Anil Dhirubhai Ambani
‘He’s the poor little rich kid of India Inc, Well, almost!

Since his breakup with elder brother Mukesh Ambani, Anil Dhirubhai Ambani, seems to be practically running into bottlenecks nearly everywhere he looks, or even glances. The tale of the duel between the two brothers with the whole world watching their spat is now old hat. But sure enough, it is that very settlement that has perhaps unsettled the Anil Dhirubhai Ambani led camp. Consider some of Anil’s most ambitious dreams and see how his plans and ambitions appear suddenly vulnerable: Be it the bids for coal-bed methane blocks, or his aspiration to procure cheap gas from Mukesh Ambani owned Reliance Industries Limited (RIL), or even the government denying him that critical last mile connectivity (so essential for his convergence dream), or the pending DTH proposal, Anil seems to be running into the famed bureaucratic hurdles of the well-oiled government machinery. In stark contrast to those days when Reliance, as a joint entity, wielded tremendous clout in the corridors of power. Some analysts suggest that Anil Ambani – perhaps deliberately – did not play the political games as masterfully as his father did and perhaps as his brother is doing. Somewhere, industry experts can sense a huge storm brewing in all the four entities, which Anil has taken control of – a storm that will either blow away all of ADAG’s competitors, or may well prove to be the undoing of the ADAG camp! It seems that Anil Ambani is now on the crossroads of his corporate career; and the turn he takes may well decide his fate in the near and long term future. 4Ps B&M does a check out…

The brewing storm!

It was his elder brother who dealt him the first of his raw deals, when the Ambani empire split last year, after a long public showing of the cracks within the family. While Mukesh cornered the more established and mature parts of the empire viz. oil and petrochemicals, what came in the younger scion’s kitty were the emerging businesses of Reliance viz. Reliance Communications Limited (RCL), Reliance Natural Resources Limited (RNRL), Reliance Energy Ventures Limited (REL) and Reliance Capital Ventures Limited, all of which needed careful nurturing to bloom into prospective powerhouses, befitting the Ambani name. Next came more hiccups about usage of the Reliance name & logo – and this time the junior Ambani deprived himself again of the legendary Ambani legacy and went ahead to coin a different logo and brand image for himself. So the Reliance Anil Dhirubhai Ambani Group (ADAG) was born with its bold red & blue logo. According to Sanjay Behl, Head (Branding), Reliance Communications, “A new identity was very much required after the demerger as there are separate entities now.

The rationale behind the logo was to establish a bold brand, assess ability and (our want) to position ourselves as a customer-centric brand, where our target audience is across the country.” Moreover, the findings of an AC Nielsen research, conducted among stake holders to evaluate the strength of the ‘Reliance’ brand, proved that though the brand scored high on parameters like company size and scale, speed of operations, financial stability and promises delivered, it proved a laggard when it came to brand approachability and youthfulness. The most serious issue, however, was when it came to ‘brand recall’; there was absolute silence! Yes, except the Ambanis, no one seemed to remember their old punch line – ‘Growth is Life’. Hence, besides performing the brand identity makeover by changing the punch line to ‘Think Bigger’, the Anil Ambani Group has cleverly managed to align its growth with a brand promotion exercise, which they hope will be conducive for them. Steered by the vision of the younger Ambani, ADAG went ahead to create unparalleled shareholder value for over two million Reliance shareholders, generating an additional wealth of over Rs.70,000 crores during 2006 alone – which in less than nine months is nearly equal to RIL’s entire market capitalization built over 28 years since 1978! Today, certainly when we talk about Reliance Communication Limited (where the total stake of ADAG has been raised to 66.62%), Anil Ambani may smile thinking about his fast growing subscriber base – but the smile would perhaps carry a twinge of jealously aimed at his GSM peers. Having successfully covered miles with his Code Division Multiple Access (CDMA) platform driven Reliance Infocomm (with a lion’s share of 21.43 million subscribers amongst the 30.75 million total CDMA users in India), the operator sits pretty in the segment.

GSM: To be or not to be?

