New telcos in high-speed race across India - Industry Trend or Event

CommunicationsWeek International, June 4, 2001 by Jagdish Rattanani

India's largest private sector enterprise is racing to build what is being called Asia's largest broad band network, seeking to connect 115 cities that account for more than half of the country's gross domestic product.

Mumbai-based Reliance Info com, a subsidiary of Reliance Industries Limited [RIL], is furiously digging across cities to establish a superhighway that it says will cover more than 60,000 route kilometers and pave the way for billions in local revenues as it changes the laggardly pace of communications in this country.

Also rushing to build a huge broadband network is the Delhi-based Bharti group, one of the largest private telecoms providers in India, with an 850,000 subscriber base and operations in Seychelles.

Some analysts say that India's broadband infrastructure is only now starting to take shape, after a false start two years ago. "There was a lot of hype," said Navneet Singh, telecoms analyst at ICICI Securities and Finance Company Limited. "Every business house spoke of broadband, but in recent times many have scaled down their plans and we [now are left with] a few serious players."

But others say that only those prepared to commit large amounts of capital will win. "Right now, broadband is on the anvil," said Bimal Deep Singh, telecoms analyst at brokerage Anand Rathi Securities. "[It is] very much for real. But this is a very capital-intensive business. Only those who push in a lot of money are going to see returns."

Companies that have announced plans to build broadband networks include broadcasting giant Zee Telefilms Limited; the

state-owned Gas Authority of India Limited (GAIL); telecoms players Hughes Tele.com and Fascel Limited; India's electricity utility PowerGrid Corporation of India; as well as Indian Railways, which has floated a subsidiary called Railtel to exploit its right of way along more than 60,000 kilometers of rail tracks.

But Reliance and Bharti are the only two companies to have applied for national long distance licenses, and they have each filed an "expression of interest" to buy 25% of the government's stake in Videsh Sanchar Nigam Limited (VSNL), which loses its monopoly in international voice telephony in March 2002.

According to reports, the Bharti group is laying 25,000 km of optic fiber across the country to cover 250 cities by March 2003. In a joint venture called Network i2i, in which Bharti and Singapore Telecom each hold 50%, the group is executing a $650 million undersea cable connecting India and Singapore.

The Reliance Infocom project size is pegged at 250,000 million rupees ($5 billion). The investments will be over the next three to five years, with RIL as the lead investor holding 45% equity, employees holding 10% and the balance coming from other group companies and promoters. The group says the stock will be listed later to unlock value.

The sheer size and scale of the project have highlighted the fast changing scenario for communications in India. Some say Reliance appears poised to emerge as one of the biggest telecommunications players, ahead of even Bharat Sanchar Nigam Limited, which controls most of the fixed line connections across India.

Initially, Reliance will provide voice services on a nationwide basis, covering all segments of a market that is estimated currently at 350,000 million rupees. The group will later offer data, image and other value-added services and applications.

Will the market follow capacity?

While Reliance and Bharti look set to run a full range of services, companies like GAIL, PowerGrid and Railtel will essentially supply bandwidth for hire.

Rathi's Singh says there is demand to absorb all the infrastructure being created: "Look at how our software exports are burgeon ing, the growth rate in Internet subscribers, VSNL expanding its bandwidth-all this is a measure of the total requirement. Even internally, we are talking [about a lack of] data and voice [requirements]... in large parts of the country."

But ICICI's Singh is more cautious: "Broadband is definitely in a nascent stage... I would probably say it has a long way to go in terms of capacity creation within the country itself... A lot of money would need to go into the ground in terms of network build out."