Network carriers ride on data boom

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It all began with VSNL. About a month ago, the network carrier, integrated with units like Tata Indicom Enterprise Business Unit (TIEBU), VSNL International, Teleglobe and Cipris under the umbrella of Tata Communications, announcing that it was looking to spend over $2 billion to fuel its global expansion activities.

The move was significant. Here was a large amount of money being pledged by the company for investment in undersea cable systems, rollout of Wimax and expansion of its network. Why was the company doing this? Was it because competitive pressures were pushing the company to make such a big announcement or was it because of some other reasons?

Interestingly, the Tatas weren’t the only ones to make an announcement of this nature. Rival Anil Ambani, chairman of Reliance Communications, had a few things to say too.

The key was an investment commitment of $2 billion for global expansion by Reliance Globalcom, a new division of Reliance Communications, which brings together the latter’s voice, data, ethernet, managed networks and fibre optic businesses. This again was a significant announcement. But why now?

Though competitive pressures have nudged these companies into action, the fact remains that it is the growing opportunity in data services that has prompted this kind of an investment from them. Voice has been the key revenue generator for most network carriers, but with tariffs falling quarter on quarter, the need to find allied sources of revenue has been on the rise. The Big Three—Tata, Reliance and Bharti—have responded to this new challenge by diversifying quickly into data-related activities over the last few years.

The acquisition of YIPES, the US-based provider of managed Ethernet and application delivery services by Reliance in 2007, for instance, was a step in this direction to strengthen its portfolio of data services. The scenario is no different with Tata Communications and Bharti, who have been working on their suite of data products over the last few years.