Tata Boosts Wholesale Business with BT Voice Outsourcing Deal

| Jun 26, 2009 | Wholesale Telecom Services | Competitive Intelligence Report

| Analysts: Sio Meng Soh, Dustin Kehoe

Current Perspective: Positive
Vendor Importance: High
Market Impact: Moderate

Event Summary

June 25, 2009 – Tata Communications and BT Group have signed a five-year voice exchange agreement. Under the agreement, Tata Communications will supply BT international direct dial (IDD) and other voice termination services outside BT‘s own footprint, and BT will become Tata’s main distribution channel for its IDD traffic into the UK, and possibly other European markets in the future. This agreement will allow the two carriers to gain additional economies of scale and improve cost structures.

Analytical Summary

• Current Perspective: Positive on Tata Communications’ signing a voice exchange agreement with BT Group, because it will strengthen the carrier’s competitive position in the challenging wholesale voice market. The agreement with BT will boost Tata Communications’ wholesale voice revenue and improve its cost structure for terminating traffic in the UK. Moreover, the deal demonstrates Tata Communications’ strengths in managing large wholesale outsourcing contracts and gives the company greater credibility to win other deals in the future. Likewise, BT will be able to improve its TDM offerings within Tata’s core footprint countries such as India, South Africa and China.

• Vendor Importance: High to Tata Communications, because wholesale voice services have been commoditised and the company needs such major deals to enlarge its scale to create a more profitable voice business. It is also crucial for the company to lower its costs for terminating its voice traffic, and the agreement enables Tata Communications to terminate voice traffic in the UK via BT’s network and in more countries in the future. BT does offer a strong TDM network across several key European countries.

• Market Impact: Moderate on the international wholesale voice market because two Tier 1 carriers have teamed up to leverage the other’s network for voice termination. This agreement effectively enlarges the footprint of the two carriers and improves their cost structures for offering voice services. Carriers that are providing voice termination services to BT will be impacted since all voice traffic outside BT’s footprint in Europe will be routed through Tata Communications’ network.

CLIENTS ONLY

Current Perspective

Competitive Positives and Concerns

Recommended Vendor Actions

| Client access - Full report in Wholesale Telecom Services | More information

Recommended Competitor Actions

• Since the deal with BT really addresses legacy TDM business, there could be opportunity for major competitors such as Cable & Wireless, Verizon Business and others to work with Tata Communications in developing the IP services market around voice and other IP value-added services.

• Belgacom International Carrier Services (BICS) should highlight that the 20% stake South Africa’s MTN is likely to acquire (pending regulatory approval) will enable the company to increase its size and enter new market segments. BICS’ scale and reach may be enhanced significantly if speculation holds true and MTN (the prospective 20% stakeholder) merges with Bharti. While this will not be cleared for several months, there is an opportunity for BICS to become a sizeable global player which it can then exploit.

• While Global Crossing can highlight to customers that they have significant capabilities in Europe and APAC countries, they should anticipate that BT/Tata Communications are likely to improve their TDM business using a scale

Recommended End User / Customer Actions

• Customers should see this as a straightforward TDM traffic exchange deal between two large providers with complementary footprints between Europe and APAC. The biggest impact is likely to be between the Indian and UK markets and expanding this deal to other countries is more of a secondary focus.

• Wholesale customers should also be aware that Tata Communications will offer some additional routing capabilities, based on its existing platform, and online management tools. However, providers should also consider how, for example, the routing platform could meet their end-customers demands on price and quality.

CLIENTS ONLY

Current Perspective

Competitive Positives and Concerns

Recommended Vendor Actions

| Client access - Full report in Wholesale Telecom Services | More information

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