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It's big on ideas, innovation and ingenuity. Uninhibitedly aggressive, Reliance Communications (RCOM) has always managed to create a buzz by the sheer audacity and scale of its moves. Back in 2003, when everyone else was offering GSM mobile services, RCOM placed its bet on CDMA, and took the market by storm. Its imaginative pricing strategy made mobile telephony services so cheap that it changed the face of competition in telecom forever. Subscribers, especially low-end ones, signed up in droves taking the country's teledensity to new highs. Today RCOM is the second largest CDMA operator in the world after US-based Verizon Wireless.

Now, the company is doing the same with GSM. Taking advantage of the government's dual-technology policy, it announced simultaneous GSM launches in 11,000 cities and towns across the country, as well as a massive Rs 100 billion investment for network rollout.

GSM foray
RCOM's nationwide network rollout is the largest and possibly the quickest undertaken so far. The company received spectrum in January 2008 and completed rollout by the year-end, a full six months ahead of schedule.

A proud Anil Ambani, chairman of RCOM, stated at the time of the launch: "Our GSM service will be available in 11,000 towns simultaneously in India. We will be doubling this to over 24,000 towns and 600,000 villages in the next few months. The service will cover all railway routes and national and state highways."

The strategy to roll out services throughout the country in one go was well thought out. As a senior analyst from Angel Broking points out, "The simultaneous rollout of GSM services across the country helped pull in new users. Operators typically launch services in one circle after another. This involves a time gap and therefore, user additions are not as quick."

RCOM, which already provided GSM services in eight circles through Reliance Telecom, now has a GSM presence in all circles of the country, including Jammu & Kashmir (though it is facing some security clearance issues here which it expects will be resolved soon). Currently, RCOM's GSM service covers about 20,000 cities.

Realising that it would not be easy to make a dent in a market dominated by GSM heavyweights like Bharti Airtel, Vodafone Essar, Bharat Sanchar Nigam Limited (BSNL) and Idea Cellular, RCOM decided to use its trademark low price-point strategy backed by strong marketing initiatives. It, for instance, offered a lifetime prepaid service for as little as Rs 25. In some circles, it offered free talktime worth Rs 900 spread over three months. And STD rates were halved.

This whipped up competition as expected. GSM operators sprang into action. Bharti Airtel came up with a new lifetime connection for Rs 99 with a minimum recharge option of Rs 200 in six months. Vodafone Essar and Idea too reduced the entry price for new connections.

Even as analysts berated the aggressive tariff cuts, saying it would adversely impact the health of the telecom industry, for RCOM, the strategy had clearly paid off. Subscribers came in in numbers, driving up the company's consumer base. "The response to our GSM services has been overwhelming and has exceeded all our expectations. Customer growth itself has gone up as a result of our launch," claims S.P. Shukla, president, personal business, RCOM.

Indeed, between January and April 2009, the company added 13.5 million users –­ the highest ever addition by any Indian operator. In comparison, Airtel added 11.1 million subscribers and Vodafone 10.6 million during this period.

Operator background
RCOM is the flagship company of the Reliance Anil Dhirubhai Ambani Group (R-ADAG). RCOM's market capitalisation currently stands at Rs 700 billion.

The company delivers a comprehensive range of integrated telecom services, including mobile and fixed line telephony, broadband, national and international long distance services, data services and a basket of value-added services and applications.

It is easily one of Asia's top five most valuable telecom companies and boasts of a corporate clientele of 2,100 Indian and multinational companies, apart from 800 global carriers that use its network.

In terms of infrastructure, RCOM has made great strides. From 60,000 km of optic fibre when it started, the company today owns and operates one of the world's largest next-generation IPenabled connectivity infrastructures, with 175,000 km of optic fibre cable systems covering India, the US, Europe, the Middle East and the Asia-Pacific.

Market position and strategy
RCOM's immediate agenda is to cross the 100 million subscriber mark by the yearend. Market leader Bharti Airtel has already achieved this milestone in midMay. As of April 2009, RCOM had 77 million subscribers, Vodafone Essar 71 million and BSNL 53.17 million subscribers.

RCOM's overall strategy is to straddle both GSM and CDMA technologies to achieve future growth. Analysts believe that GSM will be used more for voice services. CDMA, which allows a rich telecom experience, especially on the data side, will be used more effectively once 3G services are introduced as it can unleash the full potential of applications and services. In line with this, RCOM has upgraded its CDMA network to 3G.

In March, the company launched the largest and most aggressive rollout of broadband internet service under the brand name Reliance Netconnect Broadband Plus. The wireless broadband service, suPported by a next-generation network, has been introduced in 35 major cities at a monthly rental starting from Rs 299.

The Netconnect service, which is available in the form of data cards and USB devices, has peak download speeds of up to 3.1 Mbps and a separate uplink speed of up to 1.8 Mbps, and offers at least 30 per cent higher downlink speed compared to other wireless broadband services. This allows video streaming, video surveillance, rich media content and superior browsing.

