Tata plans investment in WiMax and cloud with cash
generated by wholesale voice
Srinath Narasimhan: our origins are in an emerging
and emerging markets present a good
Few people ever have the opportunity to take control of a
company and reinvent it - but that's just what Srinath
Narasimhan has done with Tata Communications in the past eight
Now, the managing director and CEO is ready to push the
company into a bold new investment in WiMax-based broadband
services in India, so long as he can win the appropriate
licences from the government. Tata already has a broadly
similar operation in South Africa, Neotel, and Srinath is
looking for other opportunities.
At the same time the company is investing in cloud services
and expects to try them out in "a couple of locations …
within the year", followed by a global launch.
Back in 2002 the company was not Tata Communications, though
it had already been controlled by the massive Tata industrial
group for two years, since the Indian government privatised its
international telecoms monopoly VSNL.
"Six weeks after Tata bought it, the market opened up,"
recalls Srinath now. "The challenge was to reinvent our
And that's what he and his colleagues in the old VSNL have
done: though the new name was not adopted until 2008, by which
time the company had already changed hugely from the old
monopoly provider. Though the group has a controlling stake in
Tata Communications, shares in the telecoms operator are also
sold on the Mumbai and New York stock exchanges. The company is
capitalised at $1.79 billion.
"In the monopoly days, long distance pricing in India was
high, in order to subsidise local phone services," says
Srinath. VSNL's new competitors didn't have to subsidise the
fixed local operators, so could undercut it. "We had to move
from one model to a completely different one. In the first year
there was a 60% price drop."
Today, Tata Communications has three significant operations
- only one of which is in India. The other two are global.
"We have an international wholesale voice business," says
Srinath. "We are one of the market leaders, with 32 billion
minutes of traffic a year, 14% of the market."
Then there is a global business carrying data for
enterprises and other carriers, along with a range of
co-location and hosting services. "We have a large market in
India and we are trying to leverage that to achieve a strong
position globally - but we're not quite there yet."
And then there are the WiMax plans in India - "They depend
on the availability of spectrum," says Srinath - plus existing
local-network investments in Nepal, Sri Lanka and particularly
South Africa, as well as others that may happen in the
Alternative home markets
He views these markets outside India as alternative home
markets for Tata Communications. "India was still small
compared with the US and the UK markets, so we needed second
and third home markets," he says. Neotel - the second South
Africa national operator, competitor to Telkom - is 56% owned
by the Tata group, with 49% of the whole stake in the hands of
the unit Srinath leads.
His global strategy has been to build up wholesale voice
services, as a huge generator of cash, and data "which is
profitable but does not generate cash", and then invest in
high-growth areas and in start-ups - such as Neotel, content
distribution, telepresence and areas yet to be disclosed.
Funds come from the 142-year-old Tata group, the largest
privately held company in India, with annual revenues estimated
at $72 billion. Businesses include carmaker Jaguar Land Rover,
steelmaker Corus, Brunner Mond chemicals and Tetley Tea. In
March 2009 the company launched the Tata Nano, a car 3.1 metres
long that sells at 100,000 rupees - $2,200 - in its cheapest
form and does 26 kilometres for each litre of fuel.
So the group is used to challenges. Srinath himself - a
mechanical engineer by training - had been helping to steer the
group towards IT and telecommunications since the early 1990s.
In 2000 he was CEO of Tata Internet Services and two years
later became director of operations at VSNL.
"The first challenge was the future was going to be like in
five years' time. Then we had to create a platform and create
and organisation, putting the building blocks in place."
"We had the preserve our existing business, retaining our
customers while rebuilding the business."
Some companies in this position have looked to the revenue
that can be made from mobile - but that option was not
available to Srinath and his colleagues, as Tata already had a
mobile business in the group.
"So we decided to invest in enterprise services and the
international market," says Srinath. A series of acquisitions
brought in the Tyco Global Network for $130 million in November
2004. "Tyco brought us submarine cable capacity across many
parts of the world," says Srinath. "That changed us from being
India-centric to global.
A year later the company added the North American provider
Teleglobe for $239 million. "Teleglobe was very strong in
wholesale services and in IP data and voice."
In addition the company invested "almost $2 billion in
organic growth", including further submarine cable systems,
data centres, and services including MPLS and ethernet. "We
built capacity around managed services on the enterprise
Since then, Tata's business in wholesale voice has done
well. "We have an integrated offering for the wholesale market
and we've extended those by turnkey solutions," says Srinath.
In 2009 the company announced a deal to share resources with BT
Global Services. Tata would become BT's main supplier of voice
termination outside BT's own footprint, and BT would be Tata's
main distribution channel in the UK.
Since then, Tata Communications has done two similar deals,
but Srinath would not name the companies, and he expects
Where does this leave the company, after a decade under
Tata's control? "We are the market leader in India for voice
and enterprise services, but we need to continue to invest in
access. However, the last mile in India has not been
Rival operators are all laying fibre. "We have a robust
intercity infrastructure and we have fibre in the top 30
cities." Tata has supplemented access with fixed WiMax. "We
have some spectrum in 150 cities. We use it for enterprise,
SMEs and retail." But there is "not enough spectrum" for the
business and Tata plans to bid in India's auction, expected to
start in April 2010.
