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The Reliance splash

Published : Feb 14, 2003 00:00 IST

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With the entry of Reliance and the government's own commitment to sell BSNL and MTNL, the field is being prepared for the appropriation by private companies of infrastructure built by the public sector.

V. SRIDHAR in Chennai ANUPAMA KATAKAM in Mumbai

THE Reliance Group, the giant among private industrial conglomerates in India, has a reputation for never doing anything small-scale. Its foray into the field of services, through its telecom arm, Reliance Infocomm, supports this view. With the regulatory regime not in place yet, the group may have been forced to make a "soft launch" on December 28, 2002, the birthday of the late Dhirubhai Ambani, founder of the group and a legend among businessmen of liberalised India. But hard hype accompanied the launch as Union Minister for Communications Pramod Mahajan, ignoring comments suggesting bias towards the group, inaugurated the services. The Reliance launch, accompanied by an advertisement blitzkrieg, offers everything for everybody. The original plan was to flag off the Wireless in Local Loop (WiLL) services in some village in Gujarat. That did not quite happen because the Telecom Regulatory Authority of India (TRAI) had yet to approve its tariff structure. Based in a swanky New Mumbai building, Reliance Infocomm plans to offer a complete range of telecom services, covering mobile and fixed-line telephony, including broadband, national and international long-distance services, data services and a wide range of value-added services and applications.The company plans to launch its products and services under the Reliance IndiaMobile brand name by March 2003. It claims that it "marks the beginning of Reliance's dream of ushering in a digital revolution in India by becoming a major catalyst in improving quality of life and changing the face of India." The company promises all things for all people, at an affordable price. "Reliance Infocomm will extend its efforts beyond the traditional value chain to develop and deploy telecom solutions for India's farmers, businesses, hospitals, government and public sector organisations."

A company spokesman said that Reliance had one of the biggest fibre optic networks in the world. Digital and broadband-capable, this 60,000 km of terabit capacity networks will covers 673 towns and cities in India. The company claims that the network has already covered 200 cities, with almost 80 per cent of the planned length of optic fibre already in place.

Reliance Infocomm is in the process of establishing a nation-wide, high-capacity, integrated (wireless and wire-line) and convergent (voice, data and video) digital network, to offer services that will span the entire Infocomm value chain - infrastructure, services for enterprises and individuals, applications and consulting. The company's punch line for prospective customers recalls Dhirubhai Ambani's words: "Make a telephone call cheaper than a post card."

The network based on code division multiple access (CDMA) technology aims to cover more than 65 per cent of India's urban population. A senior Reliance officialtold Frontline that the company opted for this platform because "CDMA is the best technology. GSM (global mobile communications) is history." Reliance says the difference between the two technologies is significant. "Reliance's delayed launch is costing it not only in terms of revenue but in credibility as well," a telecom analyst said.

Having realised this, and in order to stymie its competitors from cornering the entire subscriber base, Reliance is offering free access to its network until the commercial launch. The tactic appears to be aimed at capturing subscribers who would not mind checking out the service. When it is launched they would have realised its benefits and continue using it paying competitive fees. This also gives them time to test the quality of the network. By that time issues such as interconnect, SMS (short messaging service) and Internet may get sorted out.

Mahesh Uppal, director, Telecommunications and Computer Information Systems, is critical of the regulatory framework. "We are perhaps the only country where CDMA-based mobile services are treated as an extension/add-on of a fixed line service rather than like any other mobile service. The two technologies compete aggressively in the mobile market the world over. That is what they should do in India." He pointed out that the "real issue" was not whether WiLL should be allowed or not. Since 1999, the regulatory framework regards WiLL in technology-neutral terms except with respect to the last mile.

The crux of the issue that has raised a controversy is whether CDMA-based WiLL can be used by fixed-line operators on terms and conditions not of mobile licences but of fixed-line basic licences. Among other things, the basic licences come with vastly different and much more favourable interconnect terms for fixed-line operators, which cellular operators do not have. Uppal believes that the earlier choice of GSM "was a good one". "The market was nascent. It was a small market. Had there been different technologies, the market would have been split and made it even more difficult to achieve volume efficiencies," he remarked.

He argues: "Since both technologies have come into their own, they should be allowed to compete head-on. We should not have the current regulation, which applies different sets of terms and conditions for their use. Technology neutrality is a must." The Reliance strategy is to straddle all three segments of operations in telecom - fixed-line, mobile and limited-mobile, or WiLL services. Analysts and commentators agree that TRAI is likely to remove the separate status as a category of service that has been accorded to WiLL. The company already has a presence in national and international long-distance telephony. TRAI's recent ruling on tariffs has benefited WiLL operators. There are already murmurs that the ruling fits Reliance's requirements very well. Although cellular operators, notable among them the Bharti Group, have alleged that they stand to lose Rs.2,000 crores because of the "free incoming calls" mandated by TRAI charges, industry sources say that it is now pay back time for cellular operators, who have consistently benefited from favoured treatment at the hands of TRAI.

