Mahabharata in Polyester
Page 30
The group had already made some forays away from its patch. It had bought into India’s biggest reported petroleum find in decades, a gas deposit estimated at two trillion cubic feet in the Krishna–Godavari basin of the Bay of Bengal coast. For its earlier oil developments, in the Arabian Sea, Reliance had partnered the American natural gas developer and trader Enron, which also built a very large and controversial power plant in Dabhol, Maharashtra, south of Mumbai. As well as feedstock for petrochemicals, gas offered the chance for Reliance to follow another path of vertical integration, to electricity generation. By 2002 the group had gained a controlling interest in the main Mumbai electricity supplier BSES and had renamed it Reliance Energy when ownership reached 41 per cent. With it, Reliance acquired three power projects in Maharashtra.
In 1996–97 Reliance became worried when Dow Chemicals announced they were looking at making plastics from the bio-organism E. coli. ‘It looked like our business would be ruined because we would buy naphtha and these guys would make plastics from salt and water,’ Mukesh recalled. The Ambanis hurriedly set up a study group to watch industrial biotechnology, which developed into a long-term research activity covering human and plant biotech that kept the group positioned in the sector without incurring huge costs. The biotech effort involved some plantations in Gujarat and laboratories around Mumbai working on stem cell treatments. Mukesh told one interviewer in early 2004 that the aim was to be a biotech ‘Microsoft’, supplying the software or techniques for various applications.
Much of this effort was located in a 56-hectare estate on the outskirts of Mumbai named Dhirubhai Ambani Knowledge City. It was designed to match the campuses of the new IT star companies in southern India and help attract the same kind of talent. And the hottest new venture was the one mentioned by Mukesh.
The company had joined the mid-1990s frenzy for telephony licences, as we have seen. But pure communication would not deliver a ‘sustainable value’ unless it converged with information services. Driven by Mukesh, the group set up an entirely new subsidiary, Reliance Infocomm. The productive core of this enterprise was its own network of optical-fibre cable, designed to carry a massive volume of cellular and fixed telephony and broadband internet-based services (which had been completely liberalised in 1998 when the Vajpayee government ended the monopoly on internet service provision held by the government telecom carrier Videsh Sanchar Nigam Ltd). In mid-2001 Mukesh was talking of a $5 billion investment program, with $2 billion for 60 000 kilometres of cabling, to link 115 cities across India. By the time he took over the Reliance leadership after Dhirubhai’s death the next year, the network was occupying an army of labourers, while Infocomm had 3500 staff and was planning to double their numbers within a year, many recruited from companies attuned to marketing goods direct to consumers like Hindustan Lever and Cadbury-Schweppes. Mukesh was racing to grab what he called a ‘once in a lifetime opportunity’ to lay down and own the knowledge economy’s equivalent of the railway and thus become the ‘carrier’s carrier’ for India’s IT industry.
The venture also showed Reliance’s characteristic quick grasp of the possibilities of combining technical alternatives and regulatory loopholes to outflank its rivals – which once again brought on it an intense controversy. In March 1999 the Vajpayee government had rescued the private telephone operators from the consequences of their reckless bidding for licences just a few years earlier. Many had no hope of paying what they had promised, risking collapse of the effort to lift India out of its backward telephone coverage. Private-sector basic or landline services were operating in only two states, and cellular services had only a million subscribers between them. The whole sector was caught up in litigation, involving operators and two arms of government, the latter in some cases fighting each other in court.
Under a new telecom policy, the licence fees were forgiven, replaced by a percentage of revenue, in return for operators agreeing to loss of their previous duopolies in each regional ‘circle’ and to drop all litigation. The two state telephone companies were cleared to start cellular services in each of the twenty circles, and preparations were made for a tender to add a fourth operator in each. In August 2000 the government opened up domestic long-distance calls to unlimited competition; Reliance was one of two private groups given immediate clearance. The industry moved ahead and consolidated into fewer operators.
