Quo vadis, Reliance?

Tech Talk

The new year is a good time to eat crow. In a column last year (August 7, 2002), I expressed my scepticism over Reliance Infocomm's ambitions of achieving a five million subscriber base for its wireless in local loop (WLL) telecom services (which has now morphed to a full blown mobile offering, thanks to some policy blessings) in 18 months.

Although my cynicism was aimed more at the company's fifth year target of 25 million phones that I said would require some major structural changes to Indian telecoms, I have to admit that I am surprised by its customer achievements.

Reliance Infocomm, according to insider reports, has over five million subscribers and continues to grow at a decent clip. These reports, I believe, are credible.

It is some balm to my bruised ego that I was not the only one wrong. Now that the 'unified licence' fiasco is behind us and wireless in local loop companies have been allowed to offer full blown mobility, the question on the lips of other telecom watchers has changed from "Will Reliance Infocomm make it or not?" to "How is it doing?"

Vice chairman Anil Ambani gave some hints at parent Reliance Industries' last quarterly results conference. He said the telecom venture would start making profits later this financial year.

This raised sniggers among the analyst community, especially among the overseas teams which view Reliance's P&L accounts with suspicion.

Even discounting for sceptical analyst expectations, the Ambani forecast is quite astounding; it will be a record of sorts for a telecom project to break even so soon. There is precious little other information coming from the conglomerate on Reliance Infocomm.

In the absence of company briefings, it is impossible to put together an accurate picture of what's happening at Reliance Infocomm. Yet here are some salient points "� warts, accolades and all "� pieced together by talking to various sources.

First, the mistakes. With hindsight, the earlier tiered and franchisee distribution model conjured up by Reliance Infocomm was amateur and flawed.

To make it worse, there were problems with the supply of handsets. This was not entirely surprising given that the telecom project was the group's first sortie into a retail business.

It was not built to scale up and handle the numbers the top management was pushing its foot soldiers to achieve.

Having said that, it was admirable how the megacorp changed gears quickly and plugged holes in its distribution and got its supply chain fixed. The climb of the Reliance Industries share on the stockmarkets is testimony to the upswing in the fortunes of the telecom business.

The second mistake that Reliance Infocomm is still grappling with, I'm told, is that of its customer billing and collections. If sources are to be believed, the company will have to write off crores in unpaid bills sooner or later.

Finally, an error that will cost Reliance Infocomm dear, I believe, is the lost opportunity to capture consumer mindshare as being actually the cheapest telecom services provider in the country.

That would have been a solid foundation for a powerful brand, but as informed analysts have argued, the Reliance service is not the cheapest of the land and is behind Tata Teleservices "� and, perhaps, even Bharat Sanchar Nigam Ltd's cellular service "� when it comes to affordability.

While high-usage customers like corporates benefit from the Reliance offering, the same can't be said about the millions who shudder at a telephone bill of more than Rs 500 a month.

Consumers are beginning to realise this, particularly in the southern India states that I tour frequently, and that is not good news for the Ambani company.

So what's going in favour of Reliance Infocomm? One, it has chosen a technology with potential.

Cellular companies using GSM (global system for mobile communications, an European standard) are not going to like this, but I think the technology "� CDMA or code division multiple access "� deployed by Reliance has a slight edge, especially when it comes to data use or migrating to a 3G scenario. (A CDMA killer in this instance could be WiFi-based voice and data applications, though.)

Next, most important, Reliance Infocomm has in its owners, Reliance Industries and the Ambani family, virtually 'lenders of last resort.'

The oil exploration-to-petrochemicals-to-fibre parent generates a few thousand crores of rupees in free cash flows every year that it is desperate to invest in yields better than those delivered by treasury desks.

Telecom "� with the exception of software "� offers it the perhaps the most optimal risk-reward trade off among service industries in India. Further, the Reliance group has the least pressure among Indian telecom promoters when it comes to return on capital.

There are several risks "� surviving with a lower revenue per user in the days ahead as the company expands its customer base, new destructive technologies on the horizon and competition from resurgent rivals like BSNL, to name just three "� ahead for Reliance Infocomm.

But, it may have crossed the Rubicon, as it were, and could well be on its way to the 25-million mark if it keeps at it.

Josey Puliyenthuruthel works at content company perZuade. His views are personal and may not be endorsed by his employer, the company's investors, customers or vendors. Comments may be sent to josey@perzuade.com