According to industry observers, the seamless connectivity between 2G and 3G CDMA networks for an uninterrupted data experience is a significant positive for RCOM. It will give the company an edge when 3G and mobile number portability are introduced later this year.

IPTV and mobile TV are also thrust areas for RCOM. "This is how we will be able to obtain and sustain market leadership month after month. And all this with highly optimal marketing spend," says Shukla.

RCOM is also looking to grow its DTH services. ADAG, which has significant interest in the entertainment industry, launched DTH services under the Big TV banner in August 2008. Within two months, it notched up 500,000 subscribers, accounting for 40 per cent of the gross additions. Today, with more than a million and a half DTH subscribers to its credit, Big TV is among the fastest growing DTH operators in the country. An important focus area for the company, RCOM recently appointed Sanjay Behl as head of its DTH operations to take the venture to its next level of growth.

RCOM is also eyeing high-end users. It intends to bundle its service offering with high-end handsets such as the BlackBerry, which sees larger monthly usage.

RCOM snapshot
Chairman: Anil Dhirubhai Ambani
Market capitalisation: Rs 700 billion
Presence: Pan-India
Coverage: 20,000 towns, 500,000 villages
CDMA users: 63.98 million (April 2009)
GSM users: 11.5 million (March 2009)
Fixed line users: 1.12 million (April 2009)
Internet users: 1 million (January 2009)
Optic fibre cable: 175,000 km
Shareholding: Promoter and promoter group 67.34 per cent; public 30.47 per cent; others 2.19 per cent.

Global ambitions
In April 2008, RCOM clubbed its global operations into a new subsidiary, Reliance Globalcom. This is the holding company for RCOM's global operations, its submarine cable subsidiary Flag Telecom and Yipes Enterprise Services.

RCOM acquired Yipes in late 2007 for $300 million. A strategic investment for RCOM, Yipes, with 40 per cent share of the US data communications market, brought to the table key access to the global enterprise and data segments.

Recently, Reliance Globalcom acquired international managed network services provider, the Vanco Group, which has a strong presence in developed markets like the UK, the US, France and Germany. The company caters to large enterprises such as AVIS, British Airways, Siemens and Virgin Megastores, and has annual revenues of $365 million. Vanco's long-term relationships with enterprises along with Flag's reach and capacity will help RCOM offer high-margin valueadded services to enterprise customers.

The company also bagged a three-year contract with the Rémy Cointreau Group to implement its new dedicated telecom network across Europe, the US and Asia. The deal includes implementation of ERP applications, strong authentication services for remote users, web filtering, antivirus and voice over IP solutions, etc.

Key financials
Backed by the Rs 3.25 trillion R-ADAG, the company is on a relatively steady financial footing. Of late however, its performance has suffered somewhat. High expansion costs along with promotional schemes, such as its three-month offer of free voice minutes, may have brought in users for its GSM service, but they have also adversely impacted net profits.

In the January-March 2009 quarter, RCOM's net profit took a tumble for the first time since it listed in 2006. The company reported a 3.3 per cent year-on-year decline in net profit to touch Rs 14.54 billion as against Rs 15.03 billion in the quarter ended March 2008. Revenue, however, grew by 15.3 per cent year-on-year to stand at Rs 61.24 billion.

The company's wireless ARPU, a yardstick of growth, fell by 29 per cent to Rs 224 (from Rs 317 in the quarter ended March 2008) and minutes of usage (MoU) dipped 13.5 per cent to 372 per user (from 430).

Overall, however, despite market apprehensions on the newly launched GSM services, RCOM managed to report strong profitability figures for the year ended March 2009. Net profit for 2008-09 increased by over 9 per cent, from Rs 54.01 billion in 2007-08 to Rs 59.07 billion. Total income increased by 20 per cent from Rs 190.67 billion in 2007-08 to Rs 229.41 billion in 2008-09.

Investment outlay
RCOM had originally earmarked Rs 300 billion in annual capex. This was later cut back to Rs 250 billion, and eventually, Rs 190 billion was spent during 2008-09. In the current year, RCOM expects to spend Rs 100 billion, excluding the costs that will be incurred on 3G licences and broadband wireless access services. Analysts believe that the smaller outlay for the year could be due to the company's stretched balance sheet. So, there's a chance that the company may look to raise equity.

RCOM may also consider reworking its tariff plans in order to boost ARPUs and usage. Says Shukla, "From July, everybody will be a paying customer. The revenue and profit will start to improve soon, and the full impact will be visible from July."

Analyst view
If there is one view that sums up the opinion on RCOM, it is that the company has huge confidence and skill in reaching the mass market. It has, right from the beginning, understood the potential of the vast, untapped market in the rural areas. It therefore created a niche for itself in this segment by introducing innovative schemes and handsets specifically targeting rural users. In this, its extensive network and infrastructure, comprising over 175,000 km of optic fibre cable, has proved to be a key asset, which it has leveraged well to tap subscribers in smaller towns and cities.

