Infotel Broadband Services, which won licenses for broadband wireless services in India on Friday, is to be acquired by Reliance Industries, India's largest private sector company, according to a filing by Reliance Industries to the Bombay Stock Exchange on the same day.
Infotel is to become a subsidiary of Reliance Industries after the investment, according to the filing.
The move by Reliance Industries, which has signed an agreement to acquire 95 percent of Infotel in a deal valued at Indian rupees 48 billion (US$1 billion), reflects the volatility in India's communications industry, as companies scramble to raise funds for expansion and to pay for spectrum.
Reliance Industries is controlled by Mukesh Ambani who appears to have decided to moved into the communications industry again after he and rival brother, Anil Ambani, scrapped last month an agreement not to compete in a number of businesses.
Reliance Communications, controlled by Anil Ambani, said it pulled out of the broadband wireless auction last week, as it found the auction prices had exceeded "business case estimates". Reliance Communications is India's second largest mobile services company, after Bharti Airtel.
Tushar Pania, a spokesman for Reliance Industries, said his company's decision to invest in Infotel was not linked to Reliance Communications' decision to withdraw from the auction. Reliance Communications is a separate company and not part of the group, he added.
A Reliance Communications spokesman declined to comment on the move by Reliance Industries.
Infotel was the only company to have won licenses on Friday for providing broadband wireless services in all 22 service areas in India. The firm is to pay 128 billion rupees (US$2.7 billion) for the spectrum, according to data released by the Department of Telecommunications at the close of the auction on Friday.
Infotel will pay the fee for the spectrum, Pania said.
The auction results are provisional and need to be approved by the government.
Reliance Industries' entry into India's competitive telecommunications market comes even as Reliance Communications is planning to sell equity in the company. The company said it was open to a strategic or private equity investor taking up to 26 percent of its stake.
The move by Reliance Communications, according to informed sources, is aimed to fund expansion and pay back the company's debt, including funds raised by the company to pay the Indian government 86 billion rupees last month in one-time fees for 3G spectrum.