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Agressive restructuring and consolidaion in the past few years, along with a complete brand overhaul in 2007, have given Tata Communications a sharper, more corporate edge. The erstwhile Videsh Sanchar Nigam Limited (VSNL) has vigorously traded its sarkari legacy for a motivated, astute and forward-looking image, which is also reflected in its improved performance. Clearly, six years of being in the Tata stable (the $62.5 billion Tata Group holds majority stake in the company) is showing the difference.

From a single-country, single-business entity in 2002, with nearly 90 per cent of its revenues coming from wholesale international long distance (ILD) operations, Tata Communications along with its global subsidiaries has transformed itself into a global wholesale voice operator and provider of ILD, enterprise data and internet services in India.

Its range of services includes transmission, IP, converged voice, mobility, managed network connectivity, hosted data centre, communications solutions and business transformation services to global and Indian enterprises and service providers, as well as broadband and content services to Indian consumers.

To reach here, the company effectively leveraged the Tata Global Network, which encompasses one of the largest submarine cable networks in the world and a Tier-1 IP network, provides connectivity to more than 200 countries across 300 points of presence (PoPs), and has more than 1 million square feet of data centre space. The company also uses its understanding of emerging markets to deliver value-driven, globally managed solutions to Fortune 1000 and mid-sized enterprises, service providers and consumers.

Today, Tata Communications has offices in 80 cities in 40 countries. It also has a strategic investment in South African operator Neotel, providing the company with a strong anchor to build an African footprint. In June 2008, Tata Communications signed an agreement to increase its stake in Neotel to 56 per cent from 26 per cent. It also announced plans to raise $1 billion, mostly through debt for its expansion plans, indicating its intent to play a larger role in tapping the potential of an emerging market.

Recently, Tata Communications entered into a partnership with Batelco for its MPLS network expansion into the Middle East. The partnership will enable the company to offer MPLS VPN services in Bahrain, Kuwait, Jordan and other countries in the region.

A long march
For Tata Communications, it has been a long journey to firmer ground. A staterun monopoly in long distance telephony for over 16 years, it was not easy to shake off the PSU baggage. There were other problems too. Soon after the former VSNL became a part of the Tata Group in February 2002, the government deregulated the long distance sector, bringing the company face to face with competition.

The ensuing years saw VSNL touch an all-time low. Growth pushed red while running costs remained high. The thriving grey market in international calls along with the company's own structural flaws added to its litany of problems. Though it continued to be the carrier for most operators, Tata Communications was soon losing its most-preferred-carrier status to new rivals like Bharti Airtel, Reliance Communications and Bharat Sanchar Nigam Limited.

To make the VSNL venture pay off, the Tatas reckoned that it needed to reduce the dependence on the ultra-price-sensitive voice segment. It was time to explore new revenue streams. Says N. Srinath, CEO and managing director of Tata Communications, "After VSNL's monopoly ended, we started looking at new sources of growth. We thought of different business ideas. We were relatively strong in the voice business, which was very competitive. So we thought of venturing into new areas like enterprise and data services where we could utilise our existing infrastructure. Since many of our customers wanted services across the globe, we decided to globalise aggressively."

The lucky break for the company came in an opportunity to buy international telecom companies going cheap. It acquired Tyco Global Network (TGN) in 2005 and followed it up with a takeover of Teleglobe International Holding in 2006.

The Teleglobe acquisition straightaway added $1 billion to Tata Communications' annual revenue, while TGN brought with it one of the world's largest submarine cable networks. Tata Communications also inherited a clutch of subsidiary companies and subsidiaries across the world, giving it a presence in over 48 countries.

For the Tatas, acquisitions became the way forward. Riding on the back of overseas acquisitions and strong leadership from the top management, the company pulled itself together bit by bit. As a senior official of the Tata Group puts it, "After intractable difficulties in the early years of the association, VSNL has gone through one of the most remarkable turnarounds in recent times and has enhanced the interests of its shareholders by re-engineering and de-risking its business model."

New position
Tata Communications has a network spanning over 200,000 route km, making it the world's largest owner of submarine cable bandwidth. It has also strategically positioned itself to become a global provider of international wholesale voice services, on the lines of AT&T and Verizon, carrying about 25 billion minutes of annual traffic.

