New Delhi, April 21: Reliance Industries is likely to restructure its telecom companies shortly and the plan could involve selling off its cellular service licences in anticipation of a universal licence that the government is thinking of offering telecom operators to end the spat over limited mobility.
The company has been forced to redraw its telecom plans after it admitted a major flaw in the way it tried to hawk its code division multiple access (CDMA) service through a direct selling approach under its Dhirubhai Ambani Entrepreneurship (DAE) scheme.
The company is currently assessing the value of its cellular service ventures in eight circles, including Calcutta and West Bengal. The assessment is likely to be completed by July-end, which could be a prelude to the sale of its cellular licences.
Reliance has cellular licences in eight circles — Calcutta, West Bengal, Bihar (including Jharkhand), Orissa, Madhya Pradesh, Himachal Pradesh, Assam and the North East. The company bagged the Calcutta licence under a new company called Reliable Internet Service Ltd in the fourth round of bidding held in 2001 but has not launched its services in the city, slipping on a one-year deadline for the rollout of the services.
The company has paid an entry fee of Rs 78 crore for its Calcutta licence.
“Our focus has been the development of CDMA technology and we have made investments to exploit its potential. The company might examine the possibility of selling off its cellular licences if it makes business sense,” company sources said.
Bharti and Hutch would be front-runners in the race to snap up these licences if Reliance puts them on the block.
Reliance had planned to invest Rs 25,000 crore in its CDMA venture but scaled it down to Rs 16,000 crore in view of the legal tangles over the limited mobility issue.
Reliance chief Mukesh Ambani has admitted a mistake in the marketing of the DAE scheme and said that France Telecom also had several failures before it made a success with its Orange brand.
“We will examine all the options in order to emerge as a force to reckon with in the telecom sector. If restructuring is required through mergers or acquisitions, or hiving off companies we will look into them. Growth in any sector needs a few permutations and combinations,” said a senior Reliance Infocomm official.
Just last month, the government permitted the split-up and transfer of telecom licences, paving the way for consolidation through mergers and demergers in the industry.
When the Cabinet decision was announced, the government had indicated that this would pave way for consolidation and specifically mentioned the Bharti group and the Reliance group as possible candidates who might opt for such mergers.
It makes sense for Reliance to sell off its cellular services based on the GSM (global system for mobile communications) technology that cellular companies espouse.
Reliance is betting on Qualcomm’s CDMA technology and is in fact locked in a battle with cellular companies over the issue of limited mobility services. Its position is somewhat undermined by the fact that it is also a GSM player — and the sale of its cellular licences will end whatever discomfort it faces in trying to straddle competing technologies.
Reliance intends to become a telecom leader by 2005. It may be recalled that the fifth round of bidding for various cellular telecom circles held last year failed to get even a single response.
“We hope that the government will soon request the Telecom Regulatory Authority of India (Trai) to start the process of issuing universal licences. This will help solve many of the problems related to the telecom sector like the offer of services at low cost and as well as to provide a bouquet of services without getting into the controversy of technology or its applicability,” said a senior Reliance Infocomm official
Reliance Industries Ltd has promoted Reliance Telecom Ltd that has the licences to offer cellular services in seven circles across 13 states.
Asked why it had not made any investment to start its Calcutta cellular service, a senior executive of Reliable Internet Services Ltd said: “It is not easy to start a service; there are various clearances that are needed. We have yet to get a clearance from the state government. We will launch the service when we get the necessary clearances.”
Reliance Telecom Ltd could add only 13,422 cellular subscribers during March 2003 in the seven circles.
According to the figures released by the Cellular Operators Association of India, the company has a total subscriber base of 5,41,406. Sources in the company said that the average rate per user (ARPU) for Reliance Telecom Ltd is estimated at Rs 525. Based on this ARPU, the company has earned revenues of about Rs 284.24 crore till date.
Sources in Bank of America said: “It is difficult to make an assessment of the value of a company. One has to examine the various costs paid by the company to the government and also the investment in infrastructure and the depreciated value of the equipment.”
Reliance Telecom Ltd had obtained a five-year loan of Rs 980 crore in 1996 for its cellular services that is backed by the Bank of America and Deutsche Bank.
The company had committed a licence fee of Rs 336.93 crore for the eight cellular licences to be paid over a 10-year period in 1996.
But under the migration package offered by the government in 1999, which allowed operators to move from a licence fee regime to a revenue sharing formula, the company had to pay only Rs 205.96 crore till July 31, 1999 as entry fee.
Reliance Telecom has paid a revenue share of Rs 60.01 crore to the government between August 1, 1999 and March 31, 2003.