It's a bullet with every Indian telco's name on it. It must be some projectile that can take on the likes of BSNL and MTNL, the G (that's government, not glimmer) twins of the telecom space, cellular nobility Bharti, Hutch, Idea and BPL, limited-mobility first-mover Tata Teleservices, and all other comers. Reliance Infocomm's service, branded India Mobile-the name should put to rest all queries regarding its nature-is some bullet.

Reliance Industries Chairman Mukesh Ambani is eyeing a market share of 25 per cent by the end of the company's first full year of operations, in March 2004-in number terms that could translate into anything between 4 million and 5 million subscribers.

As this magazine goes to press the Supreme Court has referred the issue of a basic telephony company offering what is essentially a mobile service back to the Telecom Dispute Settlement Appellate Tribunal with a directive to it to create a "level playing field", and the Telecom Regulatory Authority of India hasn't cleared Reliance Infocomm's tariff package but Ambani is confident of a December 28 launch. "I would be very surprised if any system prevents us from offering value to the customer," he says, a reference to airtime charges of 20 paise for a one minute call that the competition will find hard to match. The court backs him on that point: citing 'consumer interest' it refused to issue a stay on basic telephony companies offering limited mobile services.

The Invader Reliance Infocomm

Mukesh Ambani, Chairman The newest aggressor on the telecom front wants to be India's premier telecom company by providing 'limited mobile' (read: cellular) services across 18 states. FORECAST: There is nothing fixed about Reliance's India Mobile offering. Its focus on scale and efficiency should help it lord it over the competition, especially at the extremely attractive 20-paise-a-minute tariff it plans to offer. Regulatory constraints and litigation could hamper growth.

Nor will these rates bleed the company. "We will be profitable in Year 1," claims Ambani. That would be operating profits; with cumulative investments of Rs 25,000 crore it will be some time before Reliance Infocomm's bottomline turns black.

The epicentre of the quake slated to hit telecom terra on December 28, the late Dhirubhai Ambani's birthday lies in the aptly named Dhirubhai Ambani Knowledge city, DAKC, at Vashi, New Mumbai, where Reliance Infocomm functions out of a campus-the other Reliance companies will join it there shortly-that would do a software company proud: 132 acres, 13 blocks, 2 million square feet of office space, a guest house adjoining a good sized lake, and a temple.

The Reliance Infocomm core team works out of J block-the sanctum sanctorum is a large cubicle farm bordered by cabins for senior executives and conference rooms on the second floor. Not everyone on this floor works for Reliance. There are teams from the company's vendors, consultants and contractors-a headcount in the second week of December revealed 500 expats-working, in the tradition of that oft-misused cliché, around the clock.

The equipment is in place, the fibre constituting the company's backbone has been lit, and if everything goes well on the regulatory front, Reliance's most ambitious and most expensive foray yet will be up and running by the end of the year. "We missed the first big arbitrage opportunity, software," rues Ambani. "We were too busy to take advantage of that opportunity." It looked like Reliance had missed the telecom bus, too. The future was all about mobile telephony and all the company had to show in the business was a clutch of unimpressive holdings.

The BPLs, Bhartis, and Hutchs of the world had upstaged India Inc's first citizen. By 1999, though, the Ambanis had bested the challenge at hand-creating a world-class refinery-and were seeking new frontiers. Telecommunications it was, although Reliance did not approach the business the same way most others did: instead, in what appeared to be a self-destructive ploy, it chose to build a fibre optic backbone connecting 115 Indian cities. While the M&A game in India's cellular industry played itself out, all the Ambanis did was wait and build. In January, 2001 when the government approved the use of CDMA (Code Division Multiple Access) based Wireless in Local Loop (will) platforms by basic telephony companies to provide 'limited mobile' services (within a single Short Distance Charging Area, approximately 250 square kilometres), Reliance made its move. It bid for, and won 17 new licences, to go with the one for Gujarat that it had acquired in 1997. And everything changed.

Competing on Cost

The competition, even while praying that TDSAT or TRAI will stop the India Mobile juggernaut in its track by throwing a well aimed regulatory or legal spanner in its works - neither probably will; at best, cellular operators can expect some changes in India Mobile's tariffs and service offering - and is readying to meet the challenge. BSNL Chairman Prithipal Singh claims his company can match India Mobile's tariffs and Bharti Televentures' Chairman and Managing Director Sunil Mittal says it is still business as usual. "We have already factored in competition from limited mobility into our business plan; we are not surprised (at India Mobile's tariffs)."

Bharti is keeping its options open: Mittal says the company could offer GSM-based limited mobile services in the five circles for which it has a basic telephony licence(the company, fortunately, has a mobile telephony licence in each).

Other cellular companies-Hutch, a pure cell play, for instance-may not have this advantage. Their first line of ground defence is likely to be a service termed home zone roaming. Subscribers will be charged a fraction of existing airtime charges for calls that they receive at home and up to a few kilometres around it. Companies could even allow subscribers define two home zones, in and around home and in and around work. Still, there's only so much home zone roaming can do to combat India Mobile's 20 paise-a-minute proposition.

