Reliance Infocomm

By David Brady, Vish Narain
2005 | Case No. SM143
Mukesh Ambani, the CEO of India’s largest business house, Reliance Industries Ltd. (RIL) was contemplating a major decision that could significantly affect the future of his company, as well as the telecommunications landscape in India. By 2002, GSM (Global System for Mobile) cellular roaming services, based on TDMA (Time Division Multiple Access) technology, had become the de facto standard in India. Seeking to find an alternative to GSM, Ambani’s telecom team had developed an innovative solution for providing inexpensive roaming cellular services to customers on a nationwide basis using CDMA (Code Division Multiple Access) technology. The required infrastructure for CDMA, which was significantly less costly than that of GSM, was already in place. As an early mover with a competitively priced CDMA offering, Ambani was confident he could capture a large percentage of the market. Reliance had permission from the Indian government to provide local CDMA coverage, yet there was nothing in the law that explicitly prohibited the company from rolling out these services on a more widespread basis to subscribers across the country. Ambani was tempted to offer the economical CDMA services to a wide cross-segment of the Indian population. However, he was concerned about the potential non-market risks associated with this decision. Since the telecom market in India was nascent, there were few precedents to predict how the government might react to such a liberal interpretation of the permission it had granted. In a worst-case scenario, it could put a stay on Reliance’s CDMA services — jeopardizing the future of the $2 billion venture before it even took off. The government could also impose a heavy fine on the company, which would be accompanied by negative publicity. Ambani’s alternative was to purchase GSM licenses, build a Reliance GSM network, and compete in the market with established, dominant players such as Airtel and Hutch. However, the GSM licenses were expensive and the infrastructure would take several months to build. As a late entrant, Reliance would be in a disadvantaged position and could end up as a nonentity in a promising, but highly competitive market. Ambani had to determine whether he was willing to risk the severe non-market repercussions, which could threaten Reliance’s public image, in order to pursue more lucrative returns and a more favorable competitive position.
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