Anil Ambani

Reliance Communications is "converting the whole of India into a hot spot", says company chairman Anil Ambani. "Wherever we have voice communication we have internet access." The 47-year-old business magnate looks pleased. As he should -- it's a good day and been a good year, as Reliance Communications announces its first dividend of 10% to celebrate profits of $734 million. It wasn't always this way. Two years ago when Anil Ambani took over Reliance Communications -- along with Reliance Capital and Reliance Energy -- in what was perceived as his less than fair share of the great Reliance industrial empire of India, it came with CDMA technology he wasn't particularly partial to. There was a huge dispute over call re-routing with state telecom companies. And he had a frequently defaulting low-arpu subscriber base. Today profits are up a staggering 612% over last year, subscribers have crossed the 30 million mark, arpu is up at 371 rupees ($9.08) a month and the network is booming. Some of this is, of course, due to the expanding market -- a market which is adding over six million subscribers a month and in which rival Bharti recently reported $1.05 billion profit. But industry observers credit Anil Ambani, junior brother to Mukesh -- who now heads the crown jewels of the empire, the petrochemical business -- with the astute financial restructuring that this Wharton School alumnus is best known for. Within a year of the split with warring brother Mukesh, Reliance Comm was listed and restructured. Today Reliance Comm's acquisitions -- such as the once loss-making submarine network Flag Telecom are doing well. Flag has expected revenues of $450 million. And Reliance, like arch rival Bharti, is betting big on the telecom infrastructure and towers business. The towers have been hived off to form a separate company, RTIL, with a valuation of $735 million. "It has got no debt, and so the rollout of 20,000 more towers this year can be achieved based on the company's own balance sheet, without Reliance Comm putting in any more capital," says Ambani. "All the new towers that we are building will be multi-tenanted and multi-technology. And lastly, since RTIL is debt-free, all the funding that the tower company needs will be on its own balance sheet, with Reliance Communications as its anchor customer and with other potential customers."

Tower auction
Ambani is ebullient on the matter of the towers and certainly it looks as if he has reason to be. For Reliance recently emerged as winner on crucial tower sharing auctions conducted by the Indian government of India out of the universal service obligation fund, to which all telecom operators contribute 5% of their revenues. "In the recent auction we've been the number one leader," says Ambani. Reliance will have to construct 500 of the total 8,000 rural towers, but this will give the company "access to towers that are likely to be built by BSNL in the remaining of 8,000 locations", he says, "and in these locations we don't have to pay any rental for the first five years". This is a major strategic advantage, says Ambani: "If anybody wants to come even close to operating in 8,000 locations, which is what we have achieved from the universal service obligation tender, it will require a multi-billion-dollar capex to do that. Also, the tower infrastructure that is being created is good for 2G, 2.5G, 3G and 4G -- whether it is GSM, CDMA, WCDMA, EVDO, or WiMax. So, we are investing for the future, and as and when these services have to be rolled out, we'll have a time-to-market advantage, apart from a cost advantage." The multi tech towers tie in with another Reliance ambition: the rollout of GSM services nationwide. This is a shift from its current position where it dominates the mainly two-player CDMA market with a 60% market share. It still has a small 3% presence in the GSM market. Reliance may have initially used CDMA to its advantage from 2003 by building subscriber growth by bundling cheap handsets and by reducing churn rates, but Ambani is keen to roll out nationwide GSM services. "We chose at that stage due to non-availability of spectrum to go CDMA," he explains. So Reliance has applied and is awaiting along with a whole slew of other telecom hopefuls, for spectrum allocation.

