Tata aspires to be a tier-1 global telco for MNCs

Claudio Castelli/Ovum
18 Mar 2010

Ovum attended Tata Communications' analyst day and was pleased to see a growing focus on enterprise services. With its wholesale business supporting investments in new services, Tata aims to leverage its unique position in the emerging markets to get in the door of MNCs and be on their shortlist for global services contracts in the long term. We think Tata will eventually get there, but this will affect relations with some of its wholesale customers.

Tata Communications has consolidated several different telecoms companies to develop a global footprint. It has moved from an India-centric telco (with more that three quarters of its revenues coming from India in 2006) to a relatively well-balanced business distribution across the globe – India is still its largest market and now accounts for 37% of revenues. However, there are still some regional imbalances. If its domestic business in India is excluded, Asia-Pacific accounts for only around 5% of Tata's enterprise revenues.

Tata’s strategy is to leverage its strong position in global submarine cables to expand services and partnerships in developing markets. It plans to continue investing in emerging markets to differentiate itself in order to be an alternative provider of global services. However, it is realistic about its current capabilities, and will initially leverage this unique proposition to get in the door of MNCs, especially those with relevant presence in India, Middle East and Africa, without immediately going head-to-head with the tier-1 global providers in their dominant markets.

Expanding its managed services portfolio

Tata has significant revenue flow coming from its wholesale business, especially international voice services. The recent agreement with BT to provide all of its international voice outside Europe is a good example, and we believe Tata will replicate this sort of deal in future with other major players. This revenue flow is now financing investments in global cable and managed services, which is the foundation of its service portfolio for enterprises.

The plan is also to increase the spectrum of its managed services to offset the decline in international VPN prices. Ovum estimates that global MNCs with contracts due for renewal in 2010 will look for total cost reductions in the range of 15–25% for typical three-year VPN contracts. In addition to managed networks and hosting, Tata Communications’ managed service portfolio now includes security solutions, SaaS offerings, and collaboration solutions, with a strong focus on telepresence.

Some of these enterprise services will also be rolled out to wholesale customers as “white-label” solutions. In addition to the product and technology normally present in the white-label model, Tata will also provide support for solution launches and go-to-market activities.

Tata’s extensive relationships with numerous telcos, thanks to its wholesale background and its capability to invest in a global services portfolio, will give it a unique position in the market. However, there is a potential conflict. Most of the tier-1 players in the global enterprise services are also Tata's wholesale customers. As Tata increasingly competes with them in the enterprise market, it will face growing challenges in managing these partner relations. Some wholesale customers may look for other options.

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