This month sees another big shake-up for the small cell industry, with Reliance Industries, the largest private company in India and owner of Reliance Jio acquiring Radisys, a software business supplying telecom software stacks to a wide variety of equipment vendors worldwide. We examine both companies and consider the likely outcome for the future.
Reliance Industries is the largest private company in India, with annual revenues of $66 Billion and profit of over $5 Billion. It wholly owns and operates Reliance Jio, the newest national Indian 4G-only network, which launched in Sep 2016 with capital investment now exceeding $30 billion and employing 157,000 staff.
Initially free to use, it started charging from April 2017 and has established a subscriber base of 186 million as of April 2018, growing by 25 million new subscribers in the last quarter. Annual revenues are running at $4 billion.
The network already carries 2.4 billion hours of video and 372 billion minutes of voice traffic, contributing to a total of 5.06 Exabytes (1018 bytes) every month.
That works out at 9.7Gbytes and 917 voice minutes per user per month. For a country with less developed wireline infrastructure, these figures reflect a much higher dependency on cellular communications. Achieving this at such a low ARPU of $2/month is truly remarkable. Making a profit is astonishing.
Analyst firm Sanford C. Bernstein believes these results are indeed “too good to be true” citing the extremely low depreciation charges, calculated at a quarter of their rivals.
Jio has built a greenfield network of high capacity at very low cost through several strategies:
- using 4G only rather than running a mix of technologies
- truly paperless operations, such as issuing every field engineer with a tablet to record every task, fault report and test result
- selecting Samsung and Airspan for macro and small cell basestations
- maximising the opportunity for tower sharing
Airspan’s small cell technology is based on the Qualcomm chipset and Radisys software stack, and they are an important element in Jio’s low cost strategy.
Radisys was founded in 1987 by former Intel employees with funding from Tektronix. The software business served various sections from healthcare to telecoms. It went public in 1995 growing with acquisitions to revenues of $320 million by 2005, thereafter suffered a series of losses. In 2011, it acquired Continuous Computing with several of the senior management of CC taking leading roles in the merged business including the CEO and CTO positions.
Headquartered in Hillsboro, Portland USA, the company operates a large R&D centre in Bangalore India and employs 600 staff.
A significant part of Continuous Computing business related to telecom software sold to ODMs and OEMs, from the smallest small cell startup to the major RAN vendors.
Financially, they have struggled to regain profitability in recent years. Their market capitalisation had shrunk to $27 million by March 2018, with debt exceeding equity. Analysts did not forecast the situation improving.
This sale to Reliance for $74 million looks like a good deal for the stockholders.
Reliance reducing its risk
One of the reasons that small cell startups find it difficult to sell directly to the largest telecom networks is because of the risk they will go out of business. Telcos are notoriously risk averse, take a very long term view of major infrastructure investment, yet drive very hard commercial deals. Newcomers need deep pockets and a lot of patience to succeed.
When selecting Airspan as a major equipment vendor for their network, they had already offset that risk by taking a stake in the business. Reliance Jio President Mathew Ooman has been on the board of Airspan since 2014. He had previously served as CTO of Sprint (another major Airspan customer), so knows the company well.
The acquisition of Radisys ensures continuity of software support for Airspan’s products in the future. The large contingent of software engineers at their Bangalore R&D centre will be a useful boost to their resources. Reliance director Akash Ambani (son of Reliance Chairman Mukesh Ambani) highlights further investment in 5G and IoT, which Radisys has been focussing on in recent months. The company has also just announced a major AI initiative which he is expected to lead. This will enable long term differentiation from other Indian networks.
Being owned by a telecom operator could have significant impact for their customers. Will investment continue in their small cell software stack? Will they continue to support their customers and allow independent small cell vendors to continue to thrive? Or will they focus purely on the needs of Reliance Jio?
Clearly, the financial clout of Reliance means that the business can continue to operate without risk of bankruptcy. Nonetheless, their new owners will not want to lose money, and would inevitably deprioritise areas where they cannot foresee future success. I don’t see why they wouldn’t continue to support non-telecom markets which remain profitable (e.g. Radisys supply technology for MRI scanners). Support for new features and further development of small cell software will benefit not just Airspan and Reliance Jio, but other customers while offsetting development costs.
Radisys are keen to emphasise they will continue to operate as a standalone business unit. Brian Bronson, CEO of Radisys said, “The backing and support of India-based global conglomerate Reliance, will accelerate our strategy and the scale required by our customers to further deploy our full suite of products and services. The Radisys team will continue to work independently on driving its future growth, innovation and expansion. The addition of Reliance’s visionary leadership and strong market position will enhance Radisys’ ability to develop and integrate large-scale, disruptive, open-centric end-to-end solutions.”
I’m hopeful that Radisys will continue to serve the needs of a wide range of small cell OEMs and ODMs under its new ownership. Time will tell whether we see continued investment in the latest 4G and 5G standard releases, alongside ongoing software support for existing customers.