Company Strategy

Reliance Industries: An uneasy harmony

As Reliance Industries re-enters the telecoms space, will the world’s richest brothers opt to compete or cooperate? Kavit Majithia reports.

When Dhirubhai Ambani, founder of India's largest privately-owned conglomerate the Reliance Group, died in 2002, the operation was divided between his two sons.

The result was a brotherly rift regarding ownership and strategy, resolved with the pair, dubbed the squabbling siblings in their homeland, agreeing to split the company and not invest in each other's areas of interest. Elder brother Mukesh assumed control of the group's synthetic fibre, refining and petroleum operations, while Anil headed up its energy, financial and telecoms assets.

Now, amid much media attention, and a well-documented row regarding the sale of a stake in Reliance Communications to South African operator MTN in 2008, this non-compete agreement has been scrapped and hostilities at least partially suspended.

In June the chairman and managing director of Reliance Industries, Mukesh Ambani, took his first steps in India's fast-developing telecoms market in several years by acquiring a 95% stake in Infotel Broadband for $1 billion.

Infotel Broadband paid $2.75 billion for a nationwide licence in India's broadband wireless access spectrum auction, also in June, and so provides Reliance Industries with a significant wireless network platform to build upon. Reliance Industries has also declared an interest in developing a 4G network in India, potentially putting it head-to-head with Reliance Communications which recently invested $1.8 billion in India's 3G spectrum auction.

But a resumption of hostilities between the two Reliances on the battlefield of mobile broadband is not necessarily an inevitability.

"The Infotel Broadband deal suggests that the two entities could work together, complementing each other in terms of infrastructure and expertise in the telecoms space," says Vishaal Bhatnagar, associate vice president with analyst firm IDC India.

Despite a suspension of hostilities, there is as yet no formal agreement that offers hope that the two companies will ever work to a common goal. An opening for them to do so perhaps presents itself with the recent merger of the tower operations of Reliance Communications and GTL Infrastructure: "The next logical step for the two Reliance companies is to share the towers from the GTL merger," says Bhatnagar. "Infotel Broadband does not have any physical infrastructure at all. Rather than create a fresh network of towers across the country it would make a lot of sense to share towers. I would expect Reliance Industries to rent out space on Reliance Communications' physical towers so as to roll out their network at a lower investment cost."

An increase in broadband access and capacity is incontestably something that India needs. India has 640 million mobile subscribers, served by 14 different 2G and 2G+ operators, in contrast to only 80 million internet users. The Indian government has commissioned 100 ISPs to provide broadband services all around the country, with the goal of securing 20 million broadband subscribers by the end of this year. At March 2010, there were only 8.75 million broadband subscribers, representing a mere 6% of India's population, and it is unlikely this 20 million subscriber target will be met.

Mukesh Ambani plainly thinks the Infotel deal is part of the solution, declaring that it will "pole-vault India's economy into the digital world at an accelerated pace while creating next-generation tools that will enhance productivity and create world-class consumer experiences".

Infotel Broadband's plan is to offer high-speed broadband internet services to reach between 100 million and 120 million subscribers, one sixth of India's wireless subscriber population, within five years of launch.

"Telecoms is Mukesh's passion", says Berge Ayvazian, senior consultant and director of 4G consulting at Pyramid Research. "He excels in project execution, scale and speed, and often spoke about the

'triple play' of offering voice, video and broadband data services when the brothers initially divided their father's business empire. Now he is trying to leapfrog the 3G revolution before it even begins by offering broadband speeds as much as five times faster than 3G networks, which are limited to 5MHz of spectrum."

As Mukesh works to fulfil his telecoms passion, while trying to make a success of Indian 4G, there is the intriguing possibility of Reliance Communications making a corresponding counterforay into the other Reliance's native territory: "In the past, Reliance Communications had no plans to diversify its business into oil drilling or petroleum refining, the traditional business focus of Reliance Industries," says IDC's Bhatnagar. "But this agreement can be considered to have been rescinded when the two brothers shook hands and stopped litigation against each other."

Seldom can a feud have ended with such uncertain results, or with so many interesting future directions for both parties to choose from.