Going Global

At a time when a number of foreign telcos (Telecom Malaysia, Hutchison,
Vodafone, and Maxis, for example) continue to show their increased interest in
the Indian market, the Indian telcos are trying to make their presence felt
outside India. Even though the Indian companies have still a long way to go
before they can even think of making it big outside India (exception in the case
of undersea cable network business where they are beginning to make their
presence felt).What drives these companies to foreign lands when there is a
billion people opportunity in India? Indian companies going abroad for new
business opportunities is not a new phenomenon. From traditional brick and
mortar companies like the Tata Group, Mahindra & Mahindra to IT services
companies like Infosys, TCS, and Wipro, all are taking on the established giants
in their home markets abroad. In telecom, this phenomenon, till some years back,
was restricted to VSNL's presence in the international long distance telephony
market, primarily catering to calls made to and from India. Its business model
entirely depended on the Indian diaspora, and VSNL never looked beyond that from
the time it started international long distance services.

India's Global Journey

The slow progress of Indian companies going global, can be attributed to
India being a laggard in terms of the opening up of the telecom market. This
resulted in delay of privatization. It was 1995 when the cellular sector was
opened up. Most of the private players were busy rolling out networks within
India. Going beyond India was the last thing on their mind.

Bharti was one of the first players to have seriously thought of doing
something on the global scale when it entered into a JV with SingTel for the
submarine cable company i2iCN, in 2000. This was also reflected in what Sunil
Mittal, CMD, Bharti  Group had then
said: “With this initiative, we intend to put India on the world map. At par
with those who provide large-bandwidth pipes and offer a world-class business
communication network at a competitive price.”

Reliance Communication-the new name for Reliance Infocomm-which started
its telecom services with a bang amidst the controversy surrounding WLL in 2002.
In 2003, Reliance made its intention to go global by acquiring Flag Telecom.
Ironically, the announcement of Flag's acquisition was made by Anil Ambani,
the then vice chairman of RIL, the person who had made his dislike for
Reliance's foray into the telecom business known. (He was conspicuous by his
absence at the mega launch of Reliance Infocomm on December 28, 2002). It also
operates its Reliance Indiacall services in the US, the UK, and Canada. Reliance
failed to get the Egyptian mobile license, but hopes to get the mobile license
for Sri Lanka.

Despite being the first player to have some international exposure, and its
long-term relationship with international carriers, VSNL was a bit late in going
global. A PSU acquiring a company outside was quite out of question. It was only
after the Tatas acquired a 25% stake in VSNL in 2002, that Tatas got the leeway
to venture into the international market. The moment came in November 2004 when
the Tatas announced the acquisition of Tyco Global Network (TGN) for $130 mn.
This was followed by the acquisition of the Canadian wholesale providers of
voice, data, IP and mobile roaming services-Teleglobe-for $239 mn, in 2005,
creating an entity which was to become one of the largest providers of bandwidth
and voice services to global customers. It is the Teleglobe acquisition that
gives Tatas an edge over Reliance's international foray. It may be recalled
that Teleglobe had earlier acquired ITXC, which was the largest provider of VoIP
wholesale services.

In a recent interview with VOICE&DATA, N Srinath, executive director of
VSNL, said, “With the acquisitions of TGN and Teleglobe, we have not only
expanded our reach but also acquired a global customer base simultaneously.”

In terms of retail business by Indian telcos outside India, there is nothing
to cheer about. There are few pockets of operations by Indian operators. MTNL
operates in Nepal and Mauritius, while Bharti provides services in Seychelles.
Bharti has recently received license to operate services in Jersey nestled
between England and France, Jersey is the southern most Island of the British
Isles. The network is expected to be operational from October 2006. According to
Mittal, “The acquisition of a telecom license in Jersey will be a springboard
for other opportunities that may be present globally.”

