While the other Tata telecom company, Tata Teleservices Limited (TTSL), has been taking rapid strides in the domestic market, Tata Communications has been steadily expanding its global reach to markets such as the Middle East, Africa and Europe.
It has been a long and remarkable journey for Mumbai-based Tata Communications, the erstwhile government-owned Videsh Sanchar Nigam Limited (VSNL), which re-engineered and de-risked its business model to successfully diversify its communications business and achieve impressive growth rates. Today, it is the world’s largest wholesale international voice carrier and submarine cable operator, and has one of the largest internet backbones in the world. It has partnerships with several consortiums of cable operators including SEA-ME-WE 4, C2C, SAFE, EAC, APCN-2, Americas 2, CAnTAT 3, i2i and others; and alliances with telecom firms such as BT, Cable & Wireless, France Telecom, T-System, Telecom Italia, AT&T, Verizon Business, Sprint, SingTel, NTT, Telstra, KDDI and Telecom Malaysia, among others.
Turning point
Tata Communications (then VSNL) has definitely scripted one of the most remarkable turnarounds witnessed in recent times. A state-run monopoly in long distance telephony for over 16 years, the company carried a huge PSU baggage with it. It was bought over by the Tatas in February 2002. But soon thereafter, the government deregulated the long distance sector, which brought the company face to face with competition.
The ensuing years saw Tata Communications’ performance hit an all-time low. Growth plummeted while running costs remained high. The thriving grey market in international calls, in addition to the company’s own structural flaws, added to the company’s litany of problems.
The Tatas soon realised that to make the acquisition pay off, they had to reduce the company’s dependence on the pricesensitive voice segment and explore newer revenue streams. The company started venturing into areas such as enterprise and data services where it could utilise its existing infrastructure. It also decided to leverage its long years of experience in the international long distance sector and aggressively pursue overseas business opportunities.
The real turning point came in 2005, when Tata Communications acquired Tyco Global Network (TGN) and followed it up with a takeover of Teleglobe International Holding in 2006. This immediately added to the company’s revenue pool and also brought to the table one of the world’s largest submarine cable networks.
For the Tatas, acquisitions became the way forward. Tata Communications has since been busy forging international deals to expand its presence in new markets.
The company also has strategic investments in South Africa (Neotel), Sri Lanka (Tata Communications Lanka Limited), Nepal (United Telecom Limited) and a venture with BT through which the Ukbased operator will largely outsource its wholesale voice business to the company.
Work in progress
Having introduced the Tata Communications banner in 2008, the company completely rebuilt its business model and strategies with a strong focus on enhancing its presence in new markets and diversifying its product portfolio. Riding on the back of overseas acquisitions and a formidable top management, the company has been making several organisational changes. It also announced an investment of $2 billion over the period 2008-09 to 2010-11. In the first two years of the threeyear period, the company has already invested nearly $1.2 billion, most of which has been directed at expanding its long distance network, strengthening its metropolitan area network and Wi-Max network for retail and enterprise customers, enhancing its global operations and stepping up its managed services offerings to meet enterprise customer needs.
Owing to the growing demand for bandwidth, Tata Communications has undertaken record capacity upgrades and new builds on TGN. The company has upgraded its supply capacity across the TGN cable systems with upgrades on the TGN-Intra Asia, TGN-Pacific and TGN-India Asia cables. It has also announced the deployment of the TGnGulf cable and the completion date for the TGN-Eurasia cable in 2010, which will complete Tata Communications’ cable ring-around-the-world. TGN currently encompasses one of the largest and most advanced submarine cable networks, a Tier-1 IP network, providing connectivity to more than 200 countries across 400 points of presence and more than 1 million square feet of data centre space. Tata Communications has been serving its customers from its offices in 80 cities across 40 countries.
Continuing its acquisition spree, in January 2010, Tata Communications acquired the BT Group’s Mosaic business, which offers an on-demand digital media management platform that manages content and workflow from production to distribution across collaborative market ecosystems.