But then, the burning question: Are not 74% of the new users being pooled in by GSM operators? And today, when the net CDMA subscriber base has just touched 30.75 million, the GSM herd has touched 86.62 million (August 2006) mark, which effectively means that the number of mobile users using the CDMA technology is just a heartbreaking 26.2%! Looking at the contemporary situation: Net cellular subscriber additions during July 2006 were 5.2 million, while the number of new CDMA users was just 1 million – symbolizing just 19% of total additions! No doubt, CDMA is considered the future of rural connectivity, given its cost efficiency. But what about now; what does Anil Ambani do to ensure the longevity of his telecom fraternity? He decides to apply for permission to provide GSM services in 21 circles out of the total 23 in the country. Easier said than done! Policy-makers have, in turn, asked him to withdraw from providing CDMA services in some circles due to a ‘spectrum crunch’.

The company already provides GSM services in the circles of West Bengal, Orissa, Madhya Pradesh, Himachal Pradesh, Bihar, Assam and other states in North East India, and has about 2.85 million subscribers for its GSM base, which is not what you could quite call taking advantage of the GSM boom! So even while Anil Ambani decides that he should now pull up his socks and ride the wave on the GSM boat, should he or should he not give away his CDMA competence? According to Prashant Singhal, Telecom Analyst, Ernst & Young, “Today, with the top 3 business houses – Birlas, Tatas and the Ambanis – engaged in the fast growing Indian telecom market, the market is certainly booming. But GSM players certainly have an edge over the CDMA operators, where growth is concerned. All the old players and the new entrants have to realize this.” Anil might not play on yet, or ever, to give up his blatant CDMA competitive advantage, as it’s not just Qualcomm (who anyway has a royalty sharing conflict going on with Anil), the inventors of CDMA, who are betting on CDMA’s relatively efficient bandwidth processing capabilities (as compared to GSM), even reports from COAI confirm the same.

The convergence dream

As far back as 2001, Reliance Infocomm had been laying optical fibre cables across the country at a speed of about 100 kms per day, way ahead of other competitors. The dream was to emerge as a leader in the sector by providing requisite bandwidth for tapping opportunities in computer services, entertainment and value-added telecom services. Till date, the company has laid about 80,000 kms of optical fibre cable network all over the country, which has the capacity to carry voice, data and video. But with the government now having denied RCL the strategic last-mile connectivity, will Anil’s dream to reach out to Indian homes with audio, data and video through a single cable prove to be just a mirage? Plain questions; but with the power packed in them to decide the fate of his most dynamic interest and perhaps the future of his entire group!

‘Energy’ Booster

Then there is also the good news of Reliance Energy Limited’s success in terms of securing four coalbed methane blocks in July this year with an estimated 235 billion cubic metres of gas – sufficient to power 5000 MW of power generation. Yet another invaluable source of natural gas for Anil’s ambitious dream. According to Reliance Energy officials, “Reliance’s future growth is dependent on setting up of large capacity based power plants. But the feasibility of these power plants depends upon the ability of REL and its affiliates to source the gas feed stock economically and on a sustainable basis from RIL,” And sadly, this is where the joy ride for Anil Ambani seems to have hit a roadblock. His ambitious 7,480 MW Dadri Power Project seems to have run out of gas with the government declining to allow the Mukesh Ambani led Reliance Industries Limited (RIL) to supply gas to Anil Ambani’s Reliance Natural Resources (RNRL) at a cheaper rate (part of the family settlement).

The reason given by policy makers stands that the agreement was not in accordance with other competitive sale prices at which the gas is being supplied under similar conditions in the same region where RIL is currently operating. RIL is presently selling gas (from its Panna/Mukta and Tapti fields) that is priced at $4.75 per million British thermal units (mBtu), which is much higher than the proposed price of $2.34 per mBtu by RIL for sale to RNRL. Internationally, the price of gas hovers around the $10 per mBtu. The Petroleum Ministry argues that the price discovery process should come about after a transparent competitive bidding process. And also that family agreements cannot guide a contract against public interest. The Anil camp is expectedly crying foul, stating that the RIL-NTPC deal is also based on price levels below $4.00. Clearly, RNRL officials are concerned about having to pay higher prices for gas, which would logically mean much higher prices to be paid by RNRL and would completely change the economics of the Dadri project that the group is banking heavily on!