India's cellular telephony industry is silent about the other aces up its sleeve but chances are cost is one of them. Expect these companies to be obsessed with anything that can help them reduce their costs, predicts Rothin Bhattacharya, Executive Director, KPMG Consulting. "Cost management, restructuring, infrastructure sharing and funding will take up significant management time." Even monolith BSNL is busy drafting a blueprint to share its infrastructure with other telcos.

Just how low can cellular tariffs go? A research report by ABN-Amro says companies can afford to price their offerings at Rs 1.20 a minute and still earn a return of 30 per cent on their investment. But 20 paise-a-minute still seems out of reach. Surely, Reliance can't be making money at that tariff?

Keeping It At Rs 0.20

Tata Teleservices, which launched its CDMA-based service in Andhra Pradesh in March 2001 and across Delhi, Karnataka, Tamil Nadu, and Gujarat in November-December this year, doesn't expect to make money at 20 paise a minute. That, says S. Ramakrishnan, Managing Director, Tata Teleservices, won't stop it from bringing its own tariffs down to that level.

He believes that the India Mobile tariff plan is a promotional one and that Reliance will have to, sooner than later, move to a more economically viable model.

Ambani claims Reliance Infocomm's model is viable even at 20 paise a minute. His batchmate from Wharton and the CEO (Corporate Development) of Reliance Infocomm, Akhil Gupta-the man worked for HLL for six years before heading for the US and signed on with Reliance in 1992, giving up a successful career as a leverage buyout consultant based out of California-believes the timing of its entry helped the company.

Circa 2000, the dotcom bust was very much in progress and the global telecom meltdown was beginning. "We were able to buy the latest technology at 80-90 per cent off their standard prices," says Gupta. The scale of its aspirations helped Reliance bargain with vendors who were (and are) loath to lose a customer with a 60,000 kilometre optic fibre network (another 30,000 will soon be added to this), 36 switches (short-term target: 60), and 1,600 cell-sites (another 1,000 are in the offing). And Reliance Infocomm President Bhagwan D. Khurana proposes to manage this network with a staff of 8,000.

Just how becomes evident in a room the size of a basketball stadium-maybe marginally bigger-in Reliance's Vashi campus. Still work-in-progress, the room houses two video walls; each screen monitors the performance of one branch of Reliance's pan-Indian network; and anyone desirous of knowing just how the network is being utilised across the country can do so by spending a few minutes in front of the wall. A walkway provides visitors a bird's eye-view of the room-a little hubris does seem in order for a company that has pulled off a project of this magnitude.

"Mobility Will Add Value" A tete-a-tete with RIL Chairman Mukesh Ambani.

RIL's Mukesh Ambani: Telecom's dark horse Your vision for Reliance Infocomm? It comes from Papa's question: "Can you make people talk long distance for less than the price of a postcard?" What is the digital business all about? The market is voice-driven. In five years, it will move to data. That is where our long-term bets lie. Will you make money with such low tariffs? Ours is an old-world positive-cash-flow mindset. We will be profitable in year one. Will you be willing to pay a licence fee and go fully mobile? Absolutely. Not a problem. That is if we think that more mobility will add value. It is a business decision. What will you compete on with GSM? Value. Overall value. How soon will you be number one? We are never driven by that. This is an opportunity to find our place in the world. An internal market only helps you to excel in the external market. For us India is an initial market. Otherwise, we should really be looking at the global market. Are you? There is a very attractive global market. We have got to be world class. But we have got to first satisfy the local base. We are running this race to find our place in the world.

Then, there's the technology itself. CDMA, claims V.K. Gupta, the country manager of Lucent Technologies which supplied the switches to Reliance-treat this opinion as one from an interested party, then-uses spectrum far more efficiently than GSM. "For every 25 per cent increase in minutes of use, the GSM player needs to increase capital expenditure by 12-15 per cent," says Shubam Majumdar, a telecom analyst at Mumbai-based Motilal Oswal Securities. "A large CDMA player like Reliance can get by with just a 5 per cent increase."

Cellular companies complain that it was the government that mandated GSM as the technology standard. The government had no business doing that. It had no business rewriting the terms of its licence agreement in 1999 to provide succour to an industry crippled by the disproportionate licence fees it had itself agreed to pay-eventually, cellular companies coughed up Rs 6,300 crore, 30 per cent of their bid amounts and offered to share 8-12 per cent of their revenues. It had no business allowing basic telephony companies provide 'limited' mobile services using CDMA. And it shouldn't be dragging its feet over the interconnect issue-the amount cellular companies pay basic telephony companies when a cell subscriber calls a fixed-line number; cellular companies allege that this is skewed in favour of the basic telephony companies and have now placed a demand for a counter-charge; basic telephony companies, they say, will have to pay a charge when a fixed-service subscriber calls a cellular phone.

The impending launch of Reliance Infocomm, then, could force the government to spell out regulatory issues regarding technology, tariffs, interconnect, and competition. It could even provide some clarity on an issue the government has been studiously avoiding: the migration to third generation (3g) licences.

While the regulatory regime may have been favourable to Reliance Infocomm, it may be unfair to the company to ascribe its competitiveness to this one cause. "We paid a licence fee too," says Ambani. "If anyone thinks this is backdoor entry (into cellular telephony), well, it is a backdoor that was open to all." That it may have been but the window of opportunity is rapidly shrinking for India's cellular companies.