Reliance entry in to Telecom Market: Identification of Most profitable Gap

As speculated, RIL has finally opened its cards for re-entry into the telecom space. it will invest about 48 billion rupees ($1.03b) in Infotel via a new share issue, giving it a 95% stake in the firm.Though RIL is a cash-rich company, it has limited growth potential in the businesses it is into.
Reliance Industries will be deploying 15,000 base stations uptill a cost of $1.5 billion over the next three years. The auction for broadband licenses comes less than a month after a much larger auction for crucial 3G spectrum, which operators need to improve call quality and roll out data intensive services to India's 600 million cell phone users.
Entry into the telecom space will definitely give incremental value creation for its stake holders. It is well known that whatever RIL enters into, it does so in a big way. This will definitely help consumers get world class wireless 4G broadband services at affordable prices in the future.
Given the enormity of the pricing in the deal, the industry experts assess as to with less revenue potential in the beginning. However, with the involvement of cash rich company like RIL means an tougher competition for telecom firms which are already in tough times due to lower tariffs in voice calls- now the tug of war will also be escalated in the data services.
Reliance aims to replicate India's mobile phone growth story in the broadband segment and expects broadband connections to grow rapidly in the next three years, according to a corporate presentation on its website.

India is the world's second-biggest and the fastest-growing mobile market with more than 600 million users.

however it won't be easy for India's top conglomerate to start making money immediately as next-generation broadband technologies such as long-term evolution (LTE) haven't yet been launched and the catch up in a price sensitive market such as India could be slow unless services are affordable.
Broadband business is to contribute less than 5 per cent of the company's EBITDA and less than 2 per cent at the earnings per share level, even assuming an aggressive business approach.
But here I think Reliance have taken a call because this is the lowest point in the telecom sector in India.
It is possible for Reliance to offer voice services using the wireless spectrum Infotel has won in the auction, but the company is likely to focus on the high-margin data business first.The intent is clearly data, Voice clearly is highly commoditised.
India's broadband penetration -- connections per 100 people -- is extremely low at 0.74, whereas more than half of the population have a telephone, according to the Indian telecoms regulator.

Just 4-5 per cent of the country's mobile subscribers access Internet on their phones, analysts estimate. Mobile operators currently get only 10 per cent of their revenue offering data services.

China, the world's biggest telecoms market, had 130 million broadband subscribers, Reliance said in the presentation, expecting India to catch up in three to four years.

Mukesh Ambani, the world's fourth-richest man, is not new to telecoms and had in fact built Reliance Communications before giving control to Anil after the brothers split up the family empire in 2005.

Reliance's entry is going to create a disruptive sort of impact on the market in terms of pricing for data access.The fibre optic strength will be critical as RIL will be eyeing the lucrative data market that is growing 70 per cent every year.
Revenue wise, data currently generates only 11 per cent, thanks to mainly short message service (sms) while in developed markets that figure is almost 35 per cent. So the market potential is immense.
Data is close to RIL's heart, that's their BWA objective. So think of applications like IPTV on that platform, which can handle both data and video to start with
The option for RIL will be either to build that infrastructure or to lease. To build a national network from scratch at this point, RIL will have to pump in at least $10 billion. It will also take at least 4-5 years. Keeping in mind that RIL is aiming 100 million subscribers in five years and would like to become the cheapest service provider, the lease option is clearly the preferred route. That, said telecom analysts, will mean at least a $4 billion savings for a national level rollout for RIL.
For RCom, which is saddled with high debt and low average revenues per user (Arpu), getting RIL as a new tenant means additional revenues, savings in operating expenses in the form of tower, energy and operation and maintenance costs.
Elder brother has wireless broadband, aggressive plans and a point to prove but no fibre optic or tower. The younger brother may have huge debt, but he has infrastructure, 3G and 2G spectrum and a CDMA technology. This is a perfect and logical environment for collaboration, a likely combo that can shake up any competitor today
Does that mean going forward it will be an exclusive arrangement between the two? Unlikely. Both parties are still in talks and a final plan is still being chalked out, but the tie-ups will happen as and when there is a strong business and commercial case.

They also said arrangements with existing players will also be made to ensure that even laptop and notepad users get total access to the entire service offerings. But RCom, with towers connected to the fibre optic network, will surely remain a strong contender.
Increasingly, you will see RIL opt for technology off the shelf and marry some key strategic partners for infrastructure. They will unleash a new revolution. Mind you they have won nationwide 20 MHz spectrum at one third the value of 3G. That gives them tremendous cost and time advantage
Both RIL and RCom also said they are endorsing the same fourth generation radio technology: LTE or Long Term Evolution Technology, which is patented by Qualcomm and is aimed at providing better speed and capacity.