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Subsea

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

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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Sarah Thomas 3/6/2014 | 9:45:27 AM
Facebook Wireless? As I mentioned in the WebRTC post, rumors about Facebook becoming a telco of sorts have been circulating for awhile. I think the operators were worried back when it was going to launch a Facebook phone, but that ended up being just a dedicated Facebook button the hardware. But, Tagare's logic makes a lot of sense, and Tata is on the chopping block. Why not buy your way into the market than try to build it? WhatsApp signals it's at least interested.
186k 3/6/2014 | 10:01:10 AM
Dumb and dumber Facebook's acquisition price for Whatsapp was dumb but this idea is even dumber
Sarah Thomas 3/6/2014 | 10:03:06 AM
Re: Dumb and dumber Dissenting views welcome, of course, but going to need a little more than that! Why dumb?
MordyK 3/6/2014 | 11:05:29 AM
Re: Facebook Wireless? Sarah, While there's logic to this hypothesis, I'm pretty skeptical as WebCo's have a cultural aversion to Telco's for many reasons. If something like this were to happen it would represent a monumental shift for the entire tech ecosystem.
Sarah Thomas 3/6/2014 | 11:07:55 AM
Re: Facebook Wireless? I agree that it would be monumental, and I see the cultural aversion, but if anyone could do it, it'd be Facebook. And, it's shown it's interest by buying subsea cable infrastructure. Just seems like a good way to get more from its $19B acquisition of WhatsApp to me, but it is a long shot!
mendyk 3/6/2014 | 11:25:19 AM
Re: Facebook Wireless? The point is that FB would be buying telecom assets to strengthen its core portfolio, as opposed to setting up shop as a conventional telco. The order of magnitude difference between Tata's presumed asking price and the Whatsapp price does make this plausible.
MordyK 3/6/2014 | 11:26:04 AM
Re: Facebook Wireless? It would definitely have more lasting value than Whatsapp IMO
Sarah Thomas 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.
C Chappell 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. 
jhodgesk1s 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.
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