RIL lays ground for optic fibre network

After setting up Reliance Infocomm, which was later handed over to Anil Dhirubhai Ambani Goup in the settlement between the brothers, Mukesh Ambani is drawing the contours of yet another play into telecommunications. This time, however, there seems to be a new twist and a very different gameplan.

The elder Ambani, who heads the country’s biggest private sector company, Reliance Industries (RIL), is in the process of setting up an optic fibre cable (OFC) network in Andhra Pradesh, Karnataka, Tamil Nadu, Maharashtra and Gujarat, which will run alongside its gas pipeline from Kakinada to Bharuch.

Mukesh’s Ambani’s latest move has provoked a sharp reaction from the ADAG, which has criticised RIL for serial violations of the non-compete agreement, and could lead to another round of battle between the two groups. In June 2005, as part of the family settlement, the brothers had agreed not to enter each other’s businesses for 10 years. Petrochemicals, oil and gas were reserved for Mukesh while financial services, power, telecom and related infrastructure were meant for Anil.

“This is part of RIL’s unfortunate and misdirected conduct in trying to dishonour every agreement and commitment it made in 2005 to Reliance ADA Group and to over two million Reliance shareholders. RIL is systematically trying to violate every fundamental element of the demerger scheme of 2005 as approved by the Bombay High Court,” an official spokesperson of ADAG told.

RIL has refuted ADAG’s claim and categorically maintained that it has not violated any agreement. An RIL spokesperson countered: “We have honoured every commitment made by us and have not violated any provisions of the agreement.”

A senior RIL executive even wondered why ADAG was not taking legal action if it genuinely believes the sanctity of the agreement was being violated. While senior RIL executives insist that the OFC network will be used for captive purposes, especially as a communication and data transfer network to link up their huge network of retail outlets, special economic zones (SEZs), logistics supply chain, petroleum and transportation businesses-the high bandwidth being put into place has sparked off speculation that RIL could be laying the ground for a bigger play.

A senior RIL executive, on conditions of anonymity, said RIL could play a waiting game till the non-compete agreement lapses, and then extend its data network for third-party use. RIL is already looking at entering the entertainment business and is expected to set up an internet protocol television (IPTV) service as part of this foray. However, group executives said an entry into voice-based telephony — on the lines of what Mukesh set up at Infocomm — may be ruled out since the costs may turn out to be prohibitive.

Over 50% of network has been laid Globally, oil and gas companies that lay pipelines typically use the right of way to build a parallel OFC network for captive and third-party use. In India, Gail and British Gas (BG) have also built telecom networks riding on their gas pipeline backbone.

BG India sold its interests in telecom subsidiary Iqara to Citigroup Venture Capital earlier this year. Both BG and Gail had hoped to use their advantage of last-mile connectivity to deliver broadband utilities like IPTV, TV and internet connectivity, but the plans did not quite materialise.

Insiders said RIL plans to roll out 7,000 km of OFC network running along its gas pipelines for the transportation of Krishna Godavari (KG) basin gas.

Over 50% of the pipeline and OFC network has been laid. The final completion date is set for sometime in mid-2008.

Group executives close to the development said the contract for laying cables may be handed over to a Himachal Futuristic Communications (HFCL) subsidiary. RIL is also believed to have approached RailTel, a subsidiary owned by the Indian Railways, to lease its OFC network on a long-term basis.

By all accounts, RIL could well be taking a leaf out of Wal-Mart’s book. The retail giant from Bentonville, Arkansas, runs a massive communication network for its sprawling retail operations across the US to transfer several hundred terabytes of data across its supply chain. Reliance Retail is planning to set up around 1,200 outlets in the first phase, and has committed to invest Rs 25,000 crore to create infrastructure and supply chain for its retail business. “This would require a lot of data transfer, and the communication network will be of tremendous help for RIL,” said a company executive.

A senior Mumbai-based stock analyst tracking the Reliance Group said: “A company can lay an OFC network if it has permission for the right of way (RoW) and right of use (RoU) from the government, even if it is for a gas pipeline.” He added that the network might be used only for data transfer initially since the company would require spectrum for voice-based communications, for which it needs to seek licence from the government.

The Reliance Group’s telecom venture, which was often described as Mukesh’s pet project, was handed over to Anil after the mega demerger of India’s largest business group by market cap. By then, Reliance Infocomm (now renamed as Reliance Communications) had already stormed the market with its low-cost services, giving established players like Bharti, Hutch and state-owned BSNL and MTNL a run for their money.

Reliance had also built a huge network with the 60,000-km OFC backbone criss-crossing the entire country, which was commissioned on December 28, 2002-group patriach Dhirubhai Ambani’s birth anniversary.

But even the hint that RIL might re-enter the telecom space elicited strong reactions from ADAG. Industry experts point out that the no-compete agreement between the Ambani brothers prevents RIL from entering telecom, power and financial services, except for captive use. “If RIL wants to circumvent the no-compete clause, the venture would have to be run by one of the group companies without using the Reliance brand name,” said a company executive.