But Reliance quickly swooped on an entirely new opportunity offered by New Delhi’s green light for fixed-line telephone operators to offer ‘wireless-in-local-loop’ services, in which the ‘last mile’ of the telephone connection was by radio wave passing from a fairly compact base transmission unit (attached to a pole or rooftop) to a handset that could be carried around within range of that tower’s signal. Known as ‘the poor man’s cell phone’, it cut the cost of connecting a household to a quarter of the cost incurred in using copper wires. Developed in India, it has been used in such countries as Madagascar and Fiji. The technology allowed countries like India to expand their telephone subscriber base much more quickly and cheaply than wiring up individual households to a local exchange. With India’s ‘teledensity’ (households with telephones) having risen from 0.8 per cent to only 3 per cent between 1994 and 2001, the basic telephony sector was not exactly jumping and clearly was not on track to meet the Vajpayee government’s target of 7 per cent density by 2005.
But local-loop telephones also potentially eroded the value of cell phone licences, for which the operators had by early 2001 paid Rs 70 billion in spectrum and other charges. As the authorities pushed the idea, the cell phone operators expressed alarm, with the Tata group’s head Ratan Tata writing to Vajpayee calling it a ‘significant deviation’ from the 1999 policy. Nonetheless, the Communications ministry (held by Vajpayee, with junior minister Ram Vilas Paswan assisting him), accepted recommendations that local-loop was just a minor add-on service to basic telephony and that the population should not be deprived of its benefits. In January 2001 his officials announced guidelines for local-loop services with a maximum roaming range of 10 kilometres and said that spectrum would be offered free on a ‘first come first served basis’. A rush of 132 groups applied for licences, including some of the cellular operators opposing the policy, and in March 2001 Paswan’s ministry announced that out of forty approved local-loop licences, Reliance was cleared to operate in eighteen of India’s twenty telecom circles, Tata Teleservices in fifteen circles and the controversial Himachal Futuristic Communications in seven. The cell phone operators immediately declared it suspicious, with a former head of the telecommunications regulator declaring that ‘the government knowingly took a decision contrary to its own policy’.
Vajpayee referred the issue to the government’s Group on Telecom and IT Convergence, which included ministers Pramod Mahajan, Arun Jaitley and Sushma Swaraj. The terms of reference showed the outcome the government sought: the group was asked to find whether the 1999 new telecom policy permitted ‘limited mobility’ by fixed-telephone companies. If it did, then how best should the service be introduced? If it did not, how could the policy be modified to introduce limited mobility? The panel duly concluded that the 1999 new telecom policy did allow basic operators to offer local-loop, but adjusted the split of revenue from long-distance calls to match that applied to cell phone operators.2
The replacement of Paswan with Mahajan as Communications minister in August 2001 handed the responsibility to a politician far more notorious for his affinity with the Ambanis. Mahajan promptly overruled advice from his own regulators for a technical safeguard – a particular interface standard to a public switching architecture – to make sure local-loop services remained just local. This was not necessary, the ministry decided. The cell phone operators pursued a legal case against the decision all the way to the Supreme Court, which in December 2002 ruled against them. By that stage Mukesh was all but ready to start the Reliance Infocomm service, which had now mutated into a fully cellular service, with subscribers given multiple registrati
ons to allow roaming service throughout the eighteen circles. Even its name, IndiaMobile, flaunted what was going on.3
Mukesh had adopted a different cellular technology from that in general use in India. Instead of the global system for mobile communications (GSM), adopted by the first wave of operators, Infocomm had decided on the code-division multiple access (CDMA) standard used notably in the United States and in South Korea. In shades of the old propaganda about chemical pathways to making polyester, Reliance projected its cellular technology as more advanced than the other form. There was not actually much between them, but the CDMA pattern gave it a ready supplier of systems from American companies and mass supply of cheap handsets from South Korean electronics groups.
Together with the absence of heavy licence fees, this enabled Mukesh to launch a service that severely undercut existing cellular services on price. Swarms of would-be tycoons were signed up as ‘Dhirubhai Ambani Entrepreneurs’, paying a deposit for the opportunity to market Dhirubhai ka Sapna (Dhirubhai’s Dream) schemes to consumers, which involved low deposits for a handset to be paid over three years and a base of free local outgoing calls.