Incidentally, both the countries' population is well below 1 lakh
(Seychelles at 85,000, and the State of Jersey at 88,200) which indicates the
small scale of the company's operation. Bharti's interest in Seychells is
not limited to only telecom as it also recently acquired a 4-star luxury
124-bedroom hotel in Seychelles, called The Le Meridien Barbarons Beach Hotel.

On the other hand, VSNL's overseas retail business involvement is limited
to South Africa through SNO and Nepal where they are partners in United Telecom. 

Shyam Telecom is one strange example of an Indian company which never
ventured beyond the state of Rajasthan, sold off its stake in the lucrative
cellular business, and now dreams of becoming a global player. It has managed to
get a GSM license to operate in the building services domain in the UK. On a
closer examination, it appears that Shyam is primarily getting into a low-end
kind of service which is aimed at providing in-building solutions. This would be
done through partnerships with service providers, mainly wireless. It will
primarily work on the outsourcing model wherein players like Vodafone will
outsource the headache of providing connectivity. Shyam aims to leverage its
hardware background of manufacturing antennas and towers to provide these
services in the UK.  Specifically,
Shyam manufactures accessories for in-building systems.

VSNL and Reliance, in recent years have, demonstrated their global ambitions
by making some high profile acquisitions of wholesale bandwidth players such as
Flag Telecom, TGN, and Teleglobe who in turn have customers spread across the
world. Bharti, however, did not take the acquisition route and chose to partner
with SingTel for Network i2i submarine cable business.

The total subscriber base of all the Indian telcos who are offering wireless
and wireline services outside India is well below the 0.2 mn mark which tells a
dismal story. Compare this with players like Vodafone (186 mn), Orascom (35 mn),
and Hutch or players like AT&T and BT for that matter.Â
Even companies from Malaysia and Singapore fare better than us.

Why go Global?

There is a difference of opinion on whether Indian companies should venture
outside India.  RSP Sinha, CMD, MTNL,
is upbeat about the company's operations, particularly in Mauritius. He says,
“We have the manpower, the capability, and the potential to offer services
outside India. We are making reasonably good money in Mauritius and we hope to
be successful in Nepal.” Some industry observers feel that MTNL should instead
look for opportunities beyond Mumbai and Delhi to other Indian cities rather
than be a small time operator in small countries like Nepal and Mauritius.

According to Srinivasa Addepalli, head of Corporate Strategy at VSNL, “The
reason why they are global scale businesses is because of the cost perspective,
and also from the customer perspective. Customers are going global. Look at the
enterprise data services in India. Some of the biggest customers in India are
multinationals. They want solutions or offerings not only for India but for even
the global network.” Addepalli adds: “Most Indian companies which have
acquired licenses to provide retail services outside India have done it without
a strategic intent, it is just for financial consideration.”

Vinod Sud, CEO of Telecom Seychelles feels that companies are leveraging the
world-class telecom infrastructure that India has created.Â
He says, “The technology and services deployed are as good as anywhere
in the world and the quality of service meets international standards. Indian
professionals armed with their knowledge, skill and experience are confident
today to go global and set up successful ventures abroad.”

Why not BSNL?

It remains a mystery why BSNL, with a net worth of $14 bn, has not been
allowed to go global. BSNL is totally absent from the whole picture unlike the
other incumbents like AT&T and BT who made their presence felt across the
globe by offering wholesale voice services.Â
There have been talks off and on about BSNL planning to go global but
nothing concrete has emerged. While other government PSUs, MTNL and TCIL, were
allowed to form subsidiaries outside India, little is known of the reason behind
BSNL not been given the opportunity despite being cash rich.Â
On top of that, it is yet to even get an ILD license, which, however, can
be attributed to historical reasons.

AK Sinha, CMD, BSNL, offers an explanation for this slow progress on global
ambition: “We will go for something big.” He, however, mentioned that long
back there was a proposal from Nigeria but it was not thought to be attractive
for BSNL. Giving another reason, he said, “I think we have a big Indian market
ahead of us which is still under-serviced. Our main focus will remain India for
the coming few years.”