Spectrum auction
"They've been announcements coming out of Delhi that a large quantity of spectrum is due to be released in the second quarter," Ambani explains, "and we are waiting to receive GSM spectrum." Reliance has already pre-emptively invested in passive infrastructure. "We can, at an approximate cost of $1 billion, roll out nationwide GSM coverage in the space of one year," Ambani declares. Indeed nationwide network expansion is a prime concern for all the telecom operators operating in this market, with a remarkably low teledensity. Ambani is proud to point out Reliance's strategic advantage in this area, specially as private players go -- the state-run BSNL with its vast network of fixed lines is in a class of its own. Reliance is going "deeper down", he says, moving to towns with a population of 5,000 plus. Down and up as well: all the way up to the Hindu pilgrim site of Badrinath and Kedarnath in the Himalayas, situated 3,000 metres above sea level. There's a personal significance in this, for Anil Ambani who is deeply religious -- as was his self-made billionaire father Dhirubai Ambani, who founded Reliance Industries and developed it to become the first Indian company in the global Fortune 500 list. Dhirubai Ambani died in 2002. Flamboyant lifestyle notwithstanding, the younger Ambani makes it a point to visit the country's ancient Hindu shrines with his film star wife Tina Munim and his two sons, or with Hindi movie star friends the Bachchans. Today Ambani has an interesting little anecdote about inaugurating services in the Kedarnath pilgrim site: "When I met the chief priest there, a young man in his thirties, his first question was about internet access and email." Clearly Reliance's moves to data are being taken seriously at the highest level -- and just as well, for Ambani feels voice arpu could decline to as low as $2.47.

Talking SMS
There's clearly a market for value added services, Ambani says, and not just in the metros. Yet it's an undeveloped market, where the typical customer is a man who goes to a public call office to make one rupee -- that's two-cent -- call and doesn't know how to send an SMS. Reliance plans to address this segment with innovative products like "talking SMS". From talking SMS for rural customers to IPTV for the metros, Reliance is clearly looking to straddle it all. A look at the group's acquisitions over the last couple of years reveal as a larger plan at work. For if Sunil Mittal of rival company Bharti is referred to as telecom czar, Anil Ambani is clearly moving towards being entertainment czar. Reliance has 150,000 km of fibre optic network and it is looking to use this connectivity as its takes over some key content providers -- Adlabs, a multiplex major and film production house, TV Today, Big FM, Zapak, a the gaming portal, BigAdda, a social networking site -- to fashion a giant entertainment empire. "We're very much on track for both IPTV and DTH," says Ambani, referring to direct-to-home satellite television services. "We expect a nationwide launch of DTH towards the end of this year." And what of the battle for telecom market share? "In circles [licence areas] that we are operating both GSM and CDMA we have more than 25% share of the market," he says, adding that one of his objectives "is to shoot for a 25% market share across India in the services". Reliance has a much higher market share in a lot of its other businesses, he points out, "and naturally we would like to retain and maintain that. However we are not only committed to having market share. We are also committed to our EBITDA and our profitability -- so market share at what price is something we constantly evaluate internally." And yet Reliance, with deep pockets, has had a history of slashing prices to gain market share and I ask Ambani whether this will continue to be an area of focus?

Lower tariffs
"From a pricing perspective we're already seeing that the lowest levels of tariffs probably in the world are existent in India," he points out, adding significantly: "If there is room for more, more will come." Interestingly a few days after this conversation, more price cuts did come, with Reliance starting a virtual price war by slashing tariffs on roaming rates and on its international calling cards -- calls to the US and Canada at the equivalent of five US cents a minute. The company also introduced its lowest price handset ever: at $19 each, and the company was reported to have won a million new customers in the first week. Rivals immediately followed suit: Bharti and Hutch dropped rates and Tata Telecom lowered its bundled handset prices as well. Then Vodafone announced its emerging market handsets, priced at $25-$45 range in a move widely seen as one to challenge Reliance's economy handsets. In all this, Anil Dhirubai Ambani is clearly upbeat. He may have lost the competition for Hutchison's operation in February 2007 to Vodafone -- and with it the chance to be the biggest telecom operator in India -- but he remains unfazed. "I don't see much change," he replies to a question as to whether he considers Vodafone will intensify competition. "There was a five-six-seven player market, and there's still a five-six-seven player market. No there's no change at all: I think that if Vodafone is clear about the price that they've paid then they'll be far more cautious in trying to make money on their investment." At any event telecom in India is definitely a good place to be and as he says "the overall pie will grow and grow".