Pan-India wireless operator to spur broadband market

The entry of a large pan-India player, namely Reliance Industries, in the local broadband wireless access (BWA) market will ensure such services can reach villages across the country, triggering higher economic growth, according to analysts.

The final days of India's BWA spectrum auction led to a surprise player in the form of Reliance Industries (RIL), which is owned by business magnate Mukesh Ambani who is also currently the richest man in Asia. The company had acquired a 95 percent stake in Infotel Broadband Services for US$1 billion (INR 48 billion), hours after the latter emerged as the only operator to secure spectrum in all 22 zones. The pan-India BWA licence came with a US$2.8 billion (INR 128.5 billion) pricetag.

After announcing the Infotel deal, Mukesh, currently RIL's chairman and managing director, said in a statement: "We see this as the next wave of value creation opportunity in the wireless broadband space. We believe this will pole-vault India's economy into the digital world at an accelerated pace while creating next generation tools that will enhance productivity and create world-class consumer experiences."

Barring Tata Communications, India does not have a pan-India player in the broadband space. Moreover, broadband penetration in the country remains low at less than 1 percent, with only 9.5 million broadband subscribers.

"A new entrant the size of RIL will increase competition," Nareshchandra Singh, principal research analyst at Gartner, told ZDNet Asia in a phone interview. "There will also be more innovation. The market should also see lowering of tariffs and improvement in service. A lot of new services will become available to consumers."

Well-crafted, disruptive market entry
Mukesh's Infotel majority stake came less than a month after reaching a truce with his younger brother, Anil, that ended all no-compete agreements. In the early 2000s, he had steered the Reliance group into the local telecom space with the introduction of CDMA (code division multiple access) technology through his company, Reliance Communications (RCom). Following a dispute within the group in 2005, Mukesh handed over RCom to Anil.

The reconciliation gave both the brothers the opportunity to enter and invest in areas hitherto barred under the family settlement. Little wonder then that his re-entry into the telecom market is viewed as well-crafted.

"Mukesh Ambani paid the premium knowingly," Sivarama Krishnan, executive director PricewaterhouseCoopers, told ZDNet Asia in a phone interview.

He expects RIL's presence to create significant disruptions in the Indian telecom industry. "Entry of RIL will lead to reduction in tariffs," Krishnan said. "Today, a broadband Internet connection is more expensive than voice. Gradually that will change."

RIL, as a large player, also has its advantages.

"Larger and stronger players will also have the scale to offset the spectrum cost while keeping costs low, thereby, offering one of the lowest fares in the world," Bryan Wang, associate vice president for connectivity at Springboard Research, said in an e-mail.

RIL's entry could also lead to market consolidation. Wang explained: "We believe there will be some level of market consolidation and we will see larger and stronger operators in the marketplace. There are several competitors in India's telecom market today, making the players unprofitable. "This is certainly a challenge for the ecosystem," Wang added.

There is speculation that RIL may be looking to strengthen its telecom hold, where reports have pointed Mukesh's interest toward players such as Aircel, Idea and RCom.

Industry watchers also expect RIL to be large enough to influence regulators, specifically, to eventually permit voice services to be delivered over BWA.

Triggering economic growth
According to RIL, BWA services can provide opportunities for India to be in the forefront on the global arena, providing world-class 4G networks and services.

Ashish Khanna, India lead for Accenture's communications and high-tech group, said: "As technologies like 3G and BWA trickle down to urban, semi-urban areas and eventually to rural areas, the costs will come down. In fact, both 3G and BWA players will have to come up with effective pricing if they want to see an increase in uptake of these two technologies in the rural areas."

"The increase in broadband penetration with the entry of a large, pan-India player is likely to trigger high economic growth, particularly in small towns and villages," Khanna added. In fact, growth in BWA will become crucial to India's economic growth. The World Bank has identified a strong correlation between broadband adoption and GDP, where a 10 per cent rise in the former will push GDP up by an average of 1.4 per cent in developing economies.

BWA also has huge potential in markets such as India because infrastructure investment is far lesser for market players, since cell sites can support a large number of connections. Khanna explained: "One WiMax can support 300 active and 600 non-active consumers per cell site in a 20MHz channel."

An uptake of wireless broadband services is further expected to lead to the introduction of new applications around education, healthcare, banking, farming information services and entertainment. "Many of these services would be offered through public-private partnerships," Gartner's Singh said, adding that in many villages, these may be launched as community-based services as a result of low purchasing power in rural areas.

Swati Prasad is a freelance IT writer based in India.