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12/1/2004
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Tata Unit Targets U.S.-India Communications Traffic

The telecom arm of Tata Group is investing in the United States and elsewhere to grab data traffic driven in part by outsourcing.

India's multibillion-dollar Tata Group is expanding its telecommunications network and hiring more staff in the United States in an effort to grab a greater share of the growing communications traffic between the two countries and within India.

Tata earlier this year created VSNL America, a unit of India's largest telecom carrier, Videsh Sanchar Nigam Ltd., to sell directly to U.S. businesses that have set up shop in India or are outsourcing tasks to that country. Tata already has invested $3.5 billion in telecommunications and has earmarked another $4 billion for additional investments in the sector, says Vinod Kumar, executive director of Tata's international business group, which is based in Singapore.

"Over the next year we want to offer more services, including end-to-end managed services, build out our sales and support team in all major U.S. cities, and add a couple of additional network nodes to the ones we have in New York and San Francisco," Kumar says.

Most international communications traffic is carried on undersea cables owned by groups of international carriers. Fees for those services are shared by carriers in the originating and terminating countries under bilateral agreements. But VSNL, like other international carriers, wants to provide end-to-end services and not share the revenue with other carriers. "Today, 90% of the traffic between the U.S. and India is carried on a bilateral basis," Kumar says. "I expect that to decline to 65% in a year."

Tata took control of VSNL, which had been government-owned, three years ago. At that time, the vast majority of its revenue came from international voice traffic, Kumar says. Tata has been investing to transform the company so it's able to handle the growing data traffic going in and out of India.

VSNL last month spent $130 million to buy Tyco International's 60,000-kilometer undersea cables, which stretch across the Atlantic and Pacific oceans. Also last month, the company launched Tata Indicom Cable, which will connect India and Singapore. Within India, VSNL has a nationwide fiber network that reaches 300 cities, and it's building metro networks in 35 cities.

Communications capacity in and out of India is tight, and outsourcing is just one of the reasons, Kumar says. "Most major multinationals are establishing a presence in India, and there is significant demand for connectivity to the U.S., Europe, and elsewhere," he says. "With cable paths running east and west from India, we can serve all types of customers."

VSNL is taking a gradual approach to expansion. "We don't want to be in 65 countries with 100 nodes," Kumar says. "We will focus on providing high-speed, multiprotocol, multicable connectivity to 12 or 15 locations around the world. We don't intend to build regional networks. There are others who can do that better than us."

Kumar expects bandwidth into India to double in the next year as VSNL and other carriers increase capacity. "A big portion of new growth will come from end-to-end managed services."

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