Wholesale Gamble: the USPs

VSNL, Reliance, and Bharti primarily want to play in the business of the
wholesale voice and bandwidth space and compete with the likes of Global
Crossing, 360networks, Cable & Wireless, Colt, and Level 3 Communications.

VSNL: Its
international operations' background begins with: “This isn't the old VSNL.”
Probably trying to break free from the government-run PSU image to a company
which has become truly international with two big acquisitions-Teleglobe and
TGN.  In terms of bandwidth,
VSNL's pairing of Teleglobe with TGN will create a massive network considering
Teleglobe alone accounts for 90 submarine and terrestrial network systems apart
from satellite connectivity across the globe. The key to TGN is the
trans-Pacific submarine cable, which currently accounts for 40% of the
trans-Pacific capacity. According to TeleGeography, the Tyco cable has the
ability to upgrade its capacity to potentially account for 85% of that.

According to TeleGeography, VSNL, through Teleglobe's acquisition, got
access to about 30 bn minutes international VoIP market largely due to ITXC
(acquired by Teleglobe in 2004).  According to its estimate, VoIP, which formed under 15% of
the global call market in 2004, is growing at double to triple the rate of the
traditional public switched voice market. TeleGeography further estimates that
this, combined with Teleglobe's wholesale voice operations around the world,
will make VSNL the fifth largest carrier of voice minutes in the world. This is
where VSNL will have an edge over global competitors as well as Reliance and
Bharti. This network will also add Internet connectivity to 14 countries, not
earlier accessible to VSNL, besides providing bandwidth support to its Indian
operation.

The challenge before VSNL is managing the cost of operation and maintenance
of the network, which would not be an easy task. According to TeleGeography,
there is little profit to be made in the hyper-competitive subsea capacity
market but it adds that the average Internet traffic across the Atlantic and the
Pacific is showing strong demand.

Reliance
Communication: Through Flag Telecom's acquisition (for $207
mn), Reliance gained access to network assets worth over $3 bn spanning across
Asia, Europe, the Middle East and the US. This also means that the Reliance
customers would pay low global access rates. Reliance has a customer base of
more than 180 leading operators which includes most international carriers. Flag
is also in the process of rolling out its Falcon cable system landing in 11
countries.

Bharti: Bharti
and SingTel entered into a JV in 2000 to self-healing submarine cable network at
the cost of $650 mn with a bandwidth capacity of 8.4 Terabits per second. It
will carry more than 100 mn conversations simultaneously. In Singapore, it will
link SingTel's extensive cable network to the rest of the world. The undersea
cable venture will also sublet bandwidth to other Indian operators, with the
opening up of the DLD and ILD telecom sectors in India.

Outlook

It would be a tall order to even think of Indian telcos going the AT&T,
BT, or Vodafone, Hutchison Telecom way. The only good news is that in the
wholesale bandwidth and wholesale voice marketplace, the Indian companies can
become a force to reckon with and provide some competition, thanks to the
acquisitions of Tyco, Teleglobe, and Flag. The situation in the retail forays
(fixed and wireless services) of Indian companies remains grim with a handful of
licenses and few subscribers that have been acquired by Indian companies to
operate globally.  BSNL's entry
into the global business would be an interesting development, if it happens in
the near future. 

The one thing which all Indian companies lack is brand. There is need for lot
of hardselling that has to be done. But with the Indian outsourcing industry's
success story being talked about globally, this may also become an easier task.
Adepalli accepts this is as a challenge when he says, “VSNL is a well known
brand in India. Creating that kind of an image for our company globally is a big
challenge for us.”

There are lessons to be learnt from the success of the likes of Hutchison
Telecom, Vodafone, and Orascom. In the near term, the opportunities that
Reliance, VSNL, and Bharti can exploit is the 10 mn plus members of Indian
diaspora in countries in North America, Gulf, and Africa.

Sudesh Prasad

sudeshp@cybermedia.co.in