Mukesh Ambani back in telecoms with Infotel

NEW DELHI/MUMBAI Fri Jun 11, 2010 9:32pm IST

Mukesh Ambani, chairman of Reliance Industries, speaks during a news conference in Mumbai in this September 21, 2008 file photo. REUTERS/Punit Paranjpe/Files

Mukesh Ambani, chairman of Reliance Industries, speaks during a news conference in Mumbai in this September 21, 2008 file photo.

Credit: Reuters/Punit Paranjpe/Files

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NEW DELHI/MUMBAI (Reuters) - Billionaire Mukesh Ambani's Reliance Industries (RELI.BO) made a dramatic return to telecoms, agreeing to buy Infotel Broadband, which was the only company to win a nationwide licence in India's broadband wireless spectrum auction.

Infotel's offer of $2.75 billion for the license topped forecasts while U.S. chipmaker Qualcomm (QCOM.O) and India's biggest mobile operator, Bharti Airtel (BRTI.BO), also won spectrum in parts of India in an auction that saw some of the biggest players in Indian telecoms emerge empty-handed.

Soon after the winners were announced, conglomerate Reliance Industries, India's biggest company by market capitalisation, said it would acquire unlisted Infotel, paying about 48 billion rupees ($1.02 billion) for fresh equity in the firm to get a 95 percent stake.

A source with direct knowledge of the matter said Reliance Industries would also pay New Delhi-based Infotel's spectrum licence fee.

Mukesh Ambani, the world's fourth-richest man, was freed to enter the telecom sector last month when he ended a pact with his long-estranged brother Anil Ambani that prevented them from competing on each other's turf. When the brothers split up the family empire in 2005, Anil Ambani got control of Reliance Communications (RLCM.BO), India's second-biggest mobile phone operator.

Mukesh Ambani, who ran Reliance Comm before the split, had been widely expected to return to the telecom market.

"Telecoms has always been Mukesh's baby, but he had to give it up five years back," said Arun Kejriwal, strategist at research firm KRIS.

COSTLY BIDDING

Infotel's controlling shareholder said costly bidding had compelled it to find a partner.

"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.

Mukesh Ambani's return threatens to make the crowded Indian telecoms sector even more competitive.

"Reliance's move into broadband will only result in more jostling, as existing players will have to deal with another large, local player with deep pockets," said Ambareesh Baliga, vice president at Karvy Stock Broking.

Anil Ambani's Reliance ADA Group said in a statement it welcomed Reliance Industries' entry into the broadband market and said it was looking forward to providing services to it and other broadband service providers.

Vodafone's (VOD.L) India unit, Reliance Communications and Idea Cellular (IDEA.BO), three of the country's biggest cellular operators, did not get any broadband spectrum.

Vodafone said it decided to step away from the broadband auction as bid prices went beyond rational levels, while debt-laden Reliance Comm, which is looking to sell an up to 26 percent stake in itself, exited the auction a week ago as bid prices exceeded its business case estimates.

THREE LICENSES

The government issued three broadband wireless licences for all of the country's 22 zones. Beside's Infotel's full license, two government carriers split one license and six private sector firms -- including Qualcomm, Bharti Airtel and Aircel -- divided up the third.

Cellular market leader Bharti Airtel said the scarcity of slots and the auction format resulted in extremely high prices. Bharti will pay 33.14 billion rupees for the spectrum it won.

Qualcomm is paying a little more than $1 billion for the spectrum it won in four of India's 22 zones, including the lucrative Delhi and Mumbai zones.

Last month's third-generation (3G) spectrum auction also saw bidding far exceed expectations. Bharti, Vodafone and Reliance Comm paid about $7 billion in total for 3G spectrum in that auction.

India's broadband and 3G spectrum sales were among the biggest such auctions globally in recent years.

India will earn 385.4 billion rupees from selling the three all-India broadband wireless licences and, together, revenue from the two auctions will touch 1.06 trillion rupees, about three times New Delhi's initial estimates.

It is a welcome windfall for the deficit-strapped government, with some analysts saying the spectrum bonanza could cut the country's deficit to 4.5 percent of its gross domestic product (GDP) from a projected 5.5 percent for the 2010/2011 fiscal year.

News that Reliance Industries would acquire Infotel came after the stock market closed but Reliance Industry shares closed up 3 percent after speculation that the announcement would be made.

($1=46.8 rupees)

(Additional reporting by Prashant Mehraand and C.J. Kuncheria; editing by Unnikrishnan Nair, Tony Munroe and Karen Foster)

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Comments (3)
ullukapattha wrote:
Having followed the mobile phones industry for over 25 years in the west, I wonder if this fabulous price paid for the 3G- spectrum by Mukesh Ambani is really worth it?
Already the new 4G- spectrum is gaining traction in the west. There is even talk of the 5G- spectrum on the drawing board? Even Apple announced its iPhone 4 a few days ago. Will India drag on with its outdated and obsolete 3G phones after the rest of the world moves on to the next generation 4G- phones?
Will Ambani be able to get back his ROI before India is also compelled to move on to the state-of-the art 4G-phones? Or will Indians have to be content with slow speed 3G- phones? Of course, 3G is far better than the present 2G-phone in India. But, the fact remains, that in a rapidly developing industry, such massive overblown investment is indeed very risky. Perhaps, the world’s fourth richest man can afford it?

Jun 12, 2010 3:32pm IST  --  Report as abuse
wizardvivek wrote:
Actually Iphone 4g is not a 4G phone it’s a 3G, and Operating system in the new iphone is 4g, so there’s no relation between 4G and iphone 4g. Basically investing in 3G is a waste of money , Once Former IT minister Dayanathi Maran said that India would leap frog to 4G, but I don’t know why government went ahead and auctioned 3G, that too way too over the limits by alloting few slots . Something is not right here , some gimmicky is happening. Moreover already 4G is up and running in US and some parts of europe , one is ClearwireLTE and other is Wimax.Lately there was a news that Wimax 2.0 has come up which will be the base for 4G. Indian Government hear this , hope so that you don’t bankrupt the private players, still BSNL and MTNL are worst networks.

Jun 14, 2010 10:29am IST  --  Report as abuse
ullukapattha wrote:
IPhone 4 can operate on 3G networks too. The main point is: When the world is fast moving to the 4G networks, what was the big idea in auctioning 3G- networks now in India?
Simple answer: The Indian government needs the money to cut its budget deficit from a projected 5.5% to 4.5% in the fiscal year 2010/2011. This is very wise thinking on the part of the government. So long as there are fabulously rich men, who do not know what to do with all that cash bulging in their coffers, it’s OK for the government to bleed them. That’s what Germany did a decade ago in its overblown UMTS- auctions. Finally, the governments and the tax payers of the countries involved had to bail out those operators who bid fabulous billions in those crazy auctions.

History repeats itself!

Jun 15, 2010 1:34pm IST  --  Report as abuse
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