The company has consciously restructured its data operations in order to tap the high-growth services market. With the enterprise and carrier data segments growing at a rate of 30-40 per cent year-on-year and accounting for about 30 per cent of Tata Communications' total revenue, the move has been prudent.

Over the past few years, the focus has been clear: increase investments and operations in India, expand the national long distance (NLD) network, strengthen the metropolitan area network and Wi-Max network for retail and enterprise customers, grow the global operations and step up managed services offerings to meet enterprise customer needs.

Despite these efforts, market analysts are unsure whether the company will be able hold its own in the face of increasing competition. Twenty-odd operators, domestic and international, have lined up long distance licences and are likely to roll out services soon. This could impact Tata Communications' revenues in the long run. As it is, the company's net profits have dipped in the last two quarters of this fiscal year.

It is also disadvantaged by the fact that it has no direct access to end-customers in the voice business and is largely dependent on cellular and basic service providers to route their long distance calls. Moreover, players like AT&T and Cable & Wireless, which used to previously piggyback on Tata Communications' network to carry their traffic, no longer need to do so as they have their own licences.

Tata Communications, however, has a different view on this. "A licence gives them one part of the business, but they would still need infrastructure. Either they invest in infrastructure or, if they want to optimise their cost, they can use ours. The challenge is about what services you can provide to domestic customers. Since we have scale and the reputation of providing good services in the global market, it is easier for us to sell our products and services in the Indian market," says Srinivasa Addepalli, senior vice-president, corporate strategy, Tata Communications.

Going forward
Looking ahead, the company expects that the relative importance of voice in the total revenues will continue to fall. "We get about 55 per cent of our revenues from voice and the rest from data. This mix will shift in favour of data and enterprise businesses. Even within the data business, we will not be a pure commodity player, providing only bandwidth. We will provide value-added connectivity services such as broadband internet, virtual private network and managed services such as security, collaboration and hosting to large enterprises," claims Addepalli.

The company's renewed focus on data services should help improve its operating profit margins. Company officials also feel that a key opportunity lies in the demand for wireless services and the huge potential that exists in the broadband enterprise and rural markets.

In this direction, in early 2007, the company had announced the setting up of a separate subsidiary for its broadband and internet services for retail customers. The process is still under way.

Tata Communications is also aggressively pursuing its Wi-Max plans. To this end, it has tied up with US-based Telsima to offer wireless broadband services in 110 cities across the country. However, the project has been significantly delayed. Over the next two to three years, Tata Communications is looking at investing around Rs 40 billion in two undersea cables and on Wi-Max rollout.

It is also planning to grow in the data centre space. "Data centres require huge investments in terms of real estate and power. We are adding 500,000 square feet of data centre space, in cities like Delhi, Mumbai and Hyderabad. We are moving up the value chain, from renting data storage space to managing the server and its content for clients," says Addepalli.

Tata Communications is also aggressively pursuing its global ambitions. It is looking at managing telecom outsourcing for service players in markets like Europe, the Middle East and Africa. It is hoping to corner 6-7 per cent of the $50 billion telecom cross-border business by 2011.

Recently, it picked up 50 per cent ownership in China Enterprise Communications to provide full VPN coverage across China. It plans to establish a similar presence in countries such as the Philippines, Indonesia, Vietnam and Thailand by the end of 2008-09.

Besides these broad plans, some of Tata Communications' recent initiatives include tying up with US networking company Cisco to set up public telepresence rooms, which are available for rent by the hour at the Taj Hotels in Boston, London and major cities throughout India. It is also joining hands with the Internet Systems Consortium for IPv6 Domain Name System Hosting.

Overall, as the oldest telecom company in the country with the largest ILD and internet network, Tata Communications can improve its prospects considerably, provided it removes the stumbling blocks and polishes up its market strategy.

Company snapshot

Market valuation: Rs 141.7 billion (as on November 5, 2008)
Shareholding pattern: The promoter group holds 76.24 per cent share; institutional investors, non-institutional investors and the general public hold 14.3 per cent, 7.04 per cent and 2.36 per cent respectively.
Domestic offerings: The company provides international long distance, enterprise data and internet services. It has a national fibre backbone network and access to networks in over 60 cities and 125 points of presence in India.
Global offerings: Tata Communications is a global player in the voice business. It is the only non-American and non-European player amongst the top 10 companies in the IP business, and provides connectivity to over 200 countries across the world.