Mukesh Ambani back in telecoms with Infotel

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

NEW DELHI/MUMBAI (Reuters) - Billionaire Mukesh Ambani's Reliance Industries 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 and India's biggest mobile operator, Bharti Airtel, 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, 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 India unit, Reliance Communications and Idea Cellular, 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.

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