Reliance, Tata and Indian Telecom

Reliance, Tata and Indian Telecom

The dust seems to be settling now. Reliable media reports have indicated that patch up among brothers is almost final with the division of the flagship company that has propelled itself to great heights. Why am I enamored of Reliance? It is not due to the market capitalization or the size of the industry they have created. It is about the possibilities that these people have dreamt off and backing it up with a firm commitment and delivery. Arguably, they change the policies to their natural advantage and remain a blot on the corporate ethics. Yet, whatever they have done, they made sure that they are the leaders in the chosen field. This meant hiring the best brains for the job and getting it done.

In my earlier post on Reliance and the manner in which they have carved out the telecom scene, it remains clear that Reliance is a long-term volume player. This explains the thrust of the company in the rural areas offering unparalleled reach nationwide. It is clear that they have not shied from the rural telephony commitments and would soon be offering broadband access. The time limit invariably gets pushed further and further. In one of my earlier posts, I had mentioned that broadband push would be started off by the first week of March. Subsequent clarifications here. It is possible only by the end of this year. How this changes equation for other players, I shall detail a little later.

First and foremost the mobile telephony. As I mentioned about Reliance being a volume player, they have correctly identified the thrust in the rural markets. The major fact is that some of the areas are far lucrative than comparative urban areas. One of the factors I could think of is the untaxed agricultural income. That has no doubt created distortions in the economy and taxing it is a political hot potato; the fact remains that it is disposable income. Mobile phones have long gone beyond the elitist tag and it is easier to get one and service one.

How the other players have fared otherwise? Tata belatedly realized and rolled out its network in a hurry. The jury is still out about the quality of their network. According to media reports, they have avoided duplication of the infrastructure and instead rely on the existing players for the same. One end of the argument would commend them for the same. I feel that network infrastructure like towers and optic fiber etc. is sacrosanct. It is best to own one rather than rely on any other. How do these people justify on that count is beyond any reason. Well that is one man’s opinion!

Airtel is perceived to be elitist. Surprisingly, despite the fact that their license mandated compulsory rural services, they have not done so. If Airtel is to remain in contention, it has to change its advertising spend and branch out as a volume player. Still calls in the GSM networks are way to expensive.

As far as the fixed line networking costs are concerned, they remain high and that explains the reluctance of BSNL to invest in the same. It is hell bent on extracting the Access Deficit Charge in order to prop up its own inefficient structure. Instead, it could roll out CDMA based services in those areas where it has its optic fiber. CDMA was specifically designed for this purpose only. It can also support robust data transfers, as demonstrated by Reliance.

Broadband remains one of the key thrust areas for survival for any pan Indian telecom operator. The voice call charges cannot sustain the profits for these companies. A major regrettable fact is that Reliance is delaying its inevitable roll out.

Regrettable because, the existing customers are being snapped up by BSNL. Reliance plans to offer triple play of 100 Mbps through its vast optic fiber network. Its foray under the brand name Net Way, in one of the most keenly awaited events of Indian telecom. Reliance plans to foray in the cable TV distribution business. For that, it is amassing content in a big way. I have a feeling that it wants the regulatory mess to clear up. It wants a platform neutral delivery model. Direct to Home television is basically a non-starter barring Zee in the same. Once the regulations are firmly in place, it could give a major competition to established cable TV players. Introducing TiVO like functionality, Reliance hopes to capture the market far and wide. As the press release recently dictates, it opens up vast avenues for streaming video; content distribution and offer unexplored advertising channels. To capture the market, it could drop prices to sustain the losses and wipe out the existing players. That seems to be the strategy. It might even give away the set top box for free in the initial introductory offer. However, the details are hazy and I cannot confirm anything on that front now.

Tata is loosing out in this race. Clearly, they chose to concentrate in the metros where they believe that they could introduce “broadband” the Sify way. This would give them enough bad press anyway. As the market matures and the customers become more demanding, only the best would survive. Tata’s have had too many missed opportunities and it is their stone headedness to persist with the same follies time and again, which they can avoid. Data is the key to survival if one wants to capture the market.

It is risky to predict the future. As the market is evolving, Reliance seems to be the only long-term player along with Hutch. BSNL is a government agency; there could be increased demands for privatizing it and selling it off. As for Tata’s their heart does not seem to be in this business. Airtel might just sell out. What emerges from the fall out is Reliance straddling the entire telecom network from gateways to end user premises. Long time back, it was the official word from none other than the top boss. Once the valuation is achieved with the critical mass of subscribers, they too might exit the business. Or possibly extend their business to other countries. Indian experiment could be their showpiece to the world.

Discuss on: Sify Broadband, Tata Indicom, Airtel Broadband, Reliance Broadband, MTNL – BSNL Broadband, Dial Up, Others

This post was submitted by Dr. Abhishek Puri on the Broadband Blog on Techwhack.