Light Reading
Following its WhatsApp acquisition, a deal for the Indian telco Tata Communications could be just crazy enough to work for the social network.

Could Tata Be Facebook's Next M&A Target?

Sarah Reedy
3/6/2014
0%
100%

If the prospect of a web company like Facebook using WebRTC to become a telco has the carriers worried, how do you think they'd feel about Facebook flat out buying a telco to compete? (See WebRTC & the Rise of the WebCo.)

They should feel real worried, because it's something Facebook might be considering -- if it's smart. Recently in his blog, BuySellBandwidth.com (subscription required), the industry analyst Sunil Tagare put forth the not-so-crazy idea that the social network buy Tata Communications Ltd. , the Indian fiber/subsea network operator and international Ethernet services provider that was recently a rumored acquisition target of Vodafone Group plc (NYSE: VOD). (See Beal's New Gig: Integrating Vodafone & Tata?)

It makes sense when you think about Facebook's goals, its recent WhatsApp acquisition, and Tata's assets. Tagare breaks it down well on his blog:

  • Tata is on the market, and with a valuation of $1.2 billion, it's chump change compared to the $19 billion Facebook paid for WhatsApp. (See Facebook to Acquire WhatsApp for $16B.)
  • Buying WhatsApp made Facebook the largest virtual global carrier, with 10 billion messages sent per day. When it starts offering free voice services this year, it will become the largest voice provider, too.
  • Tata also has the largest submarine cable footprint in the world, making it the largest provider of voice services with the lowest cost structure of any carrier in the world. Put the two together, and you have a compelling proposition both online and offline.
  • Finally, India is an important growth market for Facebook and just so happens to be where Tata has the largest footprint of datacenters, which would come in handy should the Indian government decide to require local storage of data in light of NSA concerns.

"Facebook has tried to buy submarine cable capacity -- in SJC -- and it knows how hard that has turned out to be," Tagare wrote. "Imagine if they have to build a global network from scratch! It's virtually impossible unless they hire hundreds of people and pretty much copy Google -- which will take ten years at the least." (See Facebook Invests in Subsea Cable.)

Tata is Facebook's readily available, low-cost path to global infrastructure. The idea of an acquisition isn't as crazy as, say, spending $19 billion on a chat app. Heavy Reading analyst Caroline Chappell calls the possibility intriguing. "Tata's global footprint is impressive, and as a new market entrant all-IP player, it is exceptionally lean from an operational cost perspective compared to most of its global competitors," she told us.

Should the operators be worried? I'd say they should be prepared, at the least. Anything can happen in the wireless market, and the barriers to entry are getting lower, especially for a powerful player like Facebook.

I think Chappell put it best when she said, "The day a major OTT player buys a carrier, the fireworks will really fly in the telco market."

— Sarah Reedy, Senior Editor, Light Reading

(17)  | 
Comment  | 
Print  | 
Newest First  |  Oldest First  |  Threaded View
Page 1 / 2   >   >>
JamesDennis
50%
50%
JamesDennis,
User Rank: Light Beer
3/7/2014 | 9:44:05 AM
Taking international bandwidth in house
Tata is a conglomerate can't see why it would start to break up, its been growing for since 1887, Tata group has a market cap of $112Bn in wide range of industries.

The value for Facebook could be

1) Taking international bandwidth costs in house

2) Further ties with carriers - (questionable added value)


You gotta ask, other than a actual new business spur, the prospect of synergies (always a questionable aspiriation) are limited.

Culturally chalk and cheese would understate the culture difference.

BuySellBandwidth
50%
50%
BuySellBandwidth,
User Rank: Light Beer
3/6/2014 | 5:54:43 PM
Tata is not a traditional telco
Tata Communications is not a traditional telco in the sense that it does not own the last mile.  It is in the intensely competitive wholesale carrier space and is the leading carrier's carrier of the world.  While it does have enterprise customers, it's backbone is the hundreds of carriers around the world who buy on their global network.

 

Yet, it has all the good things you want in a traditional carrier.  Like carrier licenses in 6 countries including one in India which is impossible to crack due to arcane regulations.

 

Also, Tata was created by buying VSNL, the traditional PTT from the Indian government.  Since then, Tata has managed to lay off 98% of the government employees and the new employees are professionals from the top institutes from around the world wherever Tata does business.

 

Tata is a Class 1 act.  Tata is actually a global company.  It is headquartered in Singapore and its top management is spread around the world.  It is also optimzed from a tax perspective with subsidiaries in zero-tax locations as is required to do business in this industry.

