Reliance and telecom

Second coming

Print edition : September 30, 2016

Mukesh Ambani, chairman, Reliance Infocomm, displaying a new handset at the launch of a nationwide mobile telephony service in Mumbai on December 27, 2002. Photo: The Hindu Archives

In the euphoria that has surrounded the Reliance Jio launch, Mukesh Ambani’s previous launch of mobile services 14 years ago provides some sobering thought.

Public memory is generally said to be short, but a dose of euphoria possibly worsens it. When Mukesh Ambani announced the launch of Reliance Jio’s operations on September 5, a launch of mobile services from the Reliance stable 14 years ago was all but forgotten. Invoking the memory of the venerable patriarch of the Reliance Group, Dhirubhai Ambani, in late December 2002, Mukesh Ambani announced the launch of a nationwide mobile telephony service that promised to be “revolutionary”. Reliance Infocomm, the Reliance Group subsidiary that offered a pan-Indian service using a combination of Code Division Multiple Access (CDMA) and Wireless in Local Loop (WiLL) technologies, initiated a price war much like the one that Jio threatens to unleash with its 4G services now.

The telecom landscape has changed significantly in these 14 years, but it is sobering to look back to put the current euphoria in context. Infocomm was very much Mukesh Ambani’s dream project then, as he invoked Dhirubhai Ambani’s dream of making telephone calls in India as cheap as sending a postcard. Launched on December 28, to coincide with what would have been Dhirubhai Ambani’s 70th birthday, Infocomm launched a tariff plan that was truly extraordinary for the time. The “introductory” Dhirubhai Ambani Pioneer offered customers, for a one-time membership fee of Rs.3,000 and Rs.600 a month as telephony charges, a free digital mobile phone, unlimited free incoming calls and billing at 10 paise for a 15-second pulse rate (in effect 40 paise a minute). At that time, this was unheard of in the nascent Indian mobile telephone market. Infocomm’s relatively late entry was well timed; it entered after the market had stabilised to a degree and after gauging Indians’ level of acceptance of mobile telephony.

In order to extend its reach and market share, the venture made calls between Infocomm subscribers significantly cheaper than calls to subscribers on other networks. It achieved three objectives by doing this. First, by lowering tariffs, it created an incentive for subscribers to jump onto its bandwagon. Secondly, by encouraging customers to talk on its own platform, it avoided the issue of interconnection with other network operators. It is important to recall that at this time the network operators were brazenly flouting their responsibility of providing a seamless connection to subscribers of services offered by other operators. As the Vajpayee government watched on, a full-scale war between companies offering WiLL services and mobile phone companies raged on. Infocomm’s offering, laced with a good dose of tariff cut, provided an opportunity to Reliance to bypass the vexing issue of having to interconnect with other operators ( Frontline, February 14, 2003). The third aspect of the strategy was obviously to use this inducement to customers as a means of quickly ramping up market share. In particular, it attacked the landline segment, attempting to use lower tariffs as a means to draw such subscribers to its own network. Obviously, the state-run enterprises, BSNL and MTNL, were the main targets.

Trial operations

Reliance Jio’s trial operations, which have been running for several months, are also based on a similar offer Mukesh Ambani made 14 years ago. Jio has been operational for “select” enterprises and individuals; in 2003, too, customers were allowed to test the service for free until the commercial launch. This is meant to entice customers by allowing them to experience the service before the company’s network is saddled with a much bigger load after commercial operations commence. Reliance, in both instances, clearly hoped to woo customers by offering them a “smoother” ride during the lean period when there is much lower traffic than there would be in a fully operational network.

The promise of a technological “revolution” hung in the air 14 years ago at the time of the Infocomm launch, just as it has in the case of the Jio launch. Fourteen years ago, Reliance claimed it would leverage optic fibre networks, one of the biggest in the world, to deliver digital and broadband content. It claimed that its optic fibre network covering 60,000 kilometres was ready to cover 200 cities and towns in India. At the time of its launch the company claimed it was “in the process” of laying out a high-capacity, integrated (wireless and wireline) digital network that could carry convergent traffic (voice, data and video) to not only individuals but enterprises across the country. At the time Reliance launched its CDMA-based service, it hoped to reach out to 65 per cent of the Indian urban population.

