Reliance and Infotel: One More Telecom Scam?

19 06 2010

Infotel, a relatively, unknown player in the telecom  business, was the sole winner of a pan-India licence for BWA spectrum. Many well known telecom players like Vodafone, Tata , Idea and Reliance Communications backed out, saying unreasonable prices. They bid an astounding sum of Rs 12, 848 crore. On the day, the results were announced Mukesh Ambani owned Reliance Industries announced that they are acquiring 95 % of Infotel for Rs 4,800 crore.

Infotel is a small Internet Service provider (ISP)  run by Anant Nahata, son of Mahendra Nahata, promoter of the infamous Himachal Futuristic Communications Limited ( HFCL). Readers may remember that HFCL had bid irrationally in 1995 acquiring 9 licences for mobile telephony ( 2G). They did not have the financial muscle to roll out the same and eventually telecom minister Sukh Ram bailed them out. Even then it was rumoured that HFCL was actually a front for the Ambanis. Readers may recall that HFCL had bid the highest as licence fees and Reliance Telecom had bid the lowest. Reliance got some category C circles like North East, West Bengal, Orissa etc for peanuts.  When HFCL did not pay up the licence fees , Indian govt not only lost over Rs 20, 000 crore in revenues, in several circles the roll-out of GSM got delayed by 2 years.

Now by acquiring Infotel and announcing it openly on the day the BWA auction results were announced, it is clear that HFCL was just a proxy for Reliance. As the Ambani brothers ironed out their differences and worked out their non-compete clauses, Infotel  the front for Mukesh Ambani was bidding for BWA. For doing the task, the Nahatas have got their Rs 4800 crore ( ?) and 5 % equity in Infotel.

By paying Rs 12, 848 crore for spectrum and additional Rs 4800 crore for Infotel, ( roll-out costs are extra)  apparently Reliance is entering what is essentially an Internet Service provider ( ISP) business using wireless technology. ISP is a business, not unfamiliar to Reliance and Mukesh Ambani-Manoj Modi duo ( Most of the Reliance Infocom top-team continues to be with Mukesh) . Reliance had an ISP service which was marketed under the name “Only Smart.”  This ISP business did not make any waves and can be dubbed a failure. This service was discontinued when Reliance Telecom changed hands from Mukesh to Anil’s. Reliance Infocom when it was launched, Mukesh Ambani during his visionary speeches, used to mention how ‘data’ business would be much bigger than ‘voice’. Reliance Infocomm was only entering ‘voice’, read ‘mobile phone services’ business , just as an additional service, the focus being data. Readers would remember how using the ‘wireless in local loop’ licence Reliance entered mobile telephony through back-door , creating a controversy. This controversy led to several changes in regulations and Reliance is now well entrenched as the No 2 player in 2G. All the so-called superiority of CDMA over GSM has been dumped, with R-Com clearly going for GSM in 2G and 3G.   

Once again Mukesh Ambani is back in his visionary role and is talking eloquently about the prospects of broadband.

“We see this as the next wave of value creation opportunity in the wireless broadband space,” says Mukesh Ambani, who is the world’s fourth richest man, said in a prepared statement. “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.”

“RIL sees the broadband opportunity as an opportunity to be in the forefront in providing world-class 4G network and services,” the company said, suggesting the scale of its ambitions. “[The] initiative will usher in a wireless broadband revolution in both the urban and the rural areas by providing end-to-end data solutions for business enterprises, social organizations, educational and healthcare institutions, and Indian consumers.”

 Most analysts are apprehending that Reliance and Mukesh will once again get a back door entry into the mobile telephony space using the BWA spectrum. As of now Internet telephony within India is not allowed. Once Reliance has rolled out their infrastructure for broadband, it is apprehended they will cleverly manipulate the regulators and policy makers in Delhi, in the name of low cost of telephony for ‘aam aadmi’ to open up Internet telephony. Remember, papa had said that domestic call should be cheaper than the price of a post card, the promise of Reliance. In public, politicians want to make policies that benefit the ‘aam aadmi’ , as long as they or their party is adequately compensated in private.

On earlier occasions, HFCL ( proxy for Reliance ?)   got away without honouring their licensing contracts and sabotaging India’s cellphone industry. Through back-door Reliance  entered cellphone services industry, which was an unfair competition to the existing players. Now the apprehension is using BWA, Reliance would make a backdoor entry into cellphone services  yet again by getting cheaper spectrum. 

The history of telecom industry in India is marked by a series of scams. So, what is one more scam. Politicians and businessmen create scams, media and bloggers cry hoarse about them. All in a day’s work.

– G. Mohan

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3 responses

22 06 2010
businessbaatein

http://www.mydigitalfc.com/news/infotel-had-little-cash-match-broadband-bid-374

Financial chronicle has carried an article, link given above, which says that Infotel was indeed a very small company and it was unlikely it could have bid for the all-india licence for BWA unless it was proxy for someone big like RIL

– G.Mohan

3 03 2013
legitimate work at home part time

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30 06 2014

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