IHS Global Insight Perspective | |
Significance | Reliance Industries is to purchase a 95% stake in Infotel for about US$1 billion. |
Implications | Mukesh Ambani is seeking a return to the telecoms sector after recently ending a non-compete agreement with his brother, the owner of Reliance Communications. |
Outlook | The entry of Reliance Industries will bring more competition to the already cut-throat Indian telecoms market. |
Indian billionaire Mukesh Ambani’s Reliance Industries has agreed to acquire Infotel Broadband, after the company emerged as the only winner of pan-India broadband wireless access (BWA) spectrum, Reuters reports. Infotel beat industry majors Bharti Airtel and U.S.-based Qualcomm in the recently-concluded BWA auction, with an offer of US$2.75 billion for the pan-India licence (see India: 11 June 2010: BWA Auction in India Ends). Soon after the winners were announced, conglomerate Reliance Industries, said it would acquire unlisted Infotel, paying about 48 billion rupees (US$1.02 billion) for fresh equity in the firm to obtain a 95% stake.
It was also reported that the decision to invest in Infotel was not made overnight. "When the bid prices started becoming high, we realised that we need to talk to a strategic partner. So we were talking to Reliance somewhere in between the auction. So it's not something, which has happened in one day," Anant Nahata, who controls Infotel, told CNBC TV18, according to a transcript on its website.
Outlook and Implications
- Return to Telecoms Sector: With the deal, Mukesh Ambani is returning to the telecom industry, which he left when he and his brother Anil Ambani split up the family empire in 2005. At that time, Anil Ambani was given control of Reliance Communications, the country’s second-largest mobile operator. Mukesh Ambani was barred from competing in the telecom sector under a family non-compete agreement. However, Mukesh Ambani was freed to enter the telecom sector last month when the brother ended the pact that prevented them from competing on each other's turf (see India: 4 June 2010: Reliance Mulling Sale of Stakes in Telecoms Assets).
- More Competition to Domestic Market: The back-up of Reliance Industries will provide Infotel with much-needed capital to fund its costly rollout of wireless broadband infrastructure. A source close to the matter was quoted by Reuters as saying that Reliance Industries would also pay Infotel's BWA spectrum licence fee. Infotel will be facing cut-throat competition from the established operators, many of which are to roll out 3G services, having recently won spectrum in the earlier concluded 3G auction (see India: 20 May 2010: India Ends 3G Auction; Raises US$14.6 Bil. for Government).