That will help develop Tata's business in its primary home
market - but, as Srinath has already said, he wants the company
to have a number of home markets. "We are an emerging market
company. Our origins are in an emerging market, and emerging
markets present a good opportunity."
Neotel in South Africa is one such case, where the company
is "now part of the larger Tata Communications story". The
model is similar to the Indian business: enterprise and SMEs,
no mobile, and fixed wireless for access.
"We continue to look at other countries where we can have
home markets," says Srinath, but Tata looks first at what
infrastructure it has reaching those places. "The investment
should generate synergies with our existing business."
Tata expects Neotel to be profitable in its own right, but
there will be synergies when Tata's customers want connections
and services into South Africa.
Which other countries is he looking at? Asia and Africa, is
all he will say. "We have a shortlist and we're still
evaluating it. The key to opening up a market is the ability to
connect it with bandwidth. We'll start with an investment in
wholesale, and then move into other services."
So it may or may not be significant that Tata now has a
point of presence in Kenya, one of the landing points of the
new broadband Seacom cable - in which Tata and Neotel are
partners. Other countries that Srinath mentions are Vietnam and
Tata is now one of the largest operators of submarine
capacity, with its own cables and interests in a number of
consortium cables. "Cashflow from the wholesale market funds
our infrastructure. The infrastructure gives me capacity to
develop managed services for the market."
Cloud services plans
Managed services - and particularly cloud services - are
Tata's next area of investment, he says. "For cloud services
people need good quality of service and low latency, and we now
have more than 40 data centres. We have the basic building
blocks. We are validating services in a couple of locations"
for launch "within the year", he adds. Ultimately the service
will be global, targeted at "multinational companies with
interests in multiple regions and a specific interest in
emerging markets", says Srinath. These will be targeted "as
At the same time Tata is close to completing the
transformation of its wholesale voice network to all-IP. "We'll
complete transformation in 2010, but the challenge in voice is
that we have to look at ways to improve the margin." It's under
10% now, he says.
As a result of low margins, operators are consolidating. The
2009 deal between Tata and BT is a sign of that. KPN's purchase
of the shares in iBasis it did not already own - completed in
late December 2009 - is another. "This is a very low margin,
high volume business," says Srinath. Success needs a lot of
management effort: " A couple of bad deals and you lose your
margin." But management "is something we do very well", he
adds. Tata Communications has no retail customers, but has
"relations with 1,600 carriers round the world", and focuses on
them, he notes.
But low margins are low margins, and that's why Srinath and
his colleagues are aiming to develop value-added services for
Tata's wholesale customers in a number of sectors: banking and
financial services, "initially in India, but we might expand",
and media and entertainment "which is a global play".
Tata is investing in content distribution networks, in India
but also in Europe. In January 2010 the company bought BT
Mosaic platform, which is designed to manage content and
workflow from production to distribution. Following the deal -
worth $500,000 according to the Tata group website - BT will
support its media customers with a sales channel agreement for
Vinod Kumar, the president and COO of Tata Communications,
said at the time of the deal that the acquisition would
strengthen its "global media and entertainment portfolio with
powerful cloud-based digital media management applications that
can be accessed over the web". Mosaic's digital media
management capabilities will be integrated with Tata's global
network infrastructure and manage services portfolio, he added.
"We are now able to create a unique platform that can take care
of content workflow from production to distribution across the
The deal will give Tata a presence in the BT Tower in
central London, the hub of BT's broadcast distribution
"It's a platform that enables people with digital content to
distribute it in various forms," says Srinath. "Say you create
a movie today. You can take clips and distribute them on
broadband. This is a relatively new product."
On the enterprise side, Tata is investing heavily in the new
service called telepresence - essentially high-definition video
conferencing with hifi audio. Cisco dominates the equipment
market, and most telepresence networks so far are for internal
use of multinational companies, but Tata has installed bookable
meeting rooms around the world - including, with Neotel, in
"We use telepresence extensively in Tata," said Srinath. The
company's voice team is based in Canada; data is in Singapore;
network engineering is in the US; and customer service is
India. "We find the best people where we can, but we have to
create the management processes. The management team is
Tata Communications as a whole employs 6,400 people, he
adds, of whom 5,000 have joined since the transformation
started in 2002. "We have more than 40 nationalities, and the
average age is 35." Tata's transformation has been spectacular,
but it has probably only just
Managing director and CEO of Tata Communications - formerly
VSNL - part of the Tata Group
Degree in mechanical engineering from the Indian Institute
of Technology, Chennai
MBA from the Indian Institute of Management, Kolkata,
specialising in marketing and systems
Until 1992 was executive assistant to the
chairman of Tata Industries
Worked with a strategic team to set up Tata Information
Systems, which later became Tata IBM, with assignments in sales
In 1998 returned to Tata Industries as
general manager for projects at Tata Teleservices
Moved to Hyderabad in 1999 as chief
operating officer responsible for all the operations of Tata
2000-02, CEO of Tata Internet Services
2002, became director of operations of
VSNL, and then executive director