through 150,000 freshly-appointed agents and dealers who stock products of rival companies are worried that customers may simply ignore them now. Banking and finance circles are wondering loudly if Reliance Infocomm will be able to meet the target of garnering a turnover of Rs 40 billion that it has set for itself for the very first year.
One group is not having any sleepless nights: users of mobile phones. Most consumers are salivating at the thought of paying only Rs 0.40 per minute for long-distance calls compared to the average Rs 2.50 that the competition is charging. Reliance is also offering Internet and multimedia messaging services, downloads of MP3, streaming video and free SMS service. The handsets can even be used as modems.
Reliance Infocomm has already tied up with movie production houses and music video makers for streaming audio and video trailers to be delivered on the handsets. Marketing companies are being pitched a new bait: the delivery of targeted advertisement and information videos to users of Reliance mobile sets.
For those not in a position to fork out Rs 15,000 up front (for three years), Reliance Infocomm has tied up attractive financing options with leading banks and financial institutions. "The Reliance strategy will initially be aimed at taking as many subscribers as possible on board with lucrative offers so that the subscriber base can later be capitalized to earn revenues from services like long distance traffic," says telecoms expert Meghna Dasgupta.
Voice services, to use the words of a senior Reliance Infocomm official, are "merely the trailer. The main show will begin when we launch our data services". Unveiling the highlights of his project before the Mumbai press, Reliance Group chairman Mukesh Ambani said, "We will offer complete end-to-end data services so that companies need not invest in setting up their own network infrastructure while we get the cost-advantage on scale of economies."
The possibilities are limitless: banks conducting up-to-the-minute transactions with their branches all over the country; a teenager downloading music and video clips to his mobile phone; a consumer product company knowing its latest stock position with a nationwide network of dealers; software professionals using the Reliance network to undertake IT services for clients abroad; a broker trading in stocks; a family watching television and surfing the Internet through the same cable; trucking companies tracking vehicle movements.
Reliance Infocomm has set itself the ambitious goal of earning 40 percent of its total revenue in five years from the data business and 25 percent of mobile services revenue from the data business in five years.
That there is no limit to Reliance's marketing shrewdness is evident from the manner in which the company is tying up with a hitherto-untapped segment: Public Call Office (PCO) owners. A typical Indian innovation, a PCO is a small roadside office offering the common man economical, under-one-roof services like telephony, faxing, tele-conferencing and e-mail.
In the east Indian city of Kolkata, for example, Reliance Infocomm is luring PCO owners away from the government-owned BSNL (Bharat Sanchar Nigam Limited) by offering a higher fiscal incentive (25 percent as against the 20 percent they are receiving now). In addition, Reliance has assured the PCO owners that their faults will be repaired within six hours as against the minimum 24 hours that BSNL normally takes. In Kolkata, the company is laying 1,500 kilometers of optic fiber cable.
The competition, however, puts on a brave face and predicts that Reliance Infocomm's stress on data services will come to nought. "Today, data constitutes only 3 percent of mobile companies' revenues. The worldwide average is only 10 percent," says T V R Ramachandran, director general of the Cellular Operators Association of India. "India will remain a voice market for many years to come."
Some competitors also argue that Reliance will not be able to outperform in a service business (as opposed to the commodity businesses it has operated in so far). Other players take comfort in the fact that the Indian affiliates of foreign cellular companies (Hutchison, Orange, AT&T) with their deep pockets can match tariff for tariff and subsidize mobile users if need be to beat Reliance at the telecom stakes. Says a senior manager at a multinational cellular operator, "There is no reason to think we will be dead. We will be able to take on Reliance Infocomm."
The competition's real grouse, however, is not against Johnny-come-lately Reliance Infocomm but against the government, which, until recently, had a firm stranglehold on all telecom activities in the country, starting with legislation. To better understand the gripe, a little bit of historical perspective is in order.
Mobile telephony first arrived in India eight years ago. The government divided the country into a dozen different "circles" and auctioned the mobile licenses to two of the highest bidders in each circle. Simultaneously, it also threw open cheaper tenders for basic (landline) licenses for major parts of the country. The new players, Indian as well as foreign, adopted the Global Systems for Mobile (GSM) technology and made exorbitant bids.
Indian consumer durables companies, BPL, for example, picked up the license for Mumbai, India's most commercial city, for a whopping Rs 30 million. American telecom giant AT&T got Maharashtra (excluding Mumbai), the state of which Mumbai is the capital, for a similar amount. The licenses would be valid for 15 years. Curiously, Reliance Infocomm, (then called Reliance Communications) picked up the basic licenses for nearly the whole of India but opted for cellular licenses only in the circles falling in northeast India, eschewed by other players due to perennial insurgency problems there.
To people who asked, Reliance said that it already had basic licenses to cover a major part of the country and would use the latest Wireless in Local Loop (WLL) technology to provide the crucial "last-mile" connectivity for its mobile users. Five years into the GSM game, however, the cellular operators realized that they had overestimated the size of the market and turned to the government for help. "They [the GSM players] lobbied successfully and entered into a revenue-sharing arrangement with the government," says telecom analyst George Mathew.
The fracas is now between the GSM camp (with AT&T, Hutchison, BPL, Orange and Airtel as its major players) and the WLL lobby (dominated by Reliance, with Tata Tele Services and the government-owned Mahanagar Telephone Nigam Ltd bringing up the rear). Both jointly cater to 10 million cellular subscribers. The GSM camp accuses the government of not setting a level playing field.
"WLL players like Reliance Telecomm stand to gain because they have not paid the exorbitant license fees that we did initially," says the communications manager at a major GSM cellular firm. To which a rival from the opposite WLL camp retorts, "Who asked them to be so greedy in the first place? Anyway, their costs dropped drastically once they got into the revenue-sharing mode with the government." He then bestows a parting shot, "The GSM players are only crying wolf. Haven't they made enough money by fleecing the Indian customer in the initial years, charging him up to Rs 17 for every minute of air talk?"
Reliance and controversy have always gone hand-in-hand and the top honchos at the business group are taking the latest episode in stride. "I always tell my team that in an open market, the competition will try to generate better value for the customer. So we always have to be on our toes," Ambani has been quoted as saying. "If at all anybody is at a disadvantage, it is Reliance which is entering the sector as a 100 percent Indian company."
Unfazed by the latest round of bickering, Ambani and his senior team are putting in 18-hour days, giving the finishing touches to the final rollout from their offices in the National Network Operations Center of Reliance Infocomm at the Dhirubhai Ambani Knowledge City, spread over a sprawling 140 acres in Navi Mumbai
Speaking at the soft launch last December, Ambani said that he planned to add 1 million subscribers every month once Reliance Infocomm's services had been fully launched. The chairman said that Reliance was hopeful of gaining a 25 percent market share by the end of 2004.
Apart from the regular cell phone dealers, Reliance has also changed the ground reality at the retail level as well. It has tied up with businesses like bakeries and chemists as part of an aggressive marketing strategy.
Within two days of the bookings being thrown open, Reliance Infocomm had roped in a million customers in 100 cities and had garnered Rs 12 billion worth of revenue.
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