Home grown – emerging markets turn to Tata

Thursday, 19 January 2012 12:49  |  James Barton

The strongest growth across the telecoms sector has come from emerging markets for some time now, so it’s not surprising that companies which are originally from these areas are overtaking their counterparts from the developed world. To find out more about the importance – and the benefits – of an emerging market corporate identity, DT editor James Barton spoke to Tata Communications’ head of MPLS & Ethernet, James Walker.

DT: India is seen as a major growth market by many western firms – but many Indian firms are looking outside of their home market. Which countries do you consider to be important growth markets?

JW: We see Vietnam as a strong growth area; there’s a lot of movement towards Vietnam particularly from manufacturing services. For IT and call centres, we’re seeing a lot of growth out of Malaysia and the Philippines. More widely, there’s growth in the Middle East – traditionally out of the UAE, but the financial markets in particular are expressing interest in Bahrain and Qatar. Saudi Arabia is attracting a lot investment as well.

Turkey is a very interesting market; it’s been very successful over the last couple of years but it’s relatively untapped. It’s going through a lot of rapid development and it’s still quite strong financially; it’s probably the most interesting in the second tier of European countries.

Latin America’s growth markets are quite well known. There’s Brazil, but also Mexico and Argentina are showing strong growth. Less obviously, Colombia has been doing well, with several companies setting up offices there and building infrastructure.

South Africa has slowed somewhat recently, making Kenya and Nigeria the major growth markets in Africa.

DT: What are the key opportunities for Tata in these markets – and which are the most important?

JW: There’s a lot of investment coming from the Middle East and going into Africa. From a network perspective, most carriers connect the Middle East to Africa via Europe whereas we connect the east coast of Africa directly to the Middle East and we’re seeing a lot of traffic picking up on this route. The UAE in particular is investing into Kenya and Tanzania, but also further inland.

There’s been some instability elsewhere in Africa which has affected markets across the country. We’re interested in the Ivory Coast, where things are now settling down after the recent political fighting – countries that had moved their West African headquarters into Ghana during this period are now moving them back into the Ivory Coast.

The fact that Tata Communications is not a Western firm is quite an asset in dealing with these markets; we have good relations with the incumbent carriers because we provide wholesale services to them. As we expand this to provide enterprise services, we’re building on an established relationship - there’s a level of antagonism between some of these countries and the former colonial powers which in our case doesn’t exist.

DT: Does your status as an emerging market firm create a lot of goodwill towards you from emerging markets?

JW: I think it gives us an advantage in three main ways. Historically we were primarily a wholesale provider, it’s really the last 5 years that we’ve been adding enterprise services into the portfolio but the fundamentals of the wholesale business are still there. Tata is the world’s largest international voice minute carrier, and has long term relationships with suppliers all through the Middle East and Africa. It’s also the largest owner of submarine cable capacity in this world, and from this perspective has dealt with a lot of operators in consortia that have often invested directly into our cable systems – this is a multifaceted relationship with bilateral trade in both directions.

When it comes to delivering services to customers Tata has a home market in both South Africa and India. We’ve learnt about infrastructure and cost challenges in India that are useful when operating in Africa; we understand what companies are able to spend, and ways to provider lower cost MPLS services. We’re given a better perspective on what’s needed in these countries by the companies that are actually there.

Finally, there’s the fact that Tata has a non-colonial background and comes from an emerging market. Apart from telecoms, there are many Tata brands that are very obvious throughout these regions; Jaguar and Land Rover, but also Tata Hotels and other vehicles. There is a very fundamental link between India and places like Africa and the Middle East historically; it’s seen as a non-threatening alternative to the West.

DT: How are you overcoming underdeveloped infrastructure/inaccessible terrain?

JW: Our relationships with the carriers in these countries is really important to that, as they’re close to the ground, they know what they’re investing in. We are also more comfortable with wireless technology and have provided our expertise to a number of operators in emerging markets to help them build out wireless ‘last mile’ capability. We therefore have a fairly intimate view of their last mile capabilities as we’ve in many cases helped to design and build it.

A number of infrastructure investment programmes from places like the World Bank are helping to build fibre out to parts of countries that weren’t previously covered. There is a particular organisation that we provide connectivity services to in Africa which is very heavily involved in defining these projects. We’ve made offers to collaborate with local operators to build out connectivity to universities and so on - this gives us a good view of these projects.

Within India we have a number of last mile challenges; the regulatory market is such that unlike most other markets, the incumbent is not obliged to sell you last mile. As a result there is a lot of competitiveness about building out last mile connectivity but not everybody can be everywhere so there’s a lot of collaboration that has to go on there. We have to use a whole variety of different services; sometimes it could be fibre, but it could be point-to-point microwave or licence band communication services.

Having built out various technologies we have a good understanding of how they work and so we’re able to get the best out of them – operators in developed markets typically don’t do this as much as they don’t face the same infrastructure challenges in their home markets. We’re also watching O3B closely, bidding for portions of the infrastructure to support that on the ground. This has a lot of potential both inland and offshore.

DT: What are the opportunities for cloud computing in emerging markets?

JW: Cloud computing is very interesting; it means a lot of different things to a lot of different people. What we certainly see in all these emerging markets is that with relatively low numbers of computers in houses and relatively poor infrastructure once you get out of the major cities we see a lot of people using smartphones to access applications. In developed economies, customers use apps to play games or find the lowest prices; in emerging markets smartphones are really used as a replacement for a computer. They use it to browse, but they’re also writing their CVs, or accessing their bank accounts. Therefore, quite a lot of effort needs to go into reimagining some of the cloud-based services for viewing on a smaller screen. The other major challenge for cloud computing is that in many of these countries there isn’t great infrastructure for large-scale data centres. We’re working with a large provider of cloud services which is expanding in Africa quite rapidly; they wanted to deploy a data centre but by our calculations a data centre built to the global industry standard would have consumed more electricity than was available in the country at the time.

Companies have to make fairly significant adjustments in the models that they use to deploy cloud services; they need to have smaller instances, they need to extend their existing infrastructure.

If the user is on a smartphone, the latency between the device and the infrastructure is significantly higher than it would be on a home DSL connection - there’s an in-built delay – but as smartphones are far more widespread in emerging markets, the additional delay of getting the application from somewhere outside the country is not as much of an issue as it would be if the market was more accustomed to terrestrial links.

We’ve launched cloud platforms in India and Asia and they’re being expanded to South Africa. They’re concentrated on SMEs who want to draw down on either compute cycles or certain SaaS platforms. The concentration has been more on things like Google Apps – particularly in India – but also HR platforms for smaller companies. We see the SME market as the most interesting in these developing environments.

DT: How do you think the rise of firms from emerging markets will impact the industry at a global level?

JW: Tata has emerged from being relatively unknown to being a huge force behind the world’s carriers as a wholesale operator. The movement to becoming an enterprise service provider over the past five years has been a massive transformation, and I think behind this change is a larger one as companies headquartered in emerging markets are really becoming a global force to be reckoned with. Tata was primarily Indian-based, whereas now more than two thirds of its revenue is generated from outside India. In a couple of months, Tata will have completed its cable system between Mumbai and Marseilles; once this happens, we will have a complete ring of submarine cable infrastructure around the planet, and will be the first company to wholly own this infrastructure.

It’s interesting that it’s an Indian company which has achieved this rather than an American or British firm; the first explorers to circumnavigate the globe were from the West, while the first company to circumnavigate the globe from a communications perspective is Indian – it’s an interesting metaphor for the change that’s going on across the industry.

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