Reliance forays into biz telecom

Sumana Ramanan

BOMBAY: Fresh from taking India's mobile market by storm, Reliance Infocomm entered the corporate telecoms market this month and looks set to cut prices and generate demand in a sector crucial to the growth of back-office outsourcing.

After rising to the top of the mobile sector in less than a year, India's largest conglomerate Reliance embarked on the second leg of its telecoms strategy with an unusually low-key entry into the corporate fixed-line market.

"Today, the world is willing to do a lot of work here," said Prakash Bajpai, the president of Reliance Infocomm spearheading the enterprise initiative. "But if India doesn't improve its broadband infrastructure, then we will miss this revolution as well, just as we missed the industrial revolution."

Infocomm wants to offer businesses leased lines for fast Internet access and virtual private networks that integrate a firm's network with its suppliers and customers.

Top-notch telecoms are critical both to Indian firms wanting to go global and multinationals expanding in India or shifting work here, such as back-offices and call centers.

Companies, once forced to chase operators for a leased line and hire people to ensure it worked, now demand guarantees on quality and speed and are willing to pay a premium, Bajpai said.

Bajpai said the market was likely to expand to $10 billion in the next three to four years. He did not say how big it was now.

Gartner India estimates that up to 85 percent of telecom revenue in developing countries comes from the business segment.

PRICES HEADED SOUTH

As in mobile, Reliance expects prices to fall with its entry.

"We believe we have achieved cost structures that are one-fifth that of the industry," said Bajpai. "So that makes it very, very affordable."

Reliance's strategy, whether for plastics or mobile phones, has always been to commodities markets, points out Sheriyar Irani, telecoms analyst at IDBI Capital Markets.

"They drive prices low so that volumes rise exponentially."

But Reliance faces competition from incumbents. The Tata group, India's second-largest conglomerate, owns telecoms firm Videsh Sanchar Nigam and Tata Teleservices Maharashtra.

Bharti Tele-Ventures, state-run Bharat Sanchar Nigam Ltd. and state-run Mahanagar Telephone Nigam Ltd. are also competitors with a headstart.

Analysts note the consumer mobile market is quite different from the corporate world, where price was not the only factor.

"The enterprise market is very lucrative, but demanding," Gartner's Desai said. "The operator's network has to be highly reliable and resilient and it needs to provide services and support of a very high caliber."

Infocomm, in which the Reliance group invested $275 million, believes its network is a selling point. It connects 200,000 buildings across 30 cities to a nationwide network by fiber optic cable. By next March, it hopes to operate in nearly 200 cities.

Reliance has invested $2.85 billion in an 85,000-km optic fiber network.

"Once you create this kind of network, then that becomes a very major advantage," Bajpai said.

Competitors have a slightly different view.

"Prices will definitely go south," said an industry official, but added that those in the field already offered high quality.

Tata, for instance, provides fiber optic access only to top customers. For others, it uses a combination of mobile, satellite and copper-wire technology.

"We're already servicing top-end customers," said an official at a Tata telecoms company. "Name one call center in Bombay that does not have our fiber in its premises."

"But fiber is not the only option. It's expensive, time-consuming to lay and a challenge to maintain," he said. "To give oodles of bandwidth to everybody is not judicious."

He said the wireless world was advancing by leaps and bounds, and could prove to be a cheaper substitute for fiber.

© Reuters