Timing is everything

A year after India’s pre-eminent voice wholesaler and broadband telecoms provider Tata Communications rebranded from VSNL, the company’s president of global data and mobility solutions and chief operating officer, Vinod Kumar believes the company is on track with its integrated service provider model. On his first visit to Dubai since the rebranding in February 2008, Kumar speaks exclusively to Comm. about why timing is everything and how Tata Communications’ three-prong strategy is based on shifting its focus to emerging markets; developing a strong managed services practice; and leveraging its expansive IP network

Vinod Kumar believes enterprises want turnkey solutions; hence Tata Communications is focussing much of its efforts on offering managed and hosted services

In the fiscal year 2008 to end-March 2008, Tata  Communications reported consolidated revenues of approximately US$2.05 billion. Profit before taxes and exceptional items amounted to approximately US$32 million, down 57 per cent from the previous year. Tata Communications is a mammoth organisation, in which volume definitely counts, as margins for the majority of its business remain comparatively low as compared to other activities in the telecoms space.

Tata Communications’ products and services span wireless, fixed-line, broadband, enterprise and wholesale activities, with the company able to boast the number one position in wholesale voice provision in the world, with the largest hybrid VoIP/TDM. The company is also a leading provider of international telecoms and Internet services, offering the widest enterprise, wholesale and retail broadband footprint in India.

Tata Communications has 60,000 kilometres of global subsea connectivity spanning three continents, and the vision of Vinod Kumar, president of data and mobility solutions and chief operating officer, is to integrate these various business activities into a unique new world of communications, in the offer of a one-stop-shop solution.

“Our philosophy in terms of how we do business is a combination of flexibility and responsiveness,” Kumar tells Comm. “We were already established in the wholesale space and our strategic vision, which was formulated and communicated at the time of the rebranding last February, is to take strategic advantage of being from India and understanding emerging markets. Thus we decided to focus on communications provided to enterprises, focussed in the emerging markets of South East Asia, Middle East and Africa.”

Tata Communications’ ambition is to become an emerging markets communications specialist, specialising in managed services for enterprises and the offer of converged IP solutions. “We are always going to be in the wholesale business and that is a good business for us,” declares Kumar. “But we are also looking to offer the full stack of services and applications to enterprises worldwide, while leveraging the power of our convered IP network,” he adds.

Kumar is not overly concerned with the company’s reported financial results for the last fiscal year, believing the current economic climate is a suitable environment for Tata Communications to be investing in its undersea cable development and expansion of its enterprise solutions portfolio. Indeed, for the quarter ended December 31, Tata Communications reported a rise in revenues of 17 per cent year-on-year, with after tax profit amounting to US$16 million for the quarter, up 203 per cent year-on-year.

“Top line and EBITDA growth will continue to be seen,” Kumar says. “We have a unique proposition, which will continue to grow in value over time.” Currently, around 40 per cent of Tata Communications’ revenues are driven by the enterprise business, and around 17 per cent from new services. “The business mix is changing quite rapidly, and we have identified very clear goals for each period of time,” Kumar says.

A measure of success of the strategy that has been embarked upon would be to see the enterprise part of the business accounting for 60 per cent of Tata Communications’ operations, with the remainder being accounted for by the wholesale business. And Kumar would like to see the mix of pure non-network operations to traditional telecoms services reach a split of 35 per cent to 65 per cent respectively in due course. “The aim would also be to see 50 per cent of our top-line generated in India and 50 per cent from outside of our home base,” he adds.

In terms of building a presence outside of India, Tata Communications has made a number of strategic investments in South Africa, Sri Lanka, Nepal and China. In South Africa, Tata Communications recently increased its stake in the country’s second national operator Neotel to 56 per cent, having acquired a 30 per cent stake from national utilities Eskom and Transnet.

Neotel is a converged communications network operator, providing a range of value-added voice and data services for businesses and wholesale network operators. The telco has an agreement in place with South African mobile operator MTN to jointly build a 5,000 km fibre-optic network connecting major cities across the country.

In China, Tata Communications is looking to close a deal for a 50 per cent stake in China Enterprise Communications (CEC), a company which provides full country VPN coverage across China.

“These are great investments, and fit well with our strategy to focus on emerging markets,” Kumar comments. “The Chinese operation is a joint venture with Citic and SASAC for the provision of a MPLS backbone. So with this deal, Tata Communications is in the unique position of being the only company with true nationwide MPLS in the world’s two most populous markets.”

Tata Communications is thus on a mission to create additional home markets outside of its traditional home of India, and shall be looking to continue this strategy by adding a new market every few years, according to Kumar.

Tata Communications is seeking to leverage its success in the Indian market to other emerging economies

In 2005, Tata Communications’ management set the goal to double the size of the entire business in the next five years, and in so doing has been making significant infrastructure investments amounting to somewhere in the region of US$500 600 million a year. Much of this is in the development of undersea cables, such as Tata Communications’ SEACom Cable System, which comprises 13,000 km of cable with landing stations in South Africa (Mtunzi), Mozambique (Maputo), Madagascar (Toliary), Tanzania (Dar es Salaam), Kenya (Mombasa), India (Mumbai), and the Middle East. The cable’s ultimate capacity will be 1,280 Gbps, and is expected to be activated in H209.

