A switch in time

Reliance Communications8217; designs on the GSM business may shake up the telecom industry a third time in as many years, reports pragya singh

Reliance Communications and its 100 per cent subsidiary Reliance Telecom have embarked on an expansion spree that has everyone in the telecom business sitting up and taking notes. In a previous strategem, Reliance trucked CDMA technology-based mobile phones into India. It then put together a part of the case in favour of a unified access service license. This license has now led to a third masterstroke: Reliance has bet that the odds favour GSM.

The rough draft of Reliance Communication8217;s GSM plans seem to favour a metro push, with news already out that it has sought spectrum in the 1800 MHz band, a frequency reserved in India for GSM telecom services, in Mumbai and Delhi. At the same time, Reliance Telecom8217;s expansion from 2.16 million to 12 million lines in eight circles will also be over in 12-16 months. These 10 million new lines will see Reliance going to 4,300 towns, at a planned outlay of Rs 1,500 crore. In the Calcutta, West Bengal, Madhya Pradesh, Himachal, Assam, Bihar, Orissa and North East circles, Reliance has been approached by multiple vendors for the planned expansion.

It is well known that Ericsson, Motorola, Nokia, Alcatel, Nortel, Huawei and ZTE have lined up to participate in the action. But there is more to it than just an opportunity for global vendors to grow. Some vaunt the prospect that Reliance will actually help bring down other operators8217; expansion costs.

Cost 038; Spectrum Factors

At Rs 1,500 crore for 10 million lines, the average cost of Reliance8217;s GSM in these eight circles is at around 33.33 per line8212;roughly double the industry8217;s average per line cost estimate of 67.

So far so good, but are there chances that Reliance will completely move out of the CDMA business? Reliance Telecom was always a GSM technology-based service provider and launched before Reliance Communications8217; CDMA did. Analysts say the higher total cost of acquisition of a CDMA connection and the added convenience of GSM phones8217; SIM cards may push Reliance strongly towards GSM in the future.

But at the same time, Reliance does has 21 million CDMA subscribers, and it is unclear yet whether the company will ask them to migrate or stay with their service. The expansion plans previously announced for CDMA, however, have been re-affirmed.

8216;8216;Reliance does have deep pockets and is entering the insurance, cinema and other businesses. In telecom they have a good business, but maybe they compare themselves with Bharti. Being able to provide both GSM and CDMA to their customers will be a big plus for the company,8217;8217; said a telecom industry watcher. This is a strategy already followed by BSNL, he pointed out.

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There may be more to the debate8212;in India, CDMA is currently engaged in a fight to the last against GSM operators over spectrum allocations. While GSM needs the 1900 MHz frequency to migrate to wCDMA, the CDMA operators need it to follow a globally-compatible dual band expansion plan.

In the past, the trend in several countries has been to vacate 1900 MHZ for wCDMA, since CDMA was found to interfere with GSM transmissions in 1800 MHz. Then again, recent technology advancements also show that GSM and CDMA may soon co-exist in these bands.

It remains to be seen whether Reliance Communications still believes that GSM and CDMA technologies can coexist in India. One thing, however, is clear: There is a new operator in the already overcrowded GSM business, who will demand a slice of the spectrum pie already short on both ends.