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Mon 5 Apr 2010 04:00 AM

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World connections

Tata Communications is positioning itself to become an indispensible partner to operators amid a global surge in data demand.

World connections
NARASIMHAN: Tata Communications is offering more VAS to customers.
World connections
Srinivasa Addepalli says emerging markets in Asia, Africa and the Middle East will be a major driver for the company in the coming years.

Tata Communications is positioning itself to become an indispensible partner to operators amid a global surge in data demand.

There is no doubt that the past couple of years have marked a turning point in data use, with the increasing popularity of services such as video-on-demand and mobile broadband leading to a growing glut of data on global communication networks.

According to Allot Communications, a US-based IP optimisation specialist, use of global mobile data bandwidth increased by a staggering 72% in the second half of 2009, led by video applications including Youtube and Skype.

The company also pointed out that the trend was not just dominated by US user habits. Asia Pacific led the growth with an 86% increase in demand for mobile data bandwidth, while the EMEA region posted 70% growth, and the Americas 59%.

With rises in data demand, operators in the Middle East and Africa are keen to strengthen their connections to international networks, particularly with the region lagging behind more developed regions such as Europe and the US, with fewer links to international cable systems.

But the Middle East and Africa are fast catching up, with investment pouring in to terrestrial and undersea cables in the region. One company that is focusing on the growing global demand for data capacity and services is Tata Communications, part of the Indian conglomerate Tata Group.

Tata Communications, which specialises in international backhaul, enterprise data and internet services, is busy working on a $2 billion global expansion plan, of which about $200 million is earmarked for the development of telecom operations in the Middle East, including an ambitious project to connect Gulf countries via its TGN Gulf Cable system.

The project, which was announced in February, will see Tata Communications connect Bahrain, Saudi Arabia, Qatar, UAE and Oman with its cable system, which will then link to its wider international network of cable systems via India and Europe.

Tata Communications said it is working with five partners in the region on the project, comprising Bahrain Internet Exchange, Nawras of Oman, Qtel of Qatar, Mobily of Saudi Arabia and Etisalat.

The project, which is due to be completed in 2011, is intended to allow Tata Communications and its partners to build "strategic relationships" that will support the development of advanced telecoms services such as global ethernet, MPLS based VPN, managed security, infrastructure as a service and telepresence.

For Srinath Narasimhan, Tata Communications' CEO, the investment is a logical choice in a market that holds significant potential. "As the general business activity level grows in these markets, all the associated telecom services follow," he says. "As the region grows faster than other parts of the world, the growth of telecom services in these markets tends to be more than other areas.

"It is important to create certain pieces of infrastructure to increase the overall availability of telecom services, specifically in the Middle East, with investments such as the undersea cable system."

According to Narasimhan, there is an opportunity for "another cable in the Gulf region to connect all the Gulf countries" to India and Europe, to increase the availability and diversity of international bandwidth in the Gulf.

"Typically cables in the past have gone to the UAE or Saudi Arabia and other local cables have tended to pick up the traffic from those cables into the region," he says.

But the planned cable system is about more than increasing data capacity. It is also about increasing the diversity of routes open to operators in the region, which is something that was brought into focus in 2008 when three cables in the region, including Flag Europe-Asia cable and SeaMeWe-4 were cut, possibly by ship anchors, within days of each other.

"What drives investment in cable systems apart from bandwidth considerations is also the need for diversity," Narasimhan says.

"Typically enterprise customers who put their critical applications on to a cable system are not comfortable depending on a single cable system or a single vendor and like to put their traffic on different systems, so if one system goes down, their business operations are not affected.

"In a market like the Middle East, East Africa or West Africa, the availability of cables is not there yet to give diversity."

Diversity aside, demand for data backhaul is also growing, and operators need diverse cable systems to transfer it. Increasing mobile data usage globally is also driving demand for the type of backhaul that Tata Communications offers.

"As we get a proliferation of mobile broadband services on the back of 3G and 4G technology, the demand for internet services from people like ourselves will grow," Narasimhan says.

He adds that on the back of the higher capacity, the markets will "pick up in terms of more broadband access" leading to growth of enterprise customers and a corresponding rise in demand for VPN and MPLS services.

For Tata Communications, this not only means increased business in terms of backhaul, but also the potential to offer its local partners, including operators, additional managed services such as media content and delivery, and cloud computing.
"We clearly recognise that the market is now moving towards value added services," Narasimhan says. "The conventional telecom infrastructure services of pure bandwidth or pure co-location are becoming more and more commoditised and clearly the customer is now starting to say: ‘I don't want just pipes from you, manage my infrastructure and network.'

