STRATEGY: Tata Takes Tactical Step towards Consolidation

Since the Tata group acquired the Rs 5,766 crore behemoth VSNL and the Rs
321.69 crore Hughes Tele.com, there have been intense speculations about how
these businesses would synergize with the telecom companies already existing
under the group umbrella.

The speculations have been finally put to rest recently with the launch of a
specialized sales and marketing team called the Telecom Enterprise Business Unit
(TEBU). According to TEBU’s newly-appointed president Ajay Pandey, the unit
would be the single-point interface through which Tata’s four telecom
companies, VSNL, Tata Teleservices, Tata Teleservices (Maharashtra) and Tata
Internet Services will deliver telecom services to their key corporate
customers.

So what was the rationale behind the formation of TEBU? Previously, each of
the group companies maintained an independent sales force. As a result, all of
them were approaching the client with their own product or service offerings.
For example, VSNL would approach a customer like Citibank with its ILD and IPLC
connectivity, TTSL with its basic telephony or WLL products and Tata Internet
with its VSAT connectivity services. In many cases, the feedback from the
clients was that this was creating confusion and therefore TEBU was formed, to
take care of the problem. Henceforth, TEBU enables the four companies to offer
integrated voice and data solutions under the group’s Telecom umbrella brand,
Tata Indicom.

Before further analyzing the formation of TEBU, it would be best to look at
its scale of operations and the projections envisaged in the next 12 months.
Currently, TEBU has around 100 people divided into three groups. There is a
sales group that has seven account managers dedicated to different industry
verticals like BPO, process-based industries or FMCG. This is keeping in mind
the telecom requirement would widely differ from a Spectramind to a BPCL to an
Asian Paints. Next, TEBU has a solutions group with people drawn up from all
these companies, to offer customers an end-to-end solution instead of a
piecemeal approach. Lastly, the business support and enterprise marketing group
takes care of the PR and media relations exercise.

TEBU is headquartered at Mumbai with Delhi and Bangalore being the other key
centers. It will spread to five more locations, namely Chennai, Hyderabad,
Kolkata, Ahmedabad and Pune. In the first phase, TEBU is working with 400 client
accounts, which Pandey expects to complete by September. After that, he hopes to
add another 300—400 names in the repertoire. In the next 12 months, TEBU is
expected to do a business of Rs 550—600 crore, with 45—50 percent of it
coming from Maharashtra alone. It’s aiming for 25—30 percent growth next
year.

Will this be creating some sort of conflict on revenue sharing between these
four companies? Not really, considering that TEBU is purely a non-profit
non-legal entity and is not looking at any margin for itself. In fact, its
operating budgets and profit margins are aligned to the operating budgets and
margins of each of the companies. Moreover, each individual in TEBU has been
formally deputed from these companies and is working under TEBU guidelines.

So what are the advantages TEBU offers to Tata? It works as a single
marketing interface for telecom companies; delivers all product offerings under
one bouquet; and finally can help the potential customer move up the value
chain. More importantly, for each of these companies, 12—13 percent of revenue
goes into sales and marketing, while with TEBU this is being brought down to 6—7
percent. As Pandey puts it, "TEBU is functioning as an ‘exclusive channel
partner’ for the four operating companies."

Does the formation of TEBU point towards a future merger of all Tata telecom
companies? Pandey says that such speculations have no ground, but most analysts
feel that this would be the most logical conclusion. VSNL’s strong ILD
presence is perfectly complemented by TTSL’s basic telephony/CDMA services,
while Tata Internet takes care of the data services. A merger would mean a
masterstroke from the Tata–its own telecom presence was nothing to rave about,
but after acquiring VSNL and Hughes, followed by some clever realignment, it can
become India’s biggest telecom giant.

However, the present holds some hurdles for such a merger. Each of these
companies have independent ownership patterns. While VSNL and Tata Teleservices
are listed companies, others are not. Moreover, in case of inorganic growth in
business, two plus two does not always add to four. So a future merger would be
premature in the near future, but don’t be surprised if TEBU finally
metamorphoses into India’s premier telecom outfit in the long run.

Rajneesh De