Capital Gains

On the other hand, ADAG’s financial arm, Reliance Capital, is yet to gain altitude. Its insurance business is still in its infancy (it will be another year, or even two, before it can actually be considered a major in its sector). Then there is the shopper Anil, ready to dip his fingers into the retail pie. While on one hand Reliance Communications Limited already has a considerable retail presence through its chain of 241 ‘Reliance World’ outlets scattered across 105 cities, the other signs of the retail foray are evident with his financial arm – Reliance Capital – investing in Giny & Jony and Vishal Retail Stores. The company is also currently exploring options of tying up with Starbucks, the global coffee giant. Considering that ADAG has invested a total of Rs.2,300 crores by way of equity in Reliance Capital (by far the single largest investment by any professional entrepreneur in the country), the results are not going to be visible any time soon in the already overcrowded and dynamic Indian financial sector. But as Anil Ambani says: “The investment is a reflection of my personal conviction in the vast potential of the financial services sector, and the long term growth prospects of Reliance Capital,”

Media: A Manna?

Amidst all of Anil Ambani’s ventures, truly, it is the media and entertainment business that might surprise a lot of sceptics. Having acquired a 51% stake in entertainment major Adlabs last year, Anil has firmly established his presence in the sector. The film production and distribution company, after the success of Krrish, has another 7 Bollywood films lined up for distribution, and is performing well in terms of financials. Just in the quarter ending June 2006, revenues increased 57% q-o-q. According to Manmohan Shetty, Chairman and MD, Adlabs Films Limited: “Since so many new players have come, it is not only a quality benchmark anymore; it is also a financial benchmark that comes into play. We have a constraint to not do certain things because there is a constraint as to how much you can invest on something; but if given the choice, we would make cinema viewing experience as best as possible... Distribution, film processing & exhibitions are all individual profit units.” More recently, Adlabs Films has bought a 51% majority stake in Synergy Communications (led by Siddhartha Basu and famous for Kaun Banega Crorepati, India’s Child Genius, Mastermind India and a host of popular series). Add to that Anil’s plans to launch Adlabs Radio by the name of ‘BIG FM’ that will launch 45 FM stations with a common radio frequency of 92.7MHz, and you have another potential winner.

The latest year 2006 NRS findings point out that radio is the media with the best prospects of growth and penetration today (especially with the relaxation of the flat fee structure with a revenue- sharing one). On cue, the company plans to cover Mumbai, Delhi, Kolkata, Chennai, Bangalore & Hyderabad in the first phase and follow it up by adding Srinagar, Jammu, Bikaner and Aligarh on their radio map. Times are certainly rewarding for the radio industry and definitely hold great promise for new entrants like Ambani too. But while ADAG’s ambition of flooding over 1,000 towns & 50,000 villages with its radio frequency (preferably also churning out promotions for the group) may very well bear fruit, Anil Ambani also has to ensure that the outcome of the Rs.400 crore initial investment (in addition to the costs associated with employment of about 1,500 employees; and technology being sourced from US firm AXIA in radio business) yields capital benefits for ADAG in the long run. Of course, the younger Ambani is in remarkable control of ADAG operations; but as is evident, a lot depends on the externalities, and how speedily & shrewdly Anil Ambani can steer his operations away from all bureaucratic hurdles. Only then can Anil truly break away from his brother’s shadow & let out his own war cry! Tribulations he faces many, what he surely does not face, is lack of vision. Far from it, Anil has displayed monumental gumption in adhering to what his basic ‘job’ was; visioning! And he has truly come clean on this front, with a leviathan objective schedule in front of him. The poor little rich kid may surprise his detractors yet, only that he must take the correct turn on this crossroads, which contains one too many ramifications. After all, he does have the legendary Dhirubhai Ambani legacy to live up to!