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 years.
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
"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
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 future.
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
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
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
"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
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
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 the Philippines.
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 prime prospects".
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
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 Mosaic.
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 world."
The deal will give Tata a presence in the BT Tower in
central London, the hub of BT’s broadcast
"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
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 South Africa.
"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