“Timing is a significant element when it comes to investing in, and laying cable,” says Kumar. “There are two trends that will not be reversed. One is of inward investments into emerging markets and the other will be in the investment in broadband infrastructure. Markets will go through choppy times, but taking a long-term view of such investments highlights the upside,” he adds.

Tata Communications has also been a pioneering force in the WiMAX space in India and in June 2007 commercially launched a WiMAX service, which it planned to roll out to 120 cities across the country for enterprise users and five cities for retail use. Tata already enjoyed a commanding position in the Wi-Fi space prior to launching WiMAX, which Kumar says the company bet on more than three years ago. The operator has since rolled out nearly 1,500 WiMAX base stations, and having learnt a lot about the technology given its early adoption of the technology, is looking at leveraging this knowledge and experience.

“I think WiMAX is a great access technology, especially as last-mile infrastructure is not built up enough in many emerging markets,” Kumar says. “So we are translating our experience in WiMAX into other areas. We’re not looking to participate in the area by merely offering minutes and megabytes, we’re looking to offer transformational services in order to help carriers adapt,” he adds.

With all these activities on his plate, Kumar is happy to acknowledge that Tata Communications’ strategy requires for the company to be stretched thin with respect to nailing down the activities in which it is involved. Employing around 5,500 people, Kumar believes the passion of the team helps to drive the business forward despite the challenges thrown up by undertaking a multi-prong approach.

Tata Communications invests heavily in Asia-Pacific

In February, Tata Communications announced a US$430 million investment in new Asian facilities, representing the company’s ongoing strategy to bring managed services to emerging nations, based on its own global IP network. The investment includes a new Internet data centre called the Tata Communications Exchange and a US$250 million investment in the completion of the main segment of Tata Communications’ TGNIntra Asia Cable System, a multi-terabit system that will span about 4,000 miles and connect Singapore, Hong Kong, Japan, Vietnam and the Philippines.

In the enterprise space, Tata Communications’ approach is based on the delivery of submarine cables and new infrastructure like data centres; global communications, and managed services including telepresence, security, hosting applications like CRM, and hosted contact centres.

Tata Communications also continues its plan to build 100 public telepresence sites globally and believes this public access service will help fuel the private telepresence business that is already growing as companies seek to cut the cost of corporate travel and reduce carbon emissions.

The company’s telepresence in public rooms is being developed in both developed and emerging markets, in conjunction with the Taj hotels, Cisco and other partners.

Tata Communications and Etisalat pen deal for the UAE

At the beginning of this month, Tata Communications and Etisalat jointly announced the launch of enterprise network services, enabling both companies to offer a range of dedicated Ethernet services to customers seeking connectivity in the UAE and globally. The partnership enables Etisalat to extend its reach by offering Layer-2 Global Ethernet services into and out of the UAE, while Tata Communications can now extend its global network coverage into the UAE.

Etisalat is able to leverage Tata Communications’ Ethernet portfolio to offer advanced network services to its customers that are expanding globally into new and emerging markets, looking for a service provider that offers the best connectivity options.

Tata Communications’ range of Ethernet services spans five continents and features Layer-2 Ethernet over SONET/SDH, Ethernet over MPLS and a range of configurations to keep pace with growth in customer requirements.

Tata Communications will now be able to extend connectivity into the UAE for its Ethernet and global MPLS customers. Tata Communications, with one of the largest submarine cable networks in the world and a sophisticated array of managed services, would further enhance the UAE nodes into a hub for its enterprise network solutions in the Gulf region.

Both partners intend to build and offer a host of value-added services including telepresence, managed security services, CDN (content delivery networks), hosting and managed contact centres into the region. Tata Communications has a new office in Dubai, in addition to its existing office in Abu Dhabi.

The Tata Group strategic investment path

2008
VSNL, Teleglobe and VSNL International unite as Tata Communications

2006
VSNL acquires Teleglobe, building upon its extensive global reach, established operational strengths and deep carrier relationships. Teleglobe is the number one wholesale voice provider. It also counts 1,400+ wholesale customers and carries 17+ billion minutes

2005
VSNL International acquires Tyco Global Network, one of the world’s most advanced and extensive submarine cable systems. Tyco Global Network has invested in 60,000 kilometres of global sub-sea connectivity spanning three continents

2004
VSNL International, the international arm of VSNL is launched.

1986
Videsh Sanchar Nigam Limited (VSNL), India’s leading incumbent telecommunications provider, is born

1950
Teleglobe is founded as the Canadian Overseas Telecommunications Corporation (COTC)

1868
Jamsetji Nusserwanji Tata founds the Tata Group, one of India’s largest business conglomerates