When India’s Ambani brothers kiss and make up, everybody wins

April 3, 2013
Obsession
Mobile Web
April 3, 2013

Eight years after an acrimonious split, India’s most powerful estranged siblings have come together to do business again. That’s good news not just for their business empires but also for internet penetration in India and, potentially, for Samsung.

Mukesh Ambani, India’s richest man and head of Reliance Industries, signed a deal Wednesday to lease younger brother Anil Ambani’s 120,000 km (75,000 miles) optical-fibre cable network for a one-time payment of Rs 12 billion ($221 million).

The agreement provides a boost to Mukesh’s Reliance Jio, which in 2010—soon after the brothers agreed to discontinue a non-competition pact—won an exclusive license to provide nationwide 4G services. The deal amounts to $3000 per mile of cable; building a network from scratch would cost 12 times as much.

It also provides some relief to Anil’s Reliance Communications, one of India’s biggest 2G and 3G telecom operators, which he inherited in the split. The company carries a heavy debt load of some $6.9 billion, and its profits have shrunk for 13 of the last 14 quarters. As part of the deal, Anil will also get access to any telecom infrastructure built by Mukesh. Reliance Communications’ shares on the Bombay Stock Exchange closed nearly 11% higher after the announcement on Tuesday.

A wider agreement for Mukesh to share Anil’s roughly 43,000 telecom towers is expected to follow. Analysts speculate that the brothers could eventually team up to offer a complete package of services. The details of their feud are not known, but the split occurred after their father Dhirubhai Ambani died, and left the company to his sons.

Ordinary Indians ought to benefit as well. Reliance Communications is known for keeping rates low. Its 2004 entry as a telecoms operator resulted in never-before-seen low prices and drove a substantial amount of growth in mobile phone adoption. Mukesh’s Reliance Jio is likely to follow the same model.

India badly needs its population to get online; less than one in ten Indians currently access the internet, and only a tiny percentage have broadband access. Those numbers are expected to climb, primarily through mobile, as India leapfrogs desktops altogether. Reports last month suggested that Mukesh has tied up with Samsung to sell phones with 4G capabilities for as little as $100. Combined with cheap data packages to encourage rapid user adoption, that could mean that the long-awaited expansion of internet penetration into wider swathes of India could finally become a reality. It would also help Samsung extend its already considerable lead over Apple in one of the world’s biggest handset markets—and, as a bonus, restore some harmony in the Ambani family.

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