On 27 December 2002, the eve of what would have been Dhirubhai’s seventieth birthday, Mahajan was guest of honour at Reliance Infocomm’s big launch event in Mumbai, having also persuaded Vajpayee to contribute one of his Hindi poems – read live by the Prime Minister by videolink. Mahajan, who was to unveil the postage stamp in Dhirubhai’s honour the next day, was effusive in his praise of the Reliance Infocomm’s network control centre at the New Mumbai ‘campus’ where rows of young professionals sat at computer work stations facing two enormous video walls. It was ‘better than NASA’, he said.
But after what was described as a ‘high-voltage’ launch, the service started running on low power. The competing cellular services responded by slashing their prices and refusing connectivity to their networks from basic service providers. The private basic operators then tried routing their calls through the public sector telephone networks to mask their origin, but these calls were detected and blocked. The government networks retaliated by blocking calls from the cell phone operators. This tit-for-tat squabble brought chaos over the following month, until regulators set new rules for connections and tariffs.
Mahajan’s interest in Reliance led to the first big reverse in a career that seemed to be taking the former journalist and lifelong RSS activist towards the ‘second-generation’ leadership of the Hindu nationalists. Mahajan’s tongue had run away from him in his enthusiasm at the Infocomm launch. He had said Dhirubhai’s contributions had not been sufficiently appreciated by those in authority. If naachnewali aur gaanewali (singers and dancers) could be given the Bharat Ratna, the country’s highest civilian award, why not Dhirubhai? The late tycoon was a man who had made several people ministers, Mahajan said, and now he was being denied his due. The implied criticism of Vajpayee was too much, on top of the tarnishing allegations of favouritism and, perhaps worse, that Mahajan had already brought on a ruling party still not quite used to being friendly towards Reliance.
In a cabinet reshuffle on 29 January 2003 Mahajan was dropped from the government and sent back to run the BJP as its general secretary, while his Communications ministry was transferred to Disinvestment minister Arun Shourie. While Mahajan’s transfer was partly aimed at boosting the BJP organisation with his communication skills and ‘realpolitik’ approach, it was also to silence criticism within Hindu groups about his ‘nexus with some big industrialists and “others”’.4
The drive for subscribers also faltered. Many marketing connections used by new ‘entrepreneurs’ were local paanwallahs and small shopkeepers who had little understanding of the schemes they were selling, in either technical or financial terms. A lot of customers signed up to get their handsets with little intention or ability to meet their monthly payment obligations. It was discovered that the use of Dhirubhai’s name was not a great selling point, and the entire marketing effort had to be revamped.
Still, Mukesh did turn the potentially dire situation around. Shourie came in with a stern warning to all telephone players to stick to their permits but, as months went by, showed himself not anxious to thwart the local-loop operators and their customers. In April he had decided against complying with a regulator’s order to show cell phone appellants seven documents relating to the original decision to allow limited mobility – according to one report because it might embarrass Mahajan and the BJP. By mid-year, as we have seen, Shourie was praising Dhirubhai as someone who had helped hasten reform by proving the absurdity of the licensing rules. In October 2003 Shourie announced that Reliance Infocomm had been exceeding its licences, but its situation could be legalised by a new ‘unified’ telecom licence covering all services. Reliance bought one of the licences for $340 million, including a $116 million penalty for its past violations. Gurumurthy, the long-time critic, wrote that the authorities were ‘condoning a deliberate illegality. And it is happening because Reliance is in a position to control the levers of power.’
It was something Reliance could shrug off. ‘When you’re successful, your competitors will try to find alibis for your success,’ it said in a statement responding to Gurumurthy.
The fact was that the old critics of Reliance within the Hindu nationalist camp were in disarray. Jaswant Singh did object, but didn’t pursue it far, out of loyalty to the Prime Minister, Vajpayee. Arun Jaitley put up a sustained fight but not to the point of resignation, which might have made a difference. Ram Jethmalani was too burdened in his law portfolio to give it much attention. Advani, the Home minister, was deeply troubled by the ethics of what was being done in the telecom field but, with his reputation for stirring up communal violence with Muslims, was not on a strong political footing.
