Tata Communications has transformed its business strategy in the past few years to remain competitive and relevant in both the domestic and global telecom markets. In order to reduce the risks emerging from an overtly concentrated portfolio, the company has diversified into various business verticals such as voice solutions, data and managed services including corporate data transmission services, virtual private network, signalling and roaming services as well as payments solutions. The company is also looking to position itself as a front runner in the internet of things (IoT) domain, offering solutions across a variety of segments such as power, health care, traffic congestion environment protection and pollution control.

A look at the company’s operations in the IoT and cloud segments, its recent fi­nan­cial performance, the key challenges faced and the future outlook…

IoT as a key focus area

Tata Communications has emerged as a leading player in the IoT market through the creation of the world’s largest IoT low power wide area network (LPWAN) based on LoRa technology. LoRa is a wireless communication technology dedicated to IoT and machine-to-machine communication networks. It is a super low-power and secure communications solution that helps in overcoming the high power cons­umption challenges of existing wireless solutions. Besides, the LPWAN wireless network has unprecedented reach, enab­­ling communications in deep water and up to 50 metres underground. This makes it suitable for use inside buildings. More­over, compared to 4G, Wi-Fi, or Blue­tooth solutions, the LPWAN network is more cost effective for deployment by organisations. Tata Communications has so far rolled out its LoRa network in 38 cities, with implementation plans for more cities over the next two years.

Tata Communications has recently partnered with Mahanagar Gas Limited (MGL) to install 5,000 smart gas meters based on LoRa technology in Mumbai. Under the partnership, the company will deploy its solutions in MGL’s smart gas meters, allowing business and household users to monitor their gas usage. The move will also enable MGL to improve its operational efficiency, monitor and identify problems in gas meters, and check individual readings.

Moreover, the company, in partnership with electronics and IoT firm Motwane, has recently completed the deployment of 300 smart street lights for Jamshedpur Utilities and Services, making it the biggest smart street lighting deployment of its kind in India. The system has smart features such as switching on/off lights or dimming them remotely from a central command centre. The lights can be adjusted in clusters depending on the need in each location, which helps reduce manpower costs and energy consumption. Going forward, Tata Communications is planning to roll out 15,000 smart street lights in Jamshedpur.

Tata Communications is also capitalising on synergies within the Tata Group to drive its IoT offerings. It has launched an IoT-based smart consumer substation in Mumbai in collaboration with Tata Power. As per the company, the solution would provide timely alerts on a visual dashboard on hand-held mobile devices to enable the field staff to proactively address any emergency situation. Moreover, Tata Commu­ni­­ca­­tions and Tata Power have launched IoT-based advanced metering infrastructure (AMI) and meter data management (MDM) solutions. The IoT AMI solution will measure parameters such as load profile, tamper and billing information in a periodic manner. The data will be then fed into Tata Power’s MDM system, which will result in a faster turnaround time for data provisioning, lower operational costs, and improved coordination between distribution points and end customers.

Cloud offerings

Apart from IoT, Tata Communications is a leading player in the cloud segment. The company has launched a simple and scalable storage service portfolio, IZO Cloud Storage, which offers businesses unlimited storage capacity in Tata Com­munications’ owned and associated data centres in India, Singapore, Hong Kong and the UK, and also enables end-to-end data management of the company’s global network. The platform aims to support enterprises in hybrid cloud adoption by combining network connectivity, cloud storage and data security.

Tata Communications’ cloud business is spread across 13 global locations. It is currently the cloud provider for the In­dian government’s e-marketplace and is also working on several smart city projects in the country.

To further bolster its cloud offerings, Tata Communications has entered into partnerships with software providers globally. It has recently collaborated with Oracle to offer enterprises private access to Oracle Cloud. The partnership will enable enterprises from more than 150 coun­tries to access Oracle cloud infrastructure using Fast­Connect and Tata Com­munications’ IZO private connect technology. IZO private connect is part of Tata Communica­tions’ IZO cloud enablement platform. The connectivity portal will offer 10 Gbps connectivity to enterprises. The company has also partnered with US-based software firm Cloudera. The partnership will leverage Tata Com­munications’ global cloud footprint and Cloudera’s machine learning and analytics capabilities to enable enterprises to quickly capture, store and analyse data in various formats and across multiple sources.

Financial snapshot

For the quarter ended December 2017, Tata Communications reported a consolidated net profit of Rs 101 million as against a net profit of Rs 12 million in the quarter ended December 2016. The company’s net revenues increased from Rs 20,668 million to Rs 21,217 million during the same period. Higher revenues resulted in an increase in earnings before interest, taxes, depreciation and amortisation (EBIDTA) from Rs 5,478 million to Rs 6,128 million, with the EBIDTA margin increasing from 12.6 per cent to 14.9 per cent. The company’s net debt stood at Rs 80,046 million as of end December 2017.

Meanwhile, the government is planning to offload its 26 per cent stake in Tata Com­­munications. The move is set to give the company more flexibility in its operations. The deal will enable Tata Communi­cations to raise equity and improve its debt-equity ratio, which it has not been able to do due to the government holding. In another positive development, Tata Com­mu­ni­­cations is close to settling a 15-year-old real estate dispute with the De­part­ment of Telecommu­ni­cations through a deal that will see around 773 acres of land worth Rs 100 billion-Rs 150 billion being hived off into Hemisphere Properties India Limited (HPIL). The union cabinet has cleared the implementation of the scheme of arrangement, which would be required for the next step of the demerger of surplus land from Tata Com­mu­nications to HPIL.

Tata Communications is also reportedly in talks to buy the enterprise arm of Tata Teleservices Limited (TTSL) and its listed entity Tata Teleservices (Maharashtra) Li­mi­­ted. The company is currently conducting due diligence for acquiring TTSL’s en­ter­prise business. It has appointed Axis Capital as its investment banker to assess the valuation of TTSL’s enterprise business and evaluate its strategic fit with its operations. Through its enterprise business, TTSL offers a suite of voice, data and internet solutions. It has about 0.12 million km of optic fibre cable network across the country. The acquisition of TTSL’s enterprise business will help Tata Com­muni­­­cations consolidate its market position in the enterprise segment, strengthen its core network resilience and reach, and cross-sell services. TTSL had earlier announced its plans to sell its wireless mobile business to Bharti Airtel, under which the business, along with TTSL’s 40 million customers, will be transferred on a cash-free, debt-free basis to the latter.

Key challenges and the way forward

With enterprises emerging as key customers for service providers, Tata Com­muni­­cations’ business strategy of focusing on new business verticals such as IoT and cloud is likely to augur well for the company in the long run. At the same time, since IoT and cloud have become the company’s core focus areas, it needs to overcome the challenges associated with their large-scale deployment such as patchy internet connectivity, poor network coverage, and security and privacy issues.

Tata Communications intends to continue increasing its focus on new verticals over the next few years. The company is planning to invest around Rs 6.5 billion in the next few years in developing its IoT business. It has also earmarked a capex of $20 million-$25 million for its cloud business in 2018.

While the company is finding it tough to maintain its position in the voice segment, it is well positioned to capitalise on the opportunities arising out of the growing convergence between telecom and in­formation communication technology ow­ing to its well-diversified portfolio.