The clear losers are, however, the two publicly owned fixed-line telecom operators, Bharat Sanchar Nigam Ltd. and Mahanagar Telephone Nigam Ltd. (MTNL). Although the new interconnect charges prescribed by TRAI appears to have "levelled the field" between WiLL and cellular operators, the regulator has tilted the balance in favour of the WiLL companies by fixing differential pulse rates for the two sets of operators. Subscribers of fixed-line operators in a non-metro - typically of MTNL or BSNL - will be charged on a pulse rate of 120 seconds if they call a WiLL phone. However, calls to a cell phone will be charged at a pulse rate of 60 seconds. In effect, calls to cell phones will be priced double that of a call to a WiLL phone. It boils down to this: it is cheaper to call a WiLL phone than a cell phone, although the two platforms are basically the same. The picture is even more gloomier from the viewpoint of the two public sector companies, which have played a major part in extending the reach of telecom in India in the last decade. First, their tariffs have been increased; this implies that subscribers will have greater incentive to migrate out of their networks, into the hands of competitors who may be seen to be offering a better price for the service. Second, the structure of the interconnect charges is such that the two public sector companies will earn lower revenues if their subscribers call WiLL subscribers belonging to rival companies, rather than cellular subscribers. In effect, the TRAI ruling mandates that BSNL and MTNL subsidise the services of rival WiLL companies. Moreover, the regulator has prepared the ground for a shakeout in the telecom industry by, in effect, pushing existing MTNL and BSNL subscribers to migrate to another, preferably WiLL platform. And, if the owner of that platform happens to be Reliance!

One of the elementary principles of networking relates to the way in which subscribers attribute value to a network. The network is only as good as its reach. As the size of the network increases, so does its value, but exponentially. Applying this to the Indian telecom industry can be of some use. Basically, the reach of the Indian telecom network is still synonymous with the reach that BSNL and MTNL have. Since the 1990s, the cellular operators have established small networks, but have ridden the publicly owned system that has been laid with considerable public investment. With the entry of Reliance, and the government's own commitment to sell BSNL and MTNL in the not-too-distant future (Mahajan is on record as having said that BSNL "will not be sold before 2004"), it is evident that the field is being prepared for the appropriation by private companies of infrastructure built by publicly owned companies.

Reliance has offered STD calls between its phone users at 40 paise per minute, and added value to the proposition with the offer of a CDMA handset in exchange for the GSM-based cellular phone and finance for a deferred payment option. The offer will remain on paper unless Reliance expands its own network of subscribers. . But until such time that its system acquires a critical mass, subscribers may be deterred from climbing on to the Reliance bandwagon. What the new tariff structure does is to apply the pressure on customers of other networks - subscribers to fixed-line operators and cellular operators, in that order - to migrate to the Reliance or another WiLL platform, say, that of the Tatas. Reliance also plans to use the CDMA to offer both SMS, and other data services to retail customers, on its basic telephone package. For corporate customers, the company's investments in optic fibre offers broadband connectivity. Its presence in the long-distance segment will enable it to provide "end-to-end services" for such clients. It has promised that the dial-up Internet will "be passe". It is evident that Reliance is aiming to grab market shares quickly.

Mukesh Ambani, the company's chairman, told reporters at the launchof Reliance Infocomm that the company aimed to "provide anything between 1 and 8 million handsets by March 2003. To put this in perspective, all the cellular operators together serve about 10 million subscribers. The sharp increase in tariffs effectively rule out any increase in teledensity in the short term. Analysts, who had suggested prior to the TRAI ruling that teledensity will increase sharply because of the entry of Reliance are likely to be way off the mark because the tariff revision will impact significantly on their prediction.

The Bharti Group has been among the key beneficiaries of the regulatory system so far. Bharti has operations in 15 cellular circles and five basic circles; it has 27 lakh cellular subscribers and over 3 lakh subscribers in basic services. Some commentators have suggested that in the era of "managed competition", it will have to make at least some way for Reliance. Reliance has licences for basic telecom operations in 18 basic circles, but did not bid for any cellular licence other than the seven licences that it had from the initial foray in the first round of licence auctions. Instead, it appears to have placed its bets rather early on the CDMA platform. In 2001, it gathered other basic services operators and lobbied successfully with the Department of Telecommunications (DoT), the Union Communications Ministry, TRAI and the apex tribunal to allow limited mobility within a short distance. Until then WiLL was perceived only as a solution to bridge the "last mile" problem in the telecom network.

(The Reliance Group has a total revenue earnings of Rs.65,000 crores , a cash profit of over Rs.7,500 crores , a net profit of over Rs.3,600 crores and exports of Rs.11,400 crores . The group has total assets valued at Rs.69,000 crores .)

A senior Reliance official told Frontline said that TRAI's ruling "has worked in our favour". Although he lamented the plight of the "average consumer", he pointed out that they did have a better alternative in Reliance. According to an informed source, TRAI "may actually be a single tariff regime".

A Reliance official told an economic daily recently: "Don't forget that our company may seem to be diversified, but it has built a core competence in terrific project management and government liaison skills which are a must for core sector ventures." That, more than anything else sums up the behemoth's foray into the telecom sector and the regulations that govern it.

(This story was published in the print edition of Frontline magazine dated Feb 14, 2003.)

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