However, it has shelved its plans to form a joint venture with China Entercom Communications (CEC) due to lack of clarity on the Chinese government’s consent on the deal. The equity joint venture with CEC to acquire 50 per cent stake was signed in June 2008, and was likely to play a key role in Tata Communications’ strategy, going forward. Despite the setback, Tata Communications has still termed China a “priority market” and will continue to actively evaluate long-term investment opportunities in the region.
Operations
Today, the company’s businesses can be clubbed under three core heads, all at different stages of development. These are the voice carrier business, which is mature and stable; the enterprise and data base business, which has been showing real growth; and the emerging markets business, which is the biggest engine for growth.
The range of services offered by the company to global and Indian enterprises and service providers includes transmission, internet protocol, converged voice, mobility, managed network connectivity, international private leased circuits (IPLCs), national private leased circuits, hosted data centre, virtual private networks, Ethernet, television uplinking, transponder lease services, business messaging and collaboration, audio/video/web conferencing, telepresence, managed security, and communications solutions and business transformation services. The company also provides broadband and content services to its Indian consumers.
In terms of revenue break-up, the wholesale voice business accounts for about 39 per cent (Rs 12.4 billion in 2009-10) of Tata Communications’ revenues while 41 per cent comes from the enterprise and data carrier segments. Region-wise, India accounts for about 30 per cent of its revenues. Though the company believes that the opportunities for rolling out broadband services in India are immense, especially since it operates a Wi-Max network aimed at the country’s enterprise market, the segment still remains relatively insignificant when compared to the global opportunities it has set its sights on.
While financially the company has been on a strong wicket, analysts caution that Tata Communications needs to keep a close eye on its growing debt levels. As of March 2009, the company had a Rs 60 billion debt on its books. The upcoming WiMax spectrum auctions will further ensure that Tata Communications’ balance sheet remains stretched in 2010-11.
Future plans
While India continues to be the bedrock of Tata Communications’ operations, the company’s expanding global footprint and its investments in emerging markets in particular, are serious indicators of the company’s efforts to diversify the geography of its operations.
It is now looking to establish itself in at least one new key growth market, in addition to India and South Africa, over the next two-three years. The Middle East is fast emerging as a key target market for the company, and it has chalked out plans to invest $200 million in the region in the next two years, including investments in telecom infrastructure development and management services. With deregulation taking place in the Middle East, the company has started working with a number of operators in the region and is in a position to assist them in establishing multi-protocol label switching (MPLS) or hosting services. Its TGN-Gulf cable system is a prime example of the kind of impact the Indian company now has in the region. The project incorporates the Bahrain Internet Exchange in Bahrain; Nawras in Oman; Qtel in Qatar; Mobily in Saudi Arabia and Etisalat in the UAE, with each carrier being an exclusive landing party for the cable system. The basis of the strategic relationship is to support the development of an extended portfolio of advanced telecom services such as global Ethernet, MPLS-based VPN, managed security and global telepresence.
Further, the company has been considering acquisitions to boost the share of business from its media and entertainment services unit. “We believe that our global media and entertainment services portfolio could be worth between $200 million and $300 million over the next two to three years from the $30 million-$40 million now,” says a senior company official.
With businesses worldwide increasingly focusing on their core activities while partnering with specialists for delivering other services, managed services is another growth opportunity area identified by the company. It is leading the way with its managed telepresence services and its international Ethernet service portfolio, which build on its existing MPLS and IPLC capabilities. It currently manages 13 telepresence public rooms and is targeting another 25 by end-2010.
Besides, it will jointly build a fibre optic cable with China Telecom to provide a new high speed connectivity path between the two countries. The construction of the 500 km India-China terrestrial cable is a 12-month project, which, coupled with Tata Communications’ other subsea cable investments, will also provide a new high speed connectivity path between Europe and Asia.
Clearly, Tata Communications is on an upward growth trajectory. It has come a long way from being just a long distance voice provider to become an integrated player providing voice, data and other communications services.
Dolly Khattar
