GSM costs lure Reliance Comm

Reliance Comm has said GSM equipment and handset prices are cheaper than CDMA.

Reliance Communications, part of the Reliance Anil Dhirubhai Ambani Group, has cited cheaper equipment and handset prices for the next 300 million of its subscribers in India as the key reason for shifting of its focus to GSM.

It has also hinted that of the incremental $900 million capital expenditure in wireless telecom services, which the company will make next year, a large chunk could go towards building GSM networks.

The company has also pointed out that it does not see any dip in its earnings before interest, taxes, depreciation and amortisation (EBIDTA) margins due to the shift in focus from CDMA to GSM and that these would remain within the 35-40 per cent range.

The company and Anil Ambani have made these observations at various meetings with equity analysts and investors across the globe. The group had kept its plans to move into GSM under wraps.

It recently made an application to the department of telecommunications for GSM spectrum across the country. When contacted, a Reliance Communications spokesperson declined to comment on the issue.

However, the broad contours of the strategic reasoning behind the move can be gauged from various discussions that analysts have had with top executives, including Ambani, recently.

Raising concerns about Qualcomm's policies (as it is a key reason for the high CDMA costs), the company, including Ambani, in its discussions with analysts has pointed out that the CDMA handset ecosystem has many challenges and the Qualcomm approach in no way helps them to bring down the affordability index for millions of customers.

The challenges they face with Qualcomm include issues of royalty, chipsets and whether they can deliver value and low-cost solutions.

It has argued that this has been a key reason why many operators have efficiently migrated to GSM platforms.

In his submissions to analysts, Ambani, when questioned about whether it was possible to run two different kinds of networks (CDMA and GSM) in the same market, reiterated that in the seven circles in India where Reliance Communications currently operates GSM and CDMA, subscribers are equally divided between the two. The company has 2 million subscribers each in GSM and CDMA networks in these circles.

Ambani has also pointed out that customers are technology neutral and they buy a service for its coverage, tariff and quality, and not because it is CDMA or GSM.

Reliance has also pointed out at that the spectrum situation is not as dismal as it seems and is limited only to the top 20 cities. And even here the government will be releasing a big chunk.