Says Dr Mahesh Uppal, director, ComFirst, "Reliance's biggest strength is that it is a long-term strategist. It actually does not think short term. But it is a very aggressive player and in its aggression, tends to sometimes cut corners and take shortcuts."

That said, RCOM is one of the few companies that understands the importance of regulation in the business. Sridhar Pai, CEO of research firm Tonse Telecom, notes, "Reliance is extremely agile and adapts rapidly to market changes. It is a heavy investor and has a sense of the marketability of its abilities. It is cautious and watchful but has the ability to dream big."

The company has also been able to exploit the VAS segment effectively. CDMA, which offers superior voice and data capabilities compared to the competing technologies, has enabled RCOM to deliver content-rich data and voice applications including MMS and video streaming.

RCOM also has strong project execution skills. It has achieved the fastest rollout of GSM and CDMA services in the country. Its speed to market is creditable. Says Shukla, "We have the ability to take quick decisions and implement them flawlessly. We also have very committed manpower. So we can derive the benefit of being able to achieve synergy between GSM and CDMA in a very significant way."

The biggest challenge that RCOM faces, according to Shukla, is in meeting the expectations of people. "Coming from the house of ADAG, customer expectations of us are very high, in terms of quality of network, service and value. Our challenge is to meet these expectations."

Another key challenge for RCOM is making a dent in the high-end customer segment. Its market largely comprises lower-end subscribers. "So, it is going to be a challenge getting more lucrative customers," notes a senior analyst from Anand Rathi Securities. RCOM will have to consciously rework some of its strategies to take its services to a different level.

Analysts are also somewhat skeptical of the impact of RCOM's price-point strategy on the GSM market. Says Uppal, "RCOM's GSM plans will hurt the market because the competition levels have intensified on the price of mobile calls. In my view, there is too much competition on voice tariff and it is not clear how much additional value further tariff cuts will deliver. As a late entrant into this market, RCOM's aggressive tariff plans might lead to a further erosion in prices, which is not a bad idea from a short-term consumer point of view, but from a long-term perspective, it is not so, as it will mean that all competition is limited to voice."

RCOM's quality of service is also seen as a problem area. The company needs to improve its customer service and quality of service. Overall, analysts feel that RCOM needs to go beyond competing merely on price and adopt a more sophisticated approach.

The road ahead
A long-term player, RCOM has its sights trained at the top spot. It is betting heavily on 3G and the rural market in the near future. Already a key player in the rural telephony segment, the company is looking to set up more towers during the year.

Recently, RCOM has signed up a marketing venture with KRIBHCO for selling its products in rural India. RCOM will have 40 per cent stake in the new entity, known as KRIBHCO Reliance Kisan. The aim is to synergise the strengths of both companies to create a rural distribution model.

On the 3G front, the company intends to leverage both its networks, GSM and CDMA, to the maximum. To participate in the upcoming spectrum auction for 3G and Wi-Max services, RCOM is planning to raise about $500 million through the qualified institutional placement route. The plan has, however, not been firmed up as the company is yet to get shareholder approval to garner funds from qualified institutional investors. This will either be through a share sale or the issue of a variety of instruments including fully convertible, partly convertible or non-convertible debentures with warrants or other security.

RCOM also intends to focus strongly on its DTH business. In an effort to achieve a target of 3 million DTH subscribers over the next year, RCOM is banking on its prepaid and fixed line customers in Tier II and Tier III cities. The company is also offering low-cost set-top boxes and tailor-made packages to woo users. Big TV moreover intends to double its TV, cinema and audio channels to 400 by the end of the year. Meanwhile, there is talk of raising Rs 80 billion by selling up to 49 per cent stake in Big TV to foreign private equity firms and global DTH service providers.

Distribution and retail is another focus area. RCOM is strengthening its chain of Reliance Mobile Stores (RMSs), Mini RMSs, FOFO (franchisee owned, franchisee operated) stores, GSM Touch Points and Reliance World stores. As Shukla puts it, "We need to continuously grow and expand our distribution and customer service network to drive this growth."

In all, with new players and 3G expected to mark their entry shortly, competition in the sector is likely to heighten. Given RCOM's track record, the industry is expecting to catch a very interesting –­ and aggressive –­ match among telecom rivals.

Reliance Infratel
In early 2007, RCOM became the first telecom operator to hive off its tower business. The new subsidiary was called Reliance Telecom Infrastructure Limited and was later renamed Reliance Infratel. In July 2007, RCOM diluted 5 per cent equity in the tower subsidiary to seven foreign institutional investors for $337.5 million. The deal valued Reliance Infratel at $6.75 billion.

Reliance Infratel has been actively expanding its tower infrastructure. The company intends to build 56,596 towers by 2010, taking the total to 100,000. The tower base is being expanded to cater to an expected increase in demand from new 2G, 3G and Wi-Max operators.

RCOM has recently received approval from its shareholders for hiving off its optic fibre division and subsequently merging it with Reliance Infratel. This will help RCOM reduce its set-up and operating costs and enable RCOM and Reliance Infratel to focus on their core businesses.