Mukesh Ambani Readies 4G Backbone for Data War: Corporate India

Billionaire Mukesh Ambani is the latest to enter the crowded Indian cellular services market, the world’s second biggest. He is spending about $11 billion to get it right with a high-speed fourth-generation network.

Reliance Jio Infocomm Ltd., a unit of Reliance Industries Ltd., has erected at least 10,000 signal towers as it accelerates plans to start 4G services later this year, according to two people familiar with the matter. In February, the company spent $1.8 billion to buy airwaves to compete with Vodafone Group Plc, the world’s No. 2 by users, and billionaire Sunil Mittal’s Bharti Airtel Ltd.

Ambani is seeking to tap rising data usage among the nation’s 893 million subscribers as gaming and mobile social networking on smartphones surge. He will also test a market that has left the country’s leader Bharti with $9.3 billion in net debt and shrunk its net profit by almost 75 percent since 2010 as competition spurred tariff wars and slashed call rates to less than 1 cent a minute.

“Data is definitely the second wave in telecommunications especially with 4G on the horizon,” said Kamlesh Bhatia, Mumbai-based research director, Gartner Inc. “For an entrant, the upside is that it will come in with no legacy. The downside is that the market is not really up for grabs anymore. It is the service quality that will sway high value customers.”

Jio’s Plans

The proposed rollout will mark the return of Ambani, 56, to telecommunications, nine years after he handed over the group’s phone business to his younger brother Anil, 54, as part of a split following a family feud. With this foray, the richest Indian is also seeking to counter shrinking earnings from his oil and gas extraction business.

The refining-to-retail conglomerate, seeking to tap the world’s fastest growing smartphone market, has also leased or acquired 15,000 sites to build more towers if needed, said one of the people. Both of them asked not to be identified as they aren’t authorized to speak on the subject.

Reliance already has access to 169,000 towers, the largest network on tap for any phone service operator, through infrastructure-sharing pacts with Mittal’s Bharti Infratel Ltd., the younger Ambani’s Reliance Infratel Ltd. and Viom Networks, a joint venture between Tata Teleservices Ltd. and SREI Infrastructure Finance Ltd.

‘Whole Hog’

“Reliance Industries is going the whole hog here,” said Alex Mathews, head of research at Geojit BNP Paribas Financial Services Ltd., in an April 14 telephone interview. “The fourth-generation services are very promising and could be a huge fortune driver for Reliance.”

Reliance Jio’s spokesmen Rohit Dubey and Atul Dwivedi did not respond to an e-mail seeking comments. Ambani, who had told Reliance shareholders in June about tripling Reliance Jio’s workforce to 10,000 as the rollout nears, is expected to detail plans at this year’s shareholders meet.

Saft Groupe SA, a French industrial batteries maker, had received an order from Reliance Jio to supply lithium batteries, which would be installed at its 10,000 towers, it said in a July 17 statement.

Lithium ion batteries will help contain the fuel pilferage that is common in traditional diesel-powered towers, one of the two people said. The service is being tested across 11 locations in Ahmedabad, in the western state of Gujarat and Mumbai currently, this person added.

The company has not announced a formal start date. Reliance’s shares rose 1.9 percent to 959.10 rupees today in Mumbai, extending gains in the past year to 24 percent versus the 21 percent advance in the benchmark S&P BSE Sensex.

Data Boom

Smartphone shipments to India more than doubled to 44 million units in 2013 from the previous year, according to International Data Corp., while the share of their users jumped to 22 percent by end-December from 10 percent at the end of March in 2013.

While shipments to both China and India almost quadrupled between 2011 and 2013, IDC estimates smartphone sales growth in India will exceed that of its neighbor over the next few years.

Data usage in Indian cities has risen six- to tenfold in the past three years with consumers on average using between 200 megabytes and 500 megabytes every month, according to Gartner’s Bhatia. In the next three to five years, urban consumers could scale up to one gigabyte in line with users globally, he said.

“This is a non-reversible trend,” Bhatia said. “Users don’t stop, they only accelerate usage as content gets richer, speed better and devices more powerful.”

Internet Revenue

Bharti Airtel’s data usage jumped 54 percent in a year to 249 megabytes for the December quarter and average revenue per user rose to 75 rupees ($1.2) from 47 rupees. It’s mobile Internet revenue increased to 17.4 billion rupees, accounting for more than one-third of the incremental revenue during this period.

Reliance has plowed $8 billion already in the venture, according to a report by Standard Chartered Plc. The telecom unit received equity infusion of 179 billion rupees during the year ended March 31, according to an exchange filing, which will also fund roll out of services.

It is likely to invest 300 billion rupees more in the next two years in its phone business, about 100 billion rupees more than estimated due to higher spending on network infrastructure, according to Mehul Sukkawala, director of corporate and infrastructure ratings, Asia Pacific at Standard & Poor’s.

In June 2010, Reliance had paid 48 billion rupees for the control of Infotel Broadband Services Ltd., hours after the company bid for nationwide wireless broadband licenses.

“It’s difficult to compare Reliance’s investment with peers because it is unusual for an entrant to come in so late in the telecom game and that too with a new technology,” said Singapore-based Sukkawala.

Oil & Gas

Reliance had cash and cash equivalents of 887 billion rupees ($14.7 billion) as on Dec. 31, according to a post-quarterly results company statement in January, providing a cushion for its investments. Operating income from oil and gas extraction shrank to 5.4 billion rupees, or 9.2 percent of the total, in the quarter to Dec. 31, versus 12.9 billion rupees two years ago, which accounted for 25 percent of operating profit then.

Ambani is said to have picked P.M.S. Prasad, Reliance Industries Ltd.’s petroleum division chief with proven project management skills, to helm the telecommunications launch. Prasad has earlier helped the company build its twin oil refineries in the Gujarat and develop its biggest gas field off India’s east coast.

Ambani’s elder son Akash had joined Reliance’s telecommunications unit as a full-time employee, The Economic Times newspaper had reported Feb. 17.

“Reliance has deep pockets and will be a formidable competitor with a pan-India play,” said Harit Shah, an analyst with Nirmal Bang Equities Ltd. in Mumbai . “Nobody doubts that. More so, when they have this kind of an infrastructure build-up.”

Before it's here, it's on the Bloomberg Terminal.