 

Also, Tata was smart to buy Teleglobe and the Tyco Global Network for pennies on the dollar in the telecom crash of 2000.  Because of this, Tata is the number 1 carrier in the world for voice -- by far.  The second largest wholesale voice carrier probably does half the traffic.

 

Tata has Tier 1 relationships with the major carriers of the world.  So it can carry data cheaper than majority of the carriers worldwide.  And because its back office is naturally in India, the network management is done on the cheap compared to most carriers in the world.

 

 

 

 

 
theschnack
50%
50%
theschnack,
User Rank: Moderator
3/6/2014 | 5:03:29 PM
Re: MInd-blowing but
As Mitch said - "telcos" are in the business of letting people "talk", whether anyone is on the receiving end, and communicate with each other across an increasing array of modes.  That's FB's ultimate core business as well.  A service / platform for people to talk, yell, communicate, emote, even listen and connect.
SarahReedy
50%
50%
SarahReedy,
User Rank: Blogger
3/6/2014 | 4:56:36 PM
Re: Dumb and dumber
I don't think this is the same as Apple becoming a telco at all, for all the aforementioned reasons. And, we're not talking Facebook becoming a tier 1 telco, but a communications provider, something it's already trying to do. Plus, if like Tagare suggested, the Indian government mandates local storage, that's pretty safe from the NSA. Not saying you're wrong and it will definitely happen, but I don't think it's outlandish by any means.
ScottEStewart0101
50%
50%
ScottEStewart0101,
User Rank: Lightning
3/6/2014 | 2:19:40 PM
Re: Dumb and dumber
I have to agree. This is an outlandish stipulation. It's the same "Apple's going to become a carrier" meme we've seen never come to pass. More importantly, people do not trust facebook as they once did. Any hint of Facebook becomming a tier 1 telco would cause global outrage for privacy oriented governments and businesses. They do not want Facebook controlling traffic across the globe, then handing it blankly to the NSA. Do you really think the government antitrust divisions would allow FB to be a social network, drone builder, and telco? In what world are we living in? We'd be way beyond Gault's Gulch. 
Mitch Wagner
50%
50%
Mitch Wagner,
User Rank: Lightning
3/6/2014 | 1:30:02 PM
MInd-blowing but

This is mind blowing at first. But it makes sense.

Facebook's core business is a fad. People will always want to connect to each other, and will use the Internet as a channel for that for as long as anyone reading this remains alive. But I don't see monolithic social networks, with walls, and message streams, and friends lists, and games, and the other furniture of Facebook, lasting out the decade. They're this decade's version of the personal home pages (Geocities, etc.) of the 90s.

To survive for the long term, Facebook needs to see itself as being in the business of connecting people, rather than in the social network business. And connecting people is just the business the telcos are in.

DOShea
50%
50%
DOShea,
User Rank: Blogger
3/6/2014 | 12:19:18 PM
Subsea
Wasn't Google also rumored at one point to be interested in buying a submarine cable network because it was so frustrated by negotiations to buy capacity? And if Facebook does it, than why not Netflix, too, with some help from other investors. I don't know how realistic this is, but it is fun to talk about.

 
jhodgesk1s
0%
100%
jhodgesk1s,
User Rank: Light Sabre
3/6/2014 | 11:57:10 AM
Re: Facebook Wireless?
Caroline, agreed. Tata also has an IPX presence that would be helpful to deliver content. It's also a heavy user of managed services which simplifies the acquisition process and operation down the road.
C Chappell
0%
100%
C Chappell,
User Rank: Blogger
3/6/2014 | 11:47:38 AM
Re: Facebook Wireless?
And let's not forget there are telcos and telcos. Not all operators have the same culture and Tata has consistently proven itself to be more enlightened than most. Even ahead of its time in some respects - what other operator is trying to offer policy as a cloud service? I don't think the cultural rift is as extreme as some would portray it in certain telcos and while it's fashionable to laugh at Google's attempts to become a network operator, I wonder who will laugh last. 
SarahReedy
50%
50%
SarahReedy,
User Rank: Blogger
3/6/2014 | 11:28:50 AM
Re: Facebook Wireless?
Exactly, and the fact that WhatsApp is adding free voice calling in addition to its messaging platform makes it all the more attractive and plausible.
Page 1 / 2   >   >>
More Blogs from Light Reedy
Despite the launch of its new Passport smartphone, BlackBerry needs to embrace a future that's in M2M, messaging and enterprise services.
Vodafone's Dr. Alan Law talks to Light Reading about virtualization, backhaul, SON and more after being appointed chairman of the Small Cell Forum.
Wireless operators are jumping on the mobile music bandwagon, a move that sounds good for many reasons.
The worlds of tennis, fashion and wearables collide as Ralph Lauren and OMsignal turn a polo into a sensor to track your every movement.
The fine print on Sprint's new $60 plan suggests it can prioritize other plans' traffic first – a letdown, and maybe even a net neutrality violation.
Flash Poll
From The Founder
Is your network built on 'The Old IP,' or are you part of 'The New IP' revolution?
LRTV Documentaries
A Cultural Shift for an OTT World

