Mukesh Ambani, who had to leave telecom to his younger brother, is coming back into telecom in style. RIL-Infotel is the only company with a pan-India broadband licence. Is broadband the spearhead for a full-blown entry into telecom?

Last week, Reliance Industries Ltd (RIL), India's largest private-sector company, decided to re-enter the telecom sector by buying 95% stake in Infotel Broadband Services Pvt Ltd for Rs4,800 crore. Infotel was controlled by the promoters of the infamous Himachal Futuristic Communications Ltd (HFCL).

More than 14 years ago, the tiny HFCL earned a lot of notoriety by being the highest bidder for new telecom licences when the telecom minister was Sukh Ram. Nobody knew who was funding HFCL.

But unlike last time, this time it is clear who is funding Infotel, which is the only pan-India winner of the recently concluded broadband wireless access (BWA) auction. But what is RIL's game plan in telecom, a sector that is close to the heart of RIL's chairman and managing director Mukesh Ambani and which he had to give up when Reliance was split in 2005? RIL's re-entry into telecom is significant in many ways and has the potential to change the game altogether, as it did with Reliance Infocomm (now Reliance Communications Ltd or RCom).

Mukesh Ambani, who is known for his quick execution of mega projects, launched his 'dream' mobile services in 2003-04 with a slogan 'Kar Lo Duniya Muththi Mein', which means 'take control of the world'. Reliance Infocomm, launched in 2004, changed the whole scenario of the mobile industry, ushering it into a new era of huge subscriber volumes at low prices.

Today, RCom has a subscriber base of more than 100 million while the country has a total wireless subscriber base of over 601 million. Can he do the same for broadband? And will he remain satisfied with only a broadband presence? Is this his backdoor entry into the entire gamut of telecom services, including voice and video? If so, what happens to the business models of the existing also-rans of the game like MTS and new entrants like Uninor?

To start with, the broadband business is ripe for the picking because Indian telecom providers have foolishly ignored the broadband market, creaming off money from the high-end customers who use broadband. Any honest survey of broadband customers will throw up huge dissatisfaction in billing, customer services, connection speeds and connectivity. RIL can easily take away a large chunk of this market as there is no barrier in shifting data providers as is there with voice.

The Indian broadband industry is at a nascent stage. India's total Internet subscriber base stood at 15.2 million as of end-December 2009, compared with the total fixed-line subscriber base of 37 million, indicating a penetration of 41%. The broadband subscriber base is 8.75 million as of end-March 2010. The industry is dominated by the digital subscriber line (DSL) segment which has 86% market share. State-run Bharat Sanchar Nigam Ltd (BSNL) and Mahanagar Telephone Nigam Ltd (MTNL), along with Bharti Airtel Ltd and RCom, dominate the DSL market. Due to higher costs of fixed-line deployment and absence of unbundling of local loop, the growth of broadband services has remained restricted. No wonder, both the State-run companies enjoy 80% market share in wireline subscribers. On the other hand, the number of subscribers using data on mobile networks stood at 149 million during the same period. Given the higher mobile penetration and lower handset cost compared to personal computers (PCs), Internet and broadband services based on mobile platforms are all set to witness strong growth in India.

"RIL sees the broadband opportunity as a new frontier of the knowledge economy in which it can take a leadership position and provide India with an opportunity to be in the forefront among the countries providing world-class 4G network and services. A single 20MHz time division duplex (TDD) spectrum, when used with long term evolution (LTE), has the potential of providing greater capacity when compared to existing communication infrastructure in the country," the company said in a release.

Initially, RIL-Infotel will focus on retail and enterprise data consumers seeking wireless broadband connectivity for laptops, netbooks, devices and gaming consoles. Wireless data services will be the key offering along with voice-over-Internet protocol (VoIP).

Commenting on RIL's re-entry into telecom, Macquarie Research, in a note said, "We believe wireless data is a significant, untapped opportunity in India and most existing wireless incumbents are possibly not pursuing the opportunity with single-minded focus, as some of them are busy bringing their voice businesses to scale and free cash flow generation, yet others like Bharti are focusing on stoking voice elasticity-led growth in relatively under-penetrated Africa." According to the research firm, RIL would play an active role in stimulating the ecosystem comprising handset and device manufacturers, equipment vendors, application developers, application stores and user demand, without spelling out whether they would indulge in handset or device subsidies, which has been a key feature of successful wireless data take-up worldwide.

Interestingly, RIL will have the business very much to itself. RIL-Infotel won 22 circles (pan-India). US-based Qualcomm and Mumbai-based Tikona Digital Networks Pvt Ltd won four and five circles, respectively, while UK-based Augere Ltd was able to win in one circle. Bharti Airtel, the country's largest telecom services provider, was able to win four circles but failed to win key metro circles like Mumbai and Delhi. More surprising was the midway exit of incumbent Vodafone, RCom and Idea Cellular from the BWA auction. These players may have exited because of increasingly fierce bidding for 3G spectrum and their stretched balance sheets. Mukesh Ambani wants to usher in a broadband revolution both in urban and rural areas across the country by providing end-to-end data solutions and plans to create state-of-the-art technology. The market is there. How does it affect the other players in the business? Read that analysis tomorrow.

— Debashis Basu and Yogesh Sapkale