The Tata Group's big telecom gamble: VSNL's recent acquisition of Tyco Global Network and announcement that it plans to acquire Teleglobe show that the Tata Group--controlling stakeholders of VSNL--is ready to up its telecom stakes.(view from the top)

The Tata Group, an India-based conglomerate with a huge turnover--US$14.25 bn during its 2004/05 fiscal year, which is around 2.6 per cent of India's GDP--is making waves in the telecom sector. Videsh Sanchar Nigam Limited (VSNL), India's international and national carrier in which the Tata Group owns a controlling 46 per cent stake, is on the acquisition trail for assets overseas.

In May this year, VSNL received regulatory approval for its US$130 m purchase of the Tyco Global Network (TGN), a sub-sea cable system connecting North America, Asia and Europe; two months later, VSNL then announced it was acquiring Teleglobe International Holdings--a provider of wholesale voice and data services--in a proposed deal worth US$239 m.

"I can't think of any other telco that has made such a big transformation as we have in the last four years," says VinodKumar, president of VSNL International.

He has a point. VSNL, when the Tata Group made a move for it in early 2002, was India's monopoly provider of international telecom services with 98 per cent of its revenue coming from voice.

But later that year, VSNL lost its monopoly status and consequently had to find new and higher-margin revenue streams to offset falling voice prices and inevitable market share reduction. This led to a greater focus on providing data services and 'end-to-end solutions' for multinational corporations (MNCs) based in India--the TGN acquisition being an obvious part of that strategy--and to move into the domestic long-distance and local access markets.

"For both our international and domestic businesses, our revenue mix is roughly 65 per cent from voice and 35 per cent from data [total VSNL revenue for year end 31 March was US$780.5 m]," says Kumar. "Excluding the effect of the Teleglobe acquisition [whose revenues derive primarily from voice] we expect data to account for around 50-55 per cent of turnover in the next few years."

The purchase of VSNL equity and subsequent acquisitions represents a comparatively new interest in telecom by the Tata Group. With a history stretching back over a hundred years, the Tata Group's wealth has been generated across a number of other industries, including steel, chemicals, energy, tea, textiles and car manufacturing. It also has a highly successful software services operation, Tata Consultancy Services (TCS), which was established in 1968.