Most importantly, Vajpayee was in favour. Mukesh was said to be one of the few individuals in India allowed to ride in his own car into the prime-ministerial compound on Delhi’s Racecourse Road and drive up to the front door. For security reasons, nearly everyone else, including ministers, had to alight at the gate and use a shuttle car up the driveway. The key figure on Vajpayee’s staff – the official, some said, who was ‘effectively the Prime Minister’ – was the National Security Adviser, Brajesh Mishra. He was another of the circle of influential figures cultivated by Dhirubhai through his think-tank, the Observer Research Foundation, chaired by Rishi Kumar Mishra, a former Congress upper house member and former editor-in-chief of Dhirubhai’s newspaper, the Business and Political Observer. Friendly with many senior figures in the major political parties, R.K. Mishra had been active in ‘Track Two’ diplomacy with Pakistan undertaken to further Vajpayee’s bold play for peace over Kashmir. Author of three books on the Vedas, this Mishra was often described as ‘the intellectual face of the Reliance group’ and the centre of a ‘brahmin network’ in Delhi that had transferred its services from Dhirubhai to Mukesh. As Vajpayee’s chief gatekeeper, Brajesh Mishra clashed heatedly with those like Nusli Wadia who came to Racecourse Road to persuade the ageing Prime Minister against the tilt of policy towards Reliance. After the BJP election defeat in 2004, Brajesh Mishra joined the board of the Reliance-sponsored foundation.
• • •
Legalised by his new ‘unified’ licence, Mukesh was claiming to have six million subscribers by the end of 2003, a million more than the previous cell phone leader, Bharti Telecom, had built up in nine years. India’s total cell phone base had leapt from 11 million to 25 million. By the end of 2004 total cellular connections had exceeded 44 million and surpassed fixed-line connections for the first time. Infocomm had made its first move outside India, paying $211 million for the London-based Flag Telecom and its undersea cables connecting Asia, Europe, the Middle East and the United States. Mukesh was talking of the services he hoped to deliver via his customers’ cell phones, including railway and other transport bookings, purchases using personal identity codes instead of credit cards, and medical monitoring.5
Within
two years of Dhirubhai’s death, the company was firmly back in the favourable coverage of the international business press, with Time Asia reporting an upbeat mood after the ‘doubt that swirled around the conglomerate’ after the patriarch’s death and the New York Times headlining a corporate profile ‘A giant so big it’s a proxy for India’s economy’. Some questioned whether the two sons could fill their father’s shoes or whether such different characters work together, Time Asia reported. ‘The flashy Anil, who is married to a former film actress, likes designer clothes and jogs every morning, his chauffeur driving slowly behind. Mukesh is sedate and prefers spending time with his children or catching up on technical journals.’
The newspaper took a more benign view: ‘The Ambani brothers now overseeing the vast Reliance empire seem to be good foils for each other. Anil, 44, Reliance Industries’ vice-chairman, is an outgoing man, a financial whiz married to a former Bollywood movie star. Mukesh, 47, the company’s chairman, is a quiet man, an engineer who is a stickler for detail … They inherited their father’s tenacity, his intuition in consolidating businesses, even his ability to work India’s convoluted bureaucratic system to their advantage.’6
Each article said there were no evident signs of ‘friction’ between the two brothers – but added the words ‘right now’ or ‘for now’. It was a wise qualification.
19
Corporate Kurukshetra
But actually there were signs of friction – and within months of Dhirubhai’s death. The journalist who had broken the Harshad Mehta scam, Sucheta Dalal, reported the ‘conspicuous absence’ of Anil at the big launch of Reliance Infocomm on 27 December 2002, saying that the younger brother had ‘stolen the show’ by not turning up, on flimsy excuses of feeling ill or attending business in New Delhi. ‘For many months now, the corporate grapevine has been rife with reports that all is not well between the two brothers,’ Dalal wrote.1