Mukesh Ambani enters telecom by acquiring Infotel


Ambanis don’t waste any time do they? I have still not digested the dismantling of no-compete agreement between the Ambani brothers and here we are with yet another twist. Mukesh Ambani (Reliance Industries) has entered the Indian telecom segment again with a $1 billion acquisition of Infotel, a broadband services company. Reliance Industries will be paying the broadband fee of $2.7 bn too on behalf of Infotel.

Mukesh Ambani’s love for telecom is nothing new. He never wanted to be separated from Reliance Communications which he had to let go to retain Reliance Industries. Six years and multiple battles later, the Ambani brothers called truce. And what followed is a mayhem to the competition and several golden opportunities regained for Ambani brothers.

Here’s what dissolving of a no-compete agreement meant :

  1. Reliance Communication(RCom) can sell 26% stake to other parties. RCom’s proposed merger/acquisition with MTN was thwarted by RIL based on the right to refusal. RCom is now open to a renewed merger talks with MTN.
  2. Reliance Industries can enter telecom sector. Which it did with the Infotel acquisition.
  3. Anil Ambani has withdrawn a $2bn lawsuit against Mukesh Ambani and New York Times.

When there were rumors abound that Mukesh Ambani will be entering telecom sector, it did not take a rocket scientist to figure out that Mr Ambani cannot enter on his own. There are no new telecom licenses which the telecom minister Raja is selling, 3G spectrum auction is over, and the only thing pending is the broadband wireless spectrum. That too is at the final stage. Mukesh Ambani has the cash to buy out any decent company. The only question was which company. And that was answered. Infotel might have been bidding for the spectrum with a strong Reliance backup all the while. How else can a company like Infotel successfully bid for all the 22 circles when companies like Bharti and Aircel got only 4 and 8 respectively?

If Reliance Communications has toiled and fought the hard battle of gathering voice subscribers, RIL has done it the easy way. It entered the market when voice is no longer a differentiator nor it was a money spinner. RIL’s timing is just about perfect. When the average revenue per user is at an all time low and when it did not make much sense to enter the voice segment and when India is on the verge of a data revolution, RIL has entered. Just like in the movies.

Infotel is the only firm to get spectrum in all 22 circles. The other players who got the spectrum in one or more circles are Aircel, Tikona, Qualcomm and Bharti. Bharti is the only player which has both 3G spectrum and broadband spectrum (only in 4 circles). Aircel which has been a steady player has won the spectrum in 8 circles. Only two players are allowed in each circle. Big players like Tata, IDEA and Vodafone do not have any broadband wireless spectrum.

If we look at the sequence of events, it all looks like a big game plan. Something which Indian grandmaster Vishwanathan Anand couldn’t have played.

RIL’s entry into the telecom sector through the data or the broadband route doesn’t mean that RIL would leave the voice and 3G segment alone. There are 15 players in the play. Bharti Airtel, Reliance Communications, Tata and Vodafone are the four major players which no one can touch. Anything can happen to the rest of the players and RIL will not be quite with them.

Traditionally RIL and Mukesh Ambani believe in organic growth. But for telecom they would make an exception. First exception is Infotel. I expect few more exceptions in the coming years. Mukesh Ambani and Anil Ambani forming a joint venture or a tie-up would be a biggest exception. An exception probably the market and competition is not ready for. Would it happen?