Bharti vs Reliance Communications

“All determinate situations can be turned to advantage,” explains classical Chinese warrior philosopher Tsun Tzu in his ancient book “The Art of War”. R-ADAG chairman Anil Ambani, a self-avowed practitioner of Tsun Zu’s war strategy has taken a leaf out of the ancient Chinese classic in the MTN saga.

Two days after Bharti announced that its negotiations with MTN had failed, Mr Ambani’s Reliance Communications (RCOM) on Monday said that it had entered into exclusive talks with South African mobile firm to discuss a “potential combination of their businesses” to “achieve unique global platform for exponential growth”.

Whether RCOM entered into negotiations with MTN once talks with Bharti had failed or whether it was its eagerness to explore all options with MTN which resulted in the South African company refusing to budge from its position that Bharti Airtel become a subsidiary, thereby resulting in the collapse of talks between the two is a matter of conjecture.

But one thing is clear. The battle between the India’s two largest private mobile operators has spread from the corridors of Sanchar Bhawan to the domestic market place to foreign shores as well.

If RCOM were to pull off a merger with MTN, it would create a global telecom giant with close to 120 million subscribers that has a footprint stretching from the Cape of Good Hope to the Himalayas across 23 countries and covering a population of two billion, a third of the world. Besides, an RCOM-MTN combine will have the largest WiMAX footprint globally covering 50% of the world’s population.

The combine will also command a market cap of over $65 billion, have revenues to the tune of $14.4 billion, an operating profit of over $6 billion and assets worth $26.8 billion, and emerge as he second most profitable operator in emerging markets after China Mobile. This will more than drawf Bharti which currently has a market cap of a little over $40 billion with 65 million subscribers with no significant presence outside India.

Round One won by RCOM

The RCOM Vs Bharti battle is nearly a decade old — while Mittal was earlier pitted against the older Ambani (Mukesh) for the last three years, he has been fighting the younger brother Anil Ambani on the telecom front. While Bharti Airtel is currently miles ahead of over all its rivals, including RCOM in India, the tables had turned only two years ago.

In 2005, RCOM (then called Reliance Infocomm) not only managed to dislodge Bharti from its market leadership position, but nearly pushed Mr Mittal to the edge. So much so that even Mr Mittal admitted that at the height of the WLL crisis in 2002, Battleship Bharti was a “machine that was creaking”.

Infocomm’s entry forced Mr Mittal to invest beyond his company’s means, and the policy googly from the government, which allowed players such as Reliance which held limited mobility (WLL) licenses to offer full-fledged mobile telephony left Bharti a tad vulnerable, both financially and strategically. The pace of Infocomm’s national rollout, coupled with cheaper tariffs and handsets saw the company shot past Bharti in subscriber numbers.

Round Two went to Bharti

Trade analysts predicted that Bharti would fold up as it could not match Infocomm in either subscriber numbers or tariffs. Instead, Bharti recorded its first quarterly profit of Rs 23 crore in March 2003 and its first full year profit in FY04. Bharti reduced tariffs gradually, harped on the superior quality of services, roped in SingTel as an investor, and launched its now famous outsourcing model. Network management went to Nokia Siemens and Ericsson, IT to IBM and call customer related activities were outsourced to global BPO majors.

Infocomm, on the other hand, was plagued by glitches in its first 24 months of operations. From wide-spread billing problems leading to customer dissatisfaction, to trouble with the law for illegal routing of international calls and a down market image, Infocomm’s first two years were mired by problems of various hues, which played into Bharti’s hands.

And so, after being behind in the race for subscriber numbers for nearly three years, Bharti drew level to Reliance. The figures explain better: In Q3, FY 06, Bharti had 16.3 million against Reliance’s 17 million; and in Q4 of FY 06, Bharti had 19.6 million against Reliance’s 20.2 million. However, in Q1, FY 07, Bharti raced to the lead with 23.1 million wireless users compared to Reliance’s 22.5 million base. Since then Bharti has pulled ahead month-after-month to command a towering lead — it currently has a subscriber base of about 65 million which is 17 million ahead of Reliance Communication’s CDMA and GSM arms combined.

RCOM comes back fighting

But Reliance Communications under Mr Anil Ambani, with a change in management and a new brand identity quickly sorted out all problems that plaugedthe company and quickly re-emerged as the primary competitor to Bharti. Lsat year, RCOM could have emerged as the largest operator in India if it was successful in its bid for Hutchison-Essar.

If the company had bagged Hutch in February 2007, the CDMA major would have had over 50 million subscribers and close to a 40% market share, way ahead of Bharti with 30 million subscribers . Mr Mittal played his part in providing the no objection certificate to Vodafone, which enabled the UK-based telco to outbid RCOM and gain a controlling stake in Hutchison Essar.

Mr Ambani and RCOM hit back hard again late last year. Catching the GSM industry off guard, the Department of Telecom approved the use of dual technology where telcos can offer both GSM and CDMA services under the same license. Even before the policy became public, RCOM got the DoT nod to offer GSM services based on its applications it had filed in GSM license in February 2006.

GSM operators led by Bharti went all out to defend their turf — they filed a series of applications with the telecom tribunal and the Delhi High Court accusing the DoT of “twisting rules to benefit one operator”, and said that RCOM’s applications for GSM were invalid. But their lobbying and legal challenges failed to yield the desired results.

At the same time, Mr Ambani also opened up a new front — he accused GSM players of trying to hoard spectrum and limit new competition, in addition to resorting to anti-consumer practices, such as cartelisation and price fixation. Even as GSM operators were engaged in proving that they were entitled to spectrum 6.2 MHz, the impasse allowed Mr Ambani to open a third front in the battle for airwaves.

RCOM along with Tatas campaigned for enforcing a Telecom Engineering Centre’s recommendations which said that GSM players should increase their subscriber base between 6 - 15 time before they are given additional spectrum. All of Mr Mittal’s efforts to get the DoT to rollback the stringent spectrum allocation norms came to naught.

While Bharti and other GSM players were fighting numerous court battles through their industry association, RCOM on the other hand used this break to plan its GSM roll-out. RCOM emerged victorious with a pan-India GSM licence and start-up GSM spectrum.

via Economic Times