Don’t fall for R-Jio’s media blitzkrieg, Ambani brothers may now control entire telecom space

Taken together, R-Com and R-Jio would become a formidable combine.
Don’t fall for R-Jio’s media blitzkrieg, Ambani brothers may now control entire telecom space
Don’t fall for R-Jio’s media blitzkrieg, Ambani brothers may now control entire telecom space
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The pomp and glitz surrounding the launch of Reliance Jio's 4G services on Monday was all-pervading. It would have one believe that the company, part of the Reliance Industries Limited (RIL) conglomerate, had done something revolutionary. But then, it hadn't. Neither had it introduced a new technology, and nor launched an innovation. It had only announced the rollout of its 4G telecom services, something that rival Bharti Airtel had done way back in February 2014.

The promotional blitzkrieg more than surpassed the hype that had been created in December 2003 when Reliance Infocomm, then part of the undivided RIL empire, entered the mobile telecom market. Infocomm too, like R-Jio, had been the brainchild of Mukesh Ambani, the current chairman and managing director of RIL. Infocomm at that time had promised to change the way Indians spoke on the mobile. In fact, it did--by introducing dirt cheap call rates, and by default coercing all earlier entrants to drastically slash prices as well.

This time too the promises are big, with R-Jio claiming that average 4G monthly bills would hover around Rs 500-700. With R-Jio investing around Rs 80,000-100,000 crore into this venture, it is more than likely that it will disrupt the market all over again. It has its own sanctioned frequencies, and a readymade network that is being provided by Reliance Communications that is part of the group owned by Mukesh Ambani's younger brother, Anil. How R-Jio can do transform the 4G market with its belligerent marketing is a matter of speculation, but how it got this far is fact.

Back with a controversial backdrop

The R-Jio story has been in the making for five years. Shortly after the May 2010 judgment of the Supreme Court which ruled in favour of the elder brother in the case pertaining to the supply and pricing of natural gas from the Krishna-Godavari basin, the two warring brothers called for a cessation of hostilities. The non-compete clause in the 2005 family agreement that barred each brother from making a foray into the other's territory was done away with.

What this meant was that Mukesh Amabani could once again enter the telecom space. He had had to cede this space with the 2005 family split when Reliance Infocomm had gone to Anil. Like the Jamnagar refinery, Infocomm too had been Mukesh's brainchild. But there was a difference: all through Infocomm had been more of a personal project for him, and was a subsidiary of Reliance Communications Infrastructure Limited. Mukesh Ambani and his wife Nita held 50.5% of the shares through a number of holding firms, and 45% by RIL. So, when Infocomm eventually went lock, stock, and barrel to Anil who had never been in the telecom picture, Mukesh had to wait for that elusive opportunity to make a comeback.

This he did shortly after the 2010 truce between the brothers. About a month later Mukesh Ambani announced that RIL would enter the telecom space, with the taking over of a hitherto unknown entity called Infotel Broadband Services Private Limited (IBSPL). This made news since IBSPL was ranked 150th in the list of ISPs by the Telecom Regulatory Authority of India (TRAI), with a paid-up capital of just Rs 2.51 crore and a net worth of Rs 2.49 crore.

The tiny ISP, which had only one single leased line client, made waves at the June 10, 2010 announcement of results for the bidding of 4G services. Aided in the form of a bank guarantee from Axis Bank of Rs 252.5 crore, it won bids and acquired broadband spectrum in all 22 telecom circles across the country. The same day, at an extraordinary general meeting of shareholders, IBSPL became a subsidiary of RIL. A week or so later, IBPSL became a public limited company. In January 2013, it renamed Reliance Jio Infocomm Limited.

Most of the developments thereafter happened in the background, and were revealed in a damning draft report by the Comptroller and Auditor-General in August 2014. According to the report, the Department of Telecommunications (DoT) allowed R-Jio to offer voice services under the broadband wireless access (BWA) spectrum acquired under the 2010 auction. This was done surreptitiously and, according to the CAG, at a price far below the prevailing market rates. The draft report pegged this amount at Rs 22,842 crore, but the final report brought this down to Rs 3,367 crore. It pointed out a number of anomalies and irregularities, but no one was put in the dock.

War and peace, followed by prosperity

The R-Jio launch also marks the coming together of the Ambani brothers--there has had been little schism between the two since the 2010 Supreme Court judgment that had followed a no-holds barred fight between the two. The new agreement between Mukesh and Anil to share each other's infrastructural facilities benefits both.

For one, Anil's R-Com has been ridden with debt, but has already bought over Russian conglomerate Sistema's Indian telecom unit, MTS India. It has begun monetising its surplus real estate worth about Rs 300 crore, and has already sold off some of its tower assets. And with plans to take over Aircel, R-Com could well become India's second biggest telecom operator by dislodging Vodafone from the spot by controlling about 200 million subscribers. Though both R-Com and Aircel are in the red, the subscriber base is too large for R-Jio to ignore. R-Com can now offer 4G services to its own subscribers, and R-Jio can expand rapidly. Taken together, the two entities would be a formidable combine.

But can and will the two brothers join forces on other fronts too? The media and entertainment front remains a distinct possibility. Mukesh's RIL owns Network18 and Mumbai Indians, while Anil's ADAG has Reliance Entertainment. In an era where cross-media holdings are much sought after by big corporations, this is an area that needs to be watched. True, the entire Network18 infrastructure unabashedly promoted the R-Jio 4G launch, but for the big-thinking Mukesh it can't possibly be enough.

We'll need to collectively keep watching this space.

Subir Ghosh is a Bangalore-based journalist-researcher, and among the co-authors of 'Gas Wars: Crony Capitalism and the Ambanis'.

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