Two issues

Why is it that Reliance Infocomm failed to hold on to the advantage that it held after the much-publicised tariff war it initiated in the Indian mobile telephony business? Multiple reasons are on offer, but two critical issues clearly played a crucial role. The first was Reliance’s move to go against the current, by betting on CDMA instead of GSM, which is where the rest of the world was moving. At the time of the launch in 2002, a Reliance official told Frontline that Reliance bet on CDMA, instead of the Global System for Mobile Communications (originally Groupe Special Mobile—GSM), because “CDMA is the best technology, GSM is history”. The fragmented nature of CDMA equipment capacities meant higher costs for Reliance. Clearly, events in the last decade have proven that the CDMA option led the company to a dead end.

Apart from the fragmented availability of CDMA equipment, customers in India were also, from the start, clearly against a phone handed down by the telecom service provider, which is generally the model adopted in the West. Telecom operators realised that in a price-conscious market such as India, the practice of “bundling” a handset would depress demand because it would tend to raise costs for subscribers. Moreover, the competitive environment for handsets in the Indian market, aided no doubt by the global decline in hardware costs, also made bundling by network operators an inferior option.

The decline of the CDMA-based service led to the final elimination of the platform by Reliance Communications, the company that went with Anil Ambani after his bitter fracas with brother Mukesh. Reliance Communications shifted its last CDMA subscribers to 4G in May 2016, ending its adventure with the platform. Considering that the technology choice was made at a time when Mukesh Ambani was very much the captain of the Reliance ship, it appears that this “failure” on the technology front is widely ignored even as he makes fresh extravagant technological claims about what Jio has in store for the masses now. This is especially significant because much depends on Jio’s technological ability to handle the huge amounts of data that consumers would demand —“data giri” as Mukesh Ambani terms it.

This was aggravated by the shortage of spectrum and the failure of the company to invest in equipment to improve coverage quickly as it ramped up subscribers lured by cheaper tariffs. The frequent complaints of poor network coverage and call drops also added to the problems. Moreover, customer complaints about outrageous bills further alienated customers. In fact, in this context the main state-owned entities’ punchline in wooing customers promising “billing integrity” appeared to make sense, even if their networks too suffered from call drops and poor network coverage, reflecting abject neglect in terms of investment in capacity to cater to the demand. The fact that the state-run companies were among the last entrants in most circles also did not help matters.

Back-door entry

From the start, Reliance, as it has in its other areas of operations—most notably oil and natural gas—was not shy of testing the limits imposed by government regulation. Its adoption of WiLL technology (the Tatas were the other major group to use this method) was widely seen as using “limited mobility” as a means of making a back-door entry into full-fledged mobile telephony. Indicative of Reliance’s mindset was the brazenly fraudulent methods it adopted to land international calls to Indian BSNL and MTNL phones but clandestinely terming them as calls emanating from within the country ( Frontline, December 31, 2004). The losses suffered by the public service providers was then estimated at Rs.1,300 crore, although Reliance managed to get away by paying a fine of less than half the amount. The then Telecommunications Minister Dayanidhi Maran of the Dravida Munnetra Kazhagam, which was part of the National Democratic Alliance government, ruled out the cancellation of Reliance’s licence, claiming that this would “cause huge suffering” to the more than eight lakh subscribers of the operator.

Incidentally, Infocomm was a major bone of contention between the Ambani brothers. Anil claimed that the project, a pet one of his elder brother, benefited significantly from the cash-rich parent, Reliance Industries Ltd. He claimed that Mukesh Ambani also benefited from allocations of “sweat equity” in Infocomm at low prices and that the elder brother had given himself a larger portion of Infocomm’s equity through a complex array of companies. Although Reliance Communications has decisively moved to Anil Ambani, following a settlement that resulted in a ceasefire, the scope for cooperation between the two exists, especially if the widely accepted price war following the launch of Jio results in a cartel in the Indian telecom business.

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