Mukesh wins spectrum auction

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Four years after exiting the telecom business, India’s largest firm Reliance Industries is getting back in. On Friday, the company announced that it has picked up a 95 per cent stake in Infotel Broadband for Rs 4,800 crore. Infotel is a recently formed company which has come out as the surprise winner of 22 circles in the broadband

auction — the largest by any firm, for Rs 12,848 crore. The announcement comes just two weeks after RIL chairman Mukesh Ambani scrapped a no compete agreement with brother Anil. The no compete agreement wouldn’t have allowed RIL to take up a stake in a firm such as Infotel. Analysts were also surprised by Infotel, an unknown firm so far, coming out as the big winner of the spectrum auction.
Following the move, Infotel has become a subsidiary of RIL. As of now, there is no clear estimate on the capex required for the wireless internet business. This is because RIL has said in its announcement that it will be using a technology called LTE (Long Term Evolution). The advantage is that it will allow use of existing telecom infrastructure to provide services. However, this technology is not used very widely and therefore costs are not well understood, says an analyst.
In the days following the second truce between the two Ambani brothers, there was intense speculation that RIL may re-enter the telecom space. RIL’s original telecom venture – Reliance Infocomm, which became RCom, was spun off into a separate company that went to Mr. Anil Ambani. This is the second billion dollar plus deal by RIL in the recent months. The company had earlier invested $1.7 billion for a 40 per cent stake in a natural gas project in the US. This may not be the last acquisition for RIL as the two deals add up to less than $3 billion — whereas the company expects to generate $4-5 billion of cash every year. it also had over $5 billion of cash on books at the end of FY10.