Gone is the Rip Van Winkle halo that seemed to envelope VSNL in the past decades. Since its takeover by the Tatas, the former public sector unit (PSU) has a new vibrancy to it, customer focus and reinvention being the defining changes that have marked its makeover.
This very visible transformation has also been recognised internationally, with the company's executive director Srinath Narasimhan bagging Telecom Asia's 'CEO of the Year' award. The way VSNL changed its approach towards the market following its privatisation and became a global communications company holds several lessons.
The business cocktail
VSNL today comprises three main lines of business. The largest is its international voice operations, where it is the global market leader. The second is the global enterprise and carrier data business, in which it is the market leader in India, and is leveraging to build a sizeable global footprint. VSNL's third business line involves retail communications, in areas that promise spectacular growth in future — such as the broadband business in India.
A fourth area of business is through investments in specific geographies where VSNL has strategic prospects in mind. This includes an external gateway operator licence with Sri Lanka and the 26 per cent stake in Neotel, the second fixed line operator in South Africa. "With our three main businesses, VSNL now offers its customers a service bouquet of voice, video and data, the world over," emphasises executive director, N Srinath. "Our strategy is gearing towards further investments in these areas."
When the Tata group acquired a controlling stake, VSNL or Videsh Sanchar Nigam was then predominantly an international voice company with a monopoly in India. Aware that this international long distance (ILD) business model was not sustainable, the group's strategy was to mitigate risk by entering new lines of business.
VSNL then entered the enterprise data business, banking on the company's past investments in submarine cables and satellite systems. It also invested heavily in building a countrywide optic fibre backbone, now connecting 300 cities all over India, which enabled the company to own infrastructure that it was leasing from other providers earlier. With the network ready, it launched new lines of business in national long distance (NLD) voice and data; taking the vital first step towards de-risking.
Right sizing the organisation was another challenge. "We ran two VRSs in 2003-04 because the nature of the business was changing and some technologies were no longer attractive," Srinath says, pointing out that there was a need to bring new skills and new processes into the company that were more in line with what the market wanted. Today, VSNL is a 4,000-person organisation with the equivalent of another 4,000 people providing various services on an outsourced basis in different areas. "Effectively, we have brought in almost 6,000 new people into the system to supplement skills," Srinath points out, debunking the belief that privatisation always means job losses.
VSNL then started looking at international opportunities for growth. It first invested in the Tata Indicom cable between India and Singapore. This was followed by the acquisition of the US-based Tyco Global Network (TGN) in July 2005, and the Canada-based Teleglobe in early 2006.
Getting it together
Making international acquisitions at a breathless pace is one thing, but merging and integrating the acquired businesses into existing operations often proves to be a far more formidable challenge. "We didn't have many integration issues, because these were new business areas in new geographies with new markets. Integration was therefore relatively easier compared to the challenges other companies have faced," says Srinath.
However the Teleglobe business overlapped existing voice operations, which is why VSNL created a single global unit instead of separate international and India voice operations. This has helped in extracting synergies to leverage the strengths and relationships of each of the parties, strengthening the overall business.
VSNL is now structured around business lines and not individual companies. It has one global voice business, will soon have one global enterprise business and retail in selective markets. Though it still has dozens of individual companies — TGN added 13 companies and Teleglobe added 35 companies — the strategy is to remove duplication in the same geographies and rationalise the number to about 30 companies, all subsidiaries of the Singapore-based VSNL International, which is a 100 per cent subsidiary of VSNL.
"From a business standpoint, we are working on making it a seamless operation," says Srinath. "While our people sit in different geographies, the business is run like three vertical units supported by a common network infrastructure, a common customer services organisation and a common backend in terms of finance, HR, etc." The restructuring process will be completed in the next 12 months. In branding terms, telecom services in India are marketed under the Tata Indicom brand while overseas customers are familiar with VSNL International and TeleGlobe brands.
The TGN and Teleglobe acquisitions have allowed VSNL to grow considerably. It is no longer dependent on the ILD business from one country for growth. The company has also managed to get a very significant presence in the enterprise business in India and can now take the same services to the global market.
Today, VSNL operates in more than 30 countries around the world with 60 per cent of its overall business coming from overseas operations; 25 per cent of its employees are based outside India.
The big challenge for VSNL, when Tata's acquired the stake, was that the company was a monopoly and had not dealt with end customers. The sales, marketing and customer service skills, vital for customer acquisition, were weak or lacking. As the business moved from wholesale to retail, from ILD and voice to enterprise and retail, building a marketing network and a customer service organisation became the priority. Over the years, much work has been undertaken in terms of building a customer service organisation, creating the right skills in employees, and building good processes and systems around it, including investments in IT.
"I think we have come a long way in the services we provide to our customers and the market. While our customers have appreciated our efforts, clearly more needs to be done in this area," says Srinath with candour. The new drive is to create business systems that can compete in the international arena.
Back to the future
VSNL envisions that basic network and telecom products will become more like commodities, and the choice of a telecom and communications partner will be driven by the higher value-added services provided with such commodities. This means that VSNL will move more and more into being a services company providing information, communications and telecom services.
An opportunity that VSNL is keen to capture is the fact that customers today are more comfortable outsourcing their network and communication needs. "Customers who do not want to be in the telecom business but had no choice in the past, are now increasingly saying to us: 'Let us focus on our core business — which is banking, manufacturing, etc — and you take over the telecom part of the business.' We think this is becoming an important area for us," Srinath explains.
Enterprise customers are increasingly looking for a single partner to offer them both IT and telecom solutions. A strategic link with Tata Consultancy Services (TCS) has given VSNL the advantage of offering customers a single partner option that can deliver a combined IT and telecom solution — something that their competitors, either in India or overseas cannot do. TCS and VSNL together make a combination that is very difficult to beat in terms of scope, effectiveness and inter-operability. That, according to Srinath, is going to make VSNL a strong player in that market.
The company is also looking at moving some of the back-end operations from overseas to India to deliver a cost advantage. VSNL is looking at partnering with TCS in offering a combined IT plus telecom service — not only in implementation but also in outsourcing.
In India, broadband is a very nascent market currently and VSNL's main competition is from those companies that are last-mile providers. Srinath says that is unlikely to change till an appropriate wireless technology in the future throws open this area to all.
In the voice and data businesses, the competition comes from some of the largest global telecom companies who have been established for years. The diversification programme that VSNL has embarked upon is critical in this context, since it brings in new capabilities. But along with new business lines comes new competition as well.
Emerging vertical markets such as banking or the media need to be intrinsically supported by voice and data service providers. One of VSNL's challenges as it goes forward will be to support these verticals.
But, challenges notwithstanding, great things are happening at VSNL. As he looks towards the horizon from his office window, overlooking the Arabian Sea, Srinath is quietly confident about the company's future. "We continue to look at opportunities, with growth coming organically as well as inorganically. We want to diversify our portfolio of services and are looking at opportunities where we could acquire companies with specific product knowledge and product service experience. In India, particularly, we are trying to develop applications for vertical markets such as the banking and media industries."
Revenue-wise VSNL crossed Rs4,300 crore this half-year which is nearly what VSNL did for all of last year. Going by this, the company could close the year at about Rs8,500 crore, which will be the highest revenue for the company in its history. As the newly acquired global companies get going, the prospects are brighter than ever. Clearly, new pathways are being built and new standards are being set in global telecommunications, and an Indian MNC is at the cutting edge of this global game.