"They are asking for a completely different set of services. Our strategy is to amend and modify our service portfolio to play into that story."

To this end, Narasimhan admits that Tata Communications will become "more like a services company than a telecom company" in the coming years, with services such as telepresence and cloud computing shaping up to become big drivers of demand.

Demand for managed services is rising partly due to the global recession, which has led all types of enterprises to look at their operations and see where they can make savings and increase efficiency.

Managed services also allow companies to upscale and downscale their IT systems without having to invest in hardware or even software, which helps remove any risks of over-investing during an upswing in business, Narasimhan says. ICT is also an area that many organisations see as non-core activities that can be handled better by a third party.

According to Narasimhan, Tata Communications is in a strong position to offer such services because it already has most of the "building blocks" in place. The company provides its customers with co-location space and network connectivity services which customers use to connect to partners including their suppliers, sales force, and factories.

"With a service such as cloud computing we are just going one step further and saying we will provide you with the ability to manage your operating system, your databases and through our partnerships we can even manage your applications."

The advantage for Tata Communications, apart from offering a wider range of services, is that it also becomes a more critical partner to its customers.

"You are no longer one of three suppliers of bandwidth or one of two suppliers of data centres," he says. "You now are the service provider who runs his core services."

Tata Communications also sees major growth potential in emerging markets, according to Srinivasa Addepalli, the company's senior vice president of corporate strategy.

Initially, the company looked at emerging markets as it sought to expand in 2004 and 2005 because it saw similarities with its home market of India.

The first emerging market that Tata Communications expanded into was Sri Lanka, back in 2003. The company has since moved into several new markets and now considers India, Africa, China and the Middle East to be its key emerging markets.

Addepalli points out that while emerging markets were once viewed as regions to be used for cheap manufacturing and services, they now represent the world's fastest growing consumer markets, and as such, the best opportunity for players such as Tata Communications to counter slowing growth in more developed countries.

"Over the last 12 months, it is only emerging markets where growth has happened, which to some extent reflects the vibrancy and optimism that is still to be found in most of these markets," he says.

He adds that emerging markets are also becoming places where "innovation is happening" with new patents being filed and the latest technology being deployed.

Addepalli says Tata Communications studies emerging markets continually, looking at various macro-economic indicators, the state of the telecom market, the regulatory climate, the level of competition and whether or not Tata Communications or Tata Group already have partners there.

Using these criteria, the company recognised the Middle East and Africa as two key markets. "The Middle East was a region that was growing very fast, that had strong economic potential as well as opportunities for new players to enter," Addepalli says.

"We came to the conclusion that given the very strong players already present in many of the Middle Eastern markets, our best chance of growth potential was working with local partners."

Addepalli says that Tata Communications is keen to expand its operations in country's including Kenya, Nigeria, Tanzania and Algeria, while in Asia, the company is also looking to expand in Malaysia, Indonesia, Philippines, Vietnam and China. In the Middle East, Saudi Arabia and Qatar are highlighted as among the key markets.

Tata Communications also identified Africa as having significant potential, and the company had the advantage of already having a strong presence in South Africa, through Neotel, the fixed-line operator it acquired a stake in back in 2008.

These markets also hold significant long term potential because many of Tata Communications' customers in emerging markets are looking beyond the larger cities to what Addepalli refers to as tier-1 and tier-2 towns, which account for a big proportion of each country's population and represent pent-up demand for telecoms and information and technology services.

The challenges that emerging markets present to enterprises are also an opportunity for Tata Communications, which already has significant experience of operating in these areas.

"All of this knowledge is something that gets distilled into our thinking and that is something that we can take to our customers," Addepalli says.

"The challenges for our customers are often cost, how to get access to these markets, and how to cope with the rapid change in emerging markets, as there is a lot of uncertainty about the economic situation in a lot of these countries.

"This is where our partnerships and managed services and the flexibility that we provide in terms of the technology architecture, as well as our partnership models, help us address the major challenges that our customers face."

TGN Gulf cable system – Operator’s view

While the Middle East is already served by several cable systems, operators involved in the TGN Gulf Cable System spearheaded by Tata Communications are upbeat about the newest addition.

Ross Cormack, CEO of Oman's second operator Nawras, said the cable was of "vital importance" because it would secure Nawras' own international connectivity out of Oman for the first time.

"The major advantage of this project compared to others in the region is that it will immediately secure direct connection to all major telecom hubs around the globe," he said.

He added that the cable will be used to provide Nawras customers with reliable high speed bandwidth to key cities worldwide while also adding "resilience and diversity to the communications infrastructure" in Oman.

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