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Ethernet equipment

VSNL: Beyond Connectivity

CHICAGO -- Globalcomm 2006 -- Attempting an ambitious remolding of a former monopoly telco, VSNL International president Vinod Kumar today described his strategy to shift the company from a pure-play telecom carrier to a provider of information and communications technology services.

In the face of telecom deregulation in India and increasing competition from non-traditional carriers, VSNL "must offer services beyond the realm of pure connectivity," Kumar said in his keynote address this morning at Globalcomm 2006. A series of recent major acquisitions will allow the company to "catapult ourselves into the international sphere and offer more complex services."

Majority-owned by Indian industrial giant the Tata Group, VSNL has been on a buying spree lately with the $130 million acquisition of Tyco's undersea fiber optic cable system -- developed by AT&T Inc. (NYSE: T) for around $3 billion -- in July 2005, and last November's purchase of international wholesale voice and IP carrier Teleglobe, for $239 million.

The company has also made a series of smaller acquisitions, including Indian ISP Direct Internet Ltd. last month for $16.7 million. (See VSNL Buys Into Broadband.)

The acquisitions, said Kumar, give VSNL a significant presence in all the major long-distance fiber networks, including trans-Atlantic and trans-Pacific routes. Last week, the company also said it will begin offering international Ethernet connectivity services -- the "first truly global Ethernet-over-Sonet offering," Kumar claimed.

"But the network," he added, "is only half the story. Or rather, it is more like one fourth the story."

To flourish in today's converged telecommunications world, the Singapore-based VSNL must progress from being only a provider of network connectivity selling "communications solutions." To anyone who has witnessed the travails of AT&T, Qwest, and the other remnants of Ma Bell, that's a somewhat familiar refrain. Kumar himself noted that "this is not rocket science." But the range of network technologies VSNL can muster, backed by the resources of Tata Consultancy Services Ltd. , one of the oldest IT services groups in India, is impressive.

Kumar's strategy involves a combination of the domestic business of VSNL -- the leading provider of connectivity within India, with the assets acquired from Tyco plus the traffic and management components that came with the Teleglobe acquisition.

To succeed, Kumar will need to efficiently integrate a range of disparate and geographically dispersed businesses, leverage VSNL's relationship with the deep-pocketed Tata, and quickly groom a group of effective managers who can effectively play the consulting, software-solutions, and systems-integration games that established global rivals like IBM Corp. (NYSE: IBM) and Accenture have long mastered.

It's a daunting undertaking, but some results can already be seen: VSNL revenues from international long-distance fees, said Kumar, have fallen to 49 percent of the company's total sales, from 80 percent in 2002. Data services now represent 33 percent of the company's revenues, while half of VSNL's sales now come from outside India. Kumar's goal is to build non-connectivity services to 30 to 40 percent of the company's revenues.

Choosing an unlikely simile for a venerable, formerly state-owned telco, Kumar said, "We are the new kid on the block, and we're full of enthusiasm."

— Richard Martin, Senior Editor, Unstrung

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