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The Economic Times: Ambani tigers' renewed vigour spread fear in business circle; anxious rivals keep watch [Economic Times (India)](Economic Times (India) Via Acquire Media NewsEdge) : I against my brother; my brother and I against my cousin; I, my brother, and my cousin against the stranger. Less than a month ago, Mukesh Ambani's Reliance Industries (RIL) and the Anil Dhirubhai Ambani Group (ADAG) announced the seeming end of their self-defeating sibling rivalry and affirmed the truth of this old Arab proverb about the concentric circle of relationships. Now, outside the Ambani family circle, there is nervousness. "The power of one has already created ripple effects in corporate circles," said the head of a large consumer durables company. "Some corporates are doing a rethink on the businesses that they had earlier planned to enter such as power and telecom." A major component of the May 23 truce required the businesses-owned by the Ambani brothers - Mukesh (53) and Anil (51) - to stop being dogs in the manger with each other to create an environment of "harmony, co-operation and collaboration". Mukesh has moved swiftly to take advantage of the tearing up of non-compete pacts, which prevented each brother from operating in sectors where the other was present. The elder brother has announced big plans for power and has planted a big foot already in telecom with the acquisition of Infotel Broadband, the only company to win a nation-wide licence for broadband wireless spectrum. "There are those who have accepted the fact that businesses are being built to be sold to the brothers. The combined power of the Ambani brothers in India sometimes has a greater effect on businesses in India than the might of MNCs," said the chief of the consumer durables company. Brothers focus on corporate battles now "Companies, which are connected with the Reliance growth, are the ones who will tend to do well," AM Naik, chief of engineering giant Larsen & Toubro told ET NOW in an interview. Mukesh, who keeps a low public profile but is seen as ruthlessly efficient, has been formidable even though he has been hobbled for the past five years because of the fight with Anil over the supply of gas for ADAG's power plants. Now, with the two brothers no longer consumed by their rivalry, their energies have been freed up for other corporate battles. Mukesh, especially, is regarded as the man to watch out for. He has declared that he wants RIL's enterprise value to double within 10 years from its present level of $80 billion (Rs 370,000 crore) as the company makes a "big surge forward." At that level, RIL will about the same size as Goldman Sachs and Unilever put together today. Its core businesses such as polyester, petrochemicals, petroleum and gas generate a lot of surplus cash, so expanding and diversifying should not pose too many problems. "Cash-rich Reliance can buy out rivals which are starved for funds to scale up," said the head of one of India's oldest organised retail operations. "The company is already talking to smaller players in the industry, setting the stage for consolidation," he added. Officials at RIL declined to comment for this story while an ADAG spokesperson was not immediately available. Most executives in rival groups spoke to ET on condition they not be named. Playing field The financial strength of RIL is only part of the story. The bigger fear among business rivals is RIL's perceived ability to tilt the playing field in its favour. "The last time they were in telecom, they managed to convert a limited mobility licence into a pan-India licence. This time, we don't know what they plan to do with BWA (broadband wireless access) licence," said a director with a large telecom company owned by an industrial conglomerate, referring to Reliance Infocomm, which was set up Mukesh but is now owned by Anil as part of the 2005 family settlement. Reliance Infocomm initially had licenses to offer a service known as limited mobile which was restricted to states. After a prolonged and convulated legal battle with other cellular operators Infocomm got the necessary licenses to offer services all over India using a technology known as CDMA. The retail executive cited an example of what he says is RIL's ability to influence major policy decisions often to the detriment of rivals. "The government imposed service tax on rent exactly a year after they made an entry into retail. Those such as Shoppers' Stop and Future Group had to shell out additional cash as tax as their properties were on long-term lease. On the other hand, Reliance, with a huge reserve of cash, bought properties without the tax burden." In telecom, there is a fear that RIL may dilute revenues of other telcos with the spectrum it now owns through the acquisition of Infotel. RIL hopes to deploy Long Term Evolution, a technology that rivals the more widely known WiMax. Once VoIP, or Voice over Internet Protocol, is allowed, RIL will be able to offer telephony over wireless Internet, which will have superior voice clarity compared with traditional mobile telephony. Call drops that result from spectrum congestion also won't happen in VoIP. "With Mukesh's company getting a major part of broadband spectrum, there is a chance that the cream of the customers will shift to Infotel's platform. This can weaken prospects of existing players, leading to weaker average per-user revenue," the telecom company executive said. While VoIP is illegal in India now, the telecom regulator has repeatedly asked the government to legalise it. While Reliance is mostly regarded with fear and awe, there is some scepticism about its ability to succeed in businesses that they don't have prior experience in, such as organised retail. "Retail is a customer-driven industry," said the CEO of a retail company, adding that Reliance's competence lay in so called B2B or business-to-business areas. There is also a view that while India's notorious license-permit raj may have forced the Ambani family to lobby for policy changes, they are increasingly operating in reformed sectors where policymaking is more transparent, and independent regulators more powerful. A top investment banker who has done business with both the Ambani brothers and has also known the family closely for years, said that while he does not for a moment discount their ability to influence policy, their interests now lie elsewhere. "Their mindsets have undergone a major change. They want to be real global players and compete in the global market," he said. In the power sector, where Anil has big ambitions, RIL's entry is being seen with a lot of apprehension by rivals in the sector, many of which are relatively young groups. The prospect that the brothers might cooperate is particularly daunting. "They (the two groups) will now hunt in pairs for scarce resources such as coal," a senior executive at a power company said. "Electricity distribution is another growth area that they will corner as this is a state subject and they are in a position to prompt changes much faster at the state level," he added. However, a person close to the Anil Dhirubhai Ambani Group (ADAG) said the intent of the May 23 agreement was that the two groups had agreed to stop obstructing each other. "It's far-fetched at this point in time to say that the two groups will start investing together," the person, who was speaking to ET in the context of reports about RIL investing in Anil's power projects or buying his telecom business. He emphasised that RIL could certainly use RCom's telecom infrastructure for its telecom broadband plans, but would be treated like any other customer. Success not guaranteed RIL's exceptional success in its core businesses does not guarantee a similar fate in new ventures, said Gurcharan Das, a former CEO of Procter & Gamble, India, and the author, most recently, of The difficulty of Being Good. "It is remarkable how successful RIL is in their core businesses. But the verdict is not out yet on how well they can do in areas that are not close to their knitting," Ms Das said. "Having a lot of money in the bank does not mean you will do well," he added. (With additional reporting from M Sabarinath, Kala Vijayaraghavan, MV Ramsurya and Joji Thomas Philip) For Reprint Rights: timescontent.com (c) 2010 Bennett, Coleman & Co., Ltd., Source: The Financial Times Limited |