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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
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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

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JamesDennis
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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.
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