Reliance Updates on Profits, Capex

Reliance Communications Ltd. (RCom) , India's second largest wireless operator, reported a 48.5 percent year-on-year increase in net profit for its fiscal third quarter, as it prepares to pump several billion dollars into expanding its mobile network coverage.

Reliance’s net profit for the quarter ended December 31 reached 13.73 billion Indian Rupees ($348.7 million), up from INR9.24 billion ($234.67 million) in the third quarter of the previous fiscal year. Revenues grew by 29.8 percent to INR48.74 billion crore ($1.19 billion) from INR37.55 billion ($953.65 million).

Analysts had forecast a net profit of INR13.36 billion ($339.3 million), but revenues came in lower than the expected INR49.43 billion ($1.26 billion), according to Reuters Research .

Mobile services accounted for 67 percent of Reliance's revenues. Reliance added 4.6 million mobile subscribers during the quarter, taking its customer base to 40.96 million. Of those, 34.96 million were on its CDMA network and 6 million used GSM-based services.

“We expect to maintain our profitability benchmark as move into rural India,” chairman Anil Ambani said on a conference call Thursday. That's where the vast majority of India’s estimated $1.1 billion population lives, and where larger rival Bharti Airtel Ltd. (Mumbai: BHARTIARTL) is also making an aggressive push. (See Bharti Touts Profits, Spectrum.)

Reliance is set to begin a massive expansion of its mobile network, building a nationwide GSM network alongside its CDMA infrastructure. The carrier, which runs a CDMA network in 21 of India’s 23 telecom markets and a GSM network in eight, was recently given licenses and startup spectrum to expand its GSM-based services in 14 additional regions. (See Reliance Gets GSM Spectrum.) It was also given approval to start CDMA services in the remaining two regions. Aside from that, “most of our CDMA investments are complete,” Ambani said.

Ambani said that the company has a capex budget of $6 billion for the financial year ending March 2009, about $3.3 billion of which will be spent on building out the GSM network. He said the aim is to get the network up and running in about a year, adding, “We don’t have the luxury of time.”

In addition to competing with the likes of Bharti and Bharat Sanchar Nigam Ltd. (BSNL) , the carrier will be up against several new operators that were also awarded national or regional licenses. (See Indian Gov't Grants Mobile Licenses.)

It was reported last week that Reliance has already awarded a $500 million GSM equipment contract to Huawei Technologies Co. Ltd. , and deals with other vendors are expected to follow shortly.

Reliance spent $1.54 billion on its wireless business during the third quarter, and Ambani said its capex budget for the full year to March will reach $5 billion. Its spending also includes investments in its corporate broadband business and the FLAG Telecom Ltd. submarine cable unit, which is building a $1.5 billion Global NGN. (See FLAG Announces NGN.)

During the quarter, FLAG completed the acquisition of U.S.-based Ethernet services provider Yipes Enterprise Services Inc. , which it's in the process of integrating. Ambani said that once the process is complete, Reliance will resume considering a plan to publicly list shares in the business on the London Stock Exchange. (See Reports: Reliance to Plant FLAG.)

— Nicole Willing, Reporter, Light Reading

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