Reliance Plans $7B GSM Build-Out

India's Reliance Communications Ltd. (RCom) is inviting bids for GSM equipment contracts in a massive $7 billion-plus network expansion that will see the CDMA-based operator running two mobile networks.

The country’s largest CDMA (code-division multiple access) carrier, Reliance has made the strategic decision to switch to GSM (global system for mobile) for the purpose of expanding its network coverage and capacity. Its CDMA network will remain in operation, for the time being at least -- a decision the operator says will allow it to roll out the new network more quickly and cheaply by using its existing passive infrastructure to add capacity. (See Reliance Dabbling With Dual Networks.)

Reliance's CDMA network has capacity for 30 million subscribers, and if its customer base continues to expand by more than one million users every month, it will run out of capacity by mid-2007.

According to local press reports, Reliance is looking at awarding three or four contracts for around 70 million to 75 million GSM lines and 20 million to 25 million wideband CDMA (3G) lines.

By leveraging the CDMA network, it will be able to cut the cost of 30 million lines, and assuming it pays the going rate of around $100 per line for the rest, the carrier could spend around $7 billion or $8 billion on the network. The evaluation process could take up to five months.

The project dwarfs Bharat Sanchar Nigam Ltd. (BSNL) 's 60 million line tender as the largest ever wireless request for proposals. (BSNL's RFP is often called a monster; this must be Godzilla.) It's sure to attract the likes of Ericsson AB (Nasdaq: ERIC), Nokia Corp. (NYSE: NOK), and Alcatel-Lucent (NYSE: ALU) -- which are set to gain from the state-run carrier’s expansion. BSNL’s contracts are being delayed in court over a dispute with Motorola Inc. (NYSE: MOT). (See Ericsson, Nokia Bid Low for BSNL and Moto Stalls BSNL's Wireless Tender.)

In addition to its nationwide CDMA network, which operates in 21 of India’s 23 telecom “circles,” or regions with 24 million customers, Reliance already runs a small GSM network in eight regions with around 3 million customers through its Reliance Telecom subsidiary.

But while Reliance moves ahead with its plans to build out the GSM network, it remains to be seen whether the government will actually allocate any more GSM spectrum to the carrier. (See Reliance Squeezed by Spectrum Crunch.)

India’s mobile operators are all in need of spectrum to accommodate rapid subscriber growth. In October alone, they added a combined 6.7 million new subscribers -- bringing the total to 136.22 million. The Indian Department of Telecom is still working to release additional spectrum it promised by the end of the year, and says it will finalize a comprehensive spectrum allocation policy by the end of 2007.

Reliance has applied for GSM spectrum in 21 of the 23 circles under a unified service access license, but it’s at the back of the queue. And in the most sought-after circles, which incorporate cities like Mumbai and New Delhi, there won’t be enough spectrum to go around. Priority will go to the national GSM operators such as BSNL and Bharti and regional carriers like Hutchison Essar and IDEA Cellular Ltd. , which have recently been awarded new licenses to expand. (See Indian Mobile Set to Spread.)

Since it first revealed its dual-network strategy, Reliance has been butting heads with the Indian government, which has said it will need to give up some of its CDMA spectrum in exchange for GSM spectrum. Reliance argues that it needs both to accommodate subscriber growth.

So why would Reliance go to the trouble of inserting itself into the GSM market? Part of the answer is, in fact, spectrum. In the less sought-after regions, there is spectrum still available, and while CDMA operators are allocated spectrum in blocks of 2.5 MHz, GSM carriers are allocated 5 MHz.

The shift in focus is also part of the larger move away from CDMA in the mobile industry. GSM now caters to 70 percent of global mobile subscribers, making handsets and equipment cheaper to source. It also provides a migration path to wideband CDMA for 3G, which is expected to reach India early next year. (See India Prepares for 3G Rollout.)

— Nicole Willing, Reporter, Light Reading