What Mukesh's re-entry means for telecom industry?

Mukesh Ambani-promoted Reliance Industries made a strong come back into the telecom space when it bought unlisted firm Infotel Broadband, owned by the Nahatas, for Rs 12,848 crore.
It has been less than a decade since Mukesh Ambani shook up the mobile telephony market with its CDMA-based service, a business that went to younger brother Anil Ambani in a fractious family settlement four years ago.
It introduced lower tariffs, subsidised and low cost handsets and innovative plans. But that was then. Mukesh Ambani is now staging a comeback in the telecom market, this time in the broadband space. The question now is, whether he can again be a game changer.
Soon after the recently concluded BWA (broadband wireless access) auction, RIL Infotel emerged as the only pan India spectrum holder, at an expenditure of Rs 4,800 crore.
Since then, the market is abuzz with speculation of what Mukesh's game plan for this new business will be. A presentation available on the company’s website does give many clues about his plan.
We tried to analyse the impact that Reliance Infotel will have on different telecom industry segments:3G spectrum holders:The presentation starts with a comparison of 3G spectrum and technology. So we can expect Reliance Infotel to position itself as a challenger even in that space.
The presentation talks about disadvantages that 3G spectrum holders have with regard to the amount of spectrum allocated and the price paid for it. And on that count, it definitely has an advantage.
However, how formidable a challenge it will be to 3G players will depend a lot on the regulatory framework that will emerge. Currently, for instance, VoIP services are not allowed in the country.
Whether the regulator will allow voice services on BWA spectrum is another area of interest. However, looking at the language of the BWA policy, it is expected to be allowed.
Infotel will not just be a competitor; it also plans to be the infrastructure provider to other BWA and 3G service providers. It will try to encourage them to share infrastructure. Some of the other players will be forced to do so as none of them have pan India spectrum.
Vendor community:The vendor community is set to gain, and there is no doubt about it. However, there exist two sets of vendors: one favouring WiMax and the other LTE.
Here, the presentation has a tilt towards LTE, or long term evolution. LTE has been talked about in length and we therefore expect that Infotel will use this technology.
However, in our interaction with the vendor community, some have said that Reliance Infotel is thinking of toeing the line of WiMax first and LTE later. Whatever be the case, the deployment of network will happen with an asset light approach. Which essentially means lowest possible capex spend and infrastructure sharing.
Handset vendors:When Reliance entered the CDMA market, it changed the way handsets were sold. The subsidised handsets brought in low cost-brand handsets.
The presentation speaks of a similar approach. It talks about subsidised devices and low cost. This will mean lower margins but larger volumes.
VAS players:The presentation talks of a lack of killer content and about having to "Create an environment to enable growth of VAS ecosystem".
The VAS industry has for long demanded a level playing field and better share of revenue from operators. Reliance Infotel might prove to be the catalyst for the VAS industry.
It might also force other operators to follow suit and work with the VAS ecosystem in a better manner, giving the VAS industry the importance it deserves in terms of revenue share. That can also add impetus to research and development in VAS sector.
Managed services:All kinds of managed services will get a push. This is not a surprising move as it has become more or less an industry norm.
But how much will be outsourced is the question. And we believe that it will be bigger than what we have seen so far.
Tower business:The presentation mentions using infrastructure sharing as a means to attain an asset light approach. But will it create its own infrastructure and lend it to others as well, or will it rent the infrastructure from others, is the question.
Given the fact that Reliance Infotel is the only pan India spectrum holder, we believe that it will have to create its own infrastructure.
Enterprise consumer:The initial focus of Reliance Infotel seems to be enterprise, education, social sector , and the healthcare sector. We can expect innovative service offerings in these sectors.
Consumer segment:Even if they will not be the intial focus, consumers will be the biggest focus very early on. We expect innovative services and tariff plans to be offered, and services like IPTV to get a boost.