9|26|14   |   01:41   |   (3) comments


Telcos need to embrace a new approach to partnerships if they are to generate extra revenues quickly and give customers what they want.
LRTV Documentaries
New Skills Needed as Telecom, IT Collide

9|26|14   |   4:07   |   (1) comment


As telecom and IT collide, new technologies are emerging, new skills are needed and new opportunities for women are arising.
UBB Forum News
Do IP Networks Need An Overhaul?

9|25|14   |   02:01   |   (0) comments


As traffic levels ramp, do IP networks need new technologies and topologies?
LRTV Documentaries
Sprint Wields Its Influence in the Valley

9|25|14   |   3:09   |   (10) comments


Anne-Louise Kardas, Sprint's connection to startups in the Valley, explains how telcos can be innovative and find new opportunities with partners.
LRTV Documentaries
SDN, NFV & The Future of XO's Network

9|25|14   |   3:47   |   (0) comments


XO Communications COO Don MacNeil explains how cloud, SDN and NFV are altering its network requirements as well as changing data centers of the future.
UBB Forum News
The OTT Conundrum

9|24|14   |   01:39   |   (0) comments


What is holding back prosperous partnerships between telcos and the OTT players?
LRTV Documentaries
Putting Broadband to Work

9|24|14   |   01:26   |   (0) comments


High-speed broadband network rollout is key to telco strategies, but it's what happens after the network is built that counts.
Light Reedy
Light Reading's Women in Telecom Recap

9|24|14   |   0:55   |   (4) comments


Our first Women in Telecom breakfast was a huge success, and we hope you'll join us in London for the next event on November 6.
UBB Forum News
Monetizing Ultra-Broadband

9|24|14   |   01:43   |   (2) comments


Ultra-broadband networks need to be built, with fiber-to-the-premises the ultimate goal, but they need to be monetized, too.
LRTV Huawei Video Resource Center
Sales Director of INIT on Plug & Play Switch Devices

9|19|14   |   3:21   |   (0) comments


INIT Italy uses both the Huawei S5700 and S7700 series switches for the campus LAN environment. Sales Director Andrea Curti says their company chose these Huawei devices over others because of their performance, flexible scalability and plug-and-play features.
LRTV Huawei Video Resource Center
Saudi Arabia Upgrades Vocational Training System

9|19|14   |   3:31   |   (0) comments


The Technical and Vocational Training Corporation (TVTC) has 100,000 students, 150 government-owned institutions and oversees 1000 private institutes. The CIO of TVTC explains that Huawei devices have allowed them to manage multiple datacenters using just one software program, scientifically tracking the progress of students and teachers, saving them millions.
LRTV Huawei Video Resource Center
Huawei's Media Solutions Are Here to Stay

9|19|14   |   4:35   |   (0) comments


The current media revolution requires rapid upgrades in technology. New formats (HD, 3D, 4K etc.) and the subsequent explosion of file sizes demand sophisticated network and storage architecture. Social media and the multiple distribution channels require a robust asset management system. Gartner analyst Venecia Liu speaks about the current technological trends in ...
Upcoming Live Events
October 29, 2014, New York City
November 6, 2014, Santa Clara
November 11, 2014, Atlanta, GA
December 2, 2014, New York City
December 3, 2014, New York City
December 9-10, 2014, Reykjavik, Iceland
June 9-10, 2015, Chicago, IL
Infographics
Half of the world's population will be connected to the Internet by 2017, but not just by smartphones and desktops.
Hot Topics
Facebook Pokes Around LTE Direct
Sarah Reedy, Senior Editor, 9/25/2014
Sprint Wields Its Influence in the Valley
Sarah Reedy, Senior Editor, 9/25/2014
Gigabit Nets Boost GDP, Says FTTH Council
Jason Meyers, Senior Editor, Utility Communications/IoT, 9/23/2014
US Ignite Cultivates Gigabit Apps
Jason Meyers, Senior Editor, Utility Communications/IoT, 9/25/2014
Like Us on Facebook
Twitter Feed