Tata Comm eyes new avenues as voice biz slows

Written by Nikita Upadhyay | Nikita Upadhyay | Mumbai | Updated: Nov 21 2011, 08:30am hrs
Tata Communications (Tata Comm) will look at schools, colleges and hospitals to sell bandwidth, as prices continue to fall for its core wholesale voice international and national long distance telephony, a senior company official said.

The wholesale voice business continues to be a business of scale, with constant pressure on prices and margins, said Srinivasa Addepalli, senior vice-president, corporate strategy & communications, Tata Comm. The big question for us is, which are the other segments where we can go beyond our regular bandwidth and provide our customers specialised offerings. Five telecom analysts FE spoke to said such businesses will have marginal impact on Tata Comm, battling debt borrowed to build undersea cable and in the red for seven consecutive quarters.

The idea is still in a conceptualisation stage, but it's technology that can make a difference in the way services are delivered in these segments," says Addepalli. Technology can bring in great change in making education reach remote locations. Analysts say the new business will add to Tata Comm's $1.5b debt, a concern for analysts.

This would only increase debt and interest burden for any new foray that they make, says an analyst with a foreign brokerage. But the company, a part of the $78 billion salt-to-software Tata Group, says its new business wont require much capital as it has existing network, infrastructure and would partner in the two new businesses.

We are open for all options to get on to this space, Addepalli said. We want to make sure that we are playing a role in making education services reach remote locations. We can work with players and make use of technology to serve these segments in future, he added.

On November 8, Infotel Broadband Services, a Reliance Industries subsidiary, purchased 38.5% stake in Extramarks Education, which provides digital learning. Reliance Infotel won a Broadband Wireless Access licence to provide high speed data across the country. High margins in the education sector in India have attracted many new players in the iSchool segment like Educomp and Everonn," wrote Ankur Rudra and Subhashini Gurumurthy, analysts at Ambit Capital in a report.

Regulatory risks, as schools in India are supposed to operate on a non-profit basis, long cash collection cycle in the government facing side of the business and scalability challenges in loss-making businesses are a drain on the balance sheet for companies.

The proposed New Telecom Policy 2011, if implemented, could cut Tata Comm's revenues from roaming and termination charges, says analysts, as the policy will do away with roaming and termination charges.

Another constraint is the inability to sell to retail customers as they lack spectrum or radio waves that carry mobile signals.

This would not resolve any of their existing issues as their addressable market will not increase," said another analyst with a domestic brokerage. "Also any new venture would take about eight to ten quarters to start earning revenues.

TCom has been talking about newer business segments, but if you look at their revenue breakup, newer businesses contribute marginally to their topline, said another consultant.