Scary Big Bang Broadband/ Media Invesment by Reliance Behemoth could crush Indian Telecom Companies

Reliance Industries the biggest private company in India with billions of dollars in free cash flow being generated by its oil and gas business,is set to make a  massive investment into the broadband business through 4G. Reliance which is primarily an oil and gas company is investing heavily into Retail, Financial Services and Media. The company is set to become a media behemoth after buying substantial chunks into the content business of NW18 and Eenadu network.

Reliance has a massive balance sheet which is has used strategically to acquire 4G spectrum (Infotel) and content.The company had revolutionized the telecom space through the Monsoon Hungama campaign when it had provided super cheap telecom  mobile plan with handsets. It could do the same in the Internet space through providing super cheap Tablets like Aakash with super cheap broadband plans on 4G. It already has content to provide its subscribers.Note broadband companies in India provide poor service at high rates, so Reliance can takeover the broadband space in India easily if it executes right.

With voice becoming a commodity with super low or free pricing,data is the only way to earn money for telecom companies in India. If Reliance executes its strategy right,then these telecom companies like Idea,Vodafone,Airtel would see their revenues and valuations crushed.

Telecom Industry in India

The Indian telecom industry is the world’s fastest growing industry with 792 million mobile phone subscribers as of February 2011. It is also the second largest telecommunication network in the world in terms of number of wireless connections after China. The industry will reach around $80 billion in revenues by next year showing an astounding CAGR of over 25% and will employ a stupendous 1 crore employees making it one of the biggest value creators in India in recent times.However the telecom companies in India after enjoying a boom period in the early 2000s have faced a couple of tough years with hypercompetition leading to a price war in auction of 3G spectrum.This was followed by one of the most high profile corruption scandals in the country which resulted in the jailing of the former telecom minister in the 2nd auction of 2G spectrum.Most of the telecom companies have been found to be implicated in colluding with sleazy politicians/bureaucrats in looting the Indian taxpayers.India Real Estate Sector is one of the most corrupt in the country and after the 2G Scam,the telecom sector is giving it close competition for the No.1 spot in corruption

Despite these problems,India is set to see another spurt of growth as 3G in India has the potential to bring Internet to India’s massively under penetrated population which has phones but not computers.

Reliance Acquisitions in the Recent Past due to Detente

The detente between the Ambani brothers which lead to the rescinding of the non-compete agreement has resulted in Reliance Industries  Ltd (RIL) being the biggest Winner in the win-win arrangement.While on one hand Anil Ambani’s Reliance Communication which was facing a liquidity problem has benefited by being free to sell a stake in the company,Mukesh Ambani’s RIL has gained even more. RIL has been a huge cash cow generating billions of dollars in free cash flow from its Energy businesses each year.However RIL was finding it itself hamstrung by the non-compete agreement which prevented the company from entering the areas in which ADAG ( Anil Dhirubhai Group ) operated in. RIL tried its hand at overseas acquisitions but was not finding much success.However with the Ambani Brothers burying the hatchet,Reliance find its hands free to enter the virgin territories of Telecom,Power and Financial Services which will be high growth areas in India’s booming economy

Reliance has firmed up its intentions in all Three Areas through acquisitions,JVs and greenfield expansion.

RIL’s 4G broadband to offer exclusive content & spectacular speed at dirt-cheap rates

RIL has also grabbed the lead in content. This week’s deal gives RIL preferential access to all of Network18’s TV, Internet and digital content, across languages and genres. RIL is also talking to other media and entertainment companies, including Walt Disney’s Indian venture UTV Software, for more gaming and entertainment content, say industry executives in the know. In November, it acquired 38.5% in Extramarks Education, a company focused on school education and digital learning, for an undisclosed amount.

And lastly, there’s the RIL philosophy of disruptive pricing. According to RIL executives aware of the development, the company is looking to bundle data services at about 10 per GB, which is one-tenth of current 3G prices. It is, they say, also planning to bundle this with entry-level tablets powered by Google’s Android operating system that would cost 3,000-8,000. That the demand for low-cost tablets is robust is evident from the 1.4 million bookings that Aakash, the 2,500 tablet made by UK-based Datawind and subsidised by the government of India, received in 14 days after it was put up for sale online. The RIL official quoted in the first instance says the company is also looking to offer online services in “security, health and education”. So, for example, by paying, say, 30 a month, a customer can access doctors online 24X7. He said the company was also talking to the government to link up with the database of unique IDs being created for every Indian, called Aadhaar.