TATA COMMUNICATIONS: Emerging

markets growth strategy

SubhojitBagchi F002

AnkitJain F023

MitaliBansal F006

SatyajeetKulkarni F030

RajatBansal F007

PratikNandekar F040

BharathRam F017

KumarNirnay F043

ShubhenduSahani F051

Does TCL need a second home

market?
Even with 12-15% annual growth, TCL
would be a very small player in the
global B2B communications market.
Major cause- Large size of competitors
such as:
Verizon
Operating
AT & T
margin:
20%
BT
Orange business services
Break-even

Does TCL need a second home

market?
Network presence outside India was
weaker compared to the other
competitors.
Globally
2012

2017

$ 2.1
$ 2.7
bn
bn
@ 5.1% p.a

Also, the business through enterprises

contributed a larger share in the overall
business

New world of
Communications

Does TCL need a second home

market?
Emerging
markets focus

Position itself as the go-to

provider of services in emerging
market regions

IP and cloud
services

Latest Technologies. Offer

innovative pricing. Pay per use.

Asian touch
customer
experience

Improve the customer service

Therefore, in order to achieve the above

dimensions as a part of its new strategy, we feel
that TCL may need a second home market.

How does new geography add

value?
Introduce the most successful
product lines in other countries after
they have fully developed in home
markets.
Developing countries often are the
geography of choice
relatively high population growth
unaddressed market needs

Suitability of Russia as a home

market

Parameter

Distanc
e

Parameter

Distanc
e

Different
languages

FAR

Lack of colonial
ties

NEAR

Different
ethnicities

FAR

Different
religions

FAR

FAR

Lack of shared
NEAR
regional trading
MODERA
bloc

TE
Lack of common
currency

FAR

Lack of trust

NEAR

Different
values,
Parameter
norms and
dispositions
Physical distance

FAR
Distanc
e

Political hostility
Parameter

FAR
Distanc
e

FAR

Rich/poor
differences

FAR

Lack of land
FAR
FAR
border
Differences in
time zone

MODERA
TE

Low PCI

FARFAR

Economic size

MODERA
TE

Differences in
FAR
Natural
FAR
climates
resources
But
since it is service sector, Geographical
distances wont make

Russia vis--vis other EM

GDP 2011
(USD Bn)

GDP
growth
(11-16 E)
(%)

Populatio
n
(Mn)

Ease of
doing
business
ranking

Urban
Populatio
n
(%)

India

1887

7.8

1202

132

30

South
Africa

408

3.5

49

35

62

Russia

1857

142

120

73

Indonesia

846

6.4

246

129

44

Brazil
2474
4
193
126
87
20 % of the deals from America and Europe had Russia requirements but
almost none for India and Asia.
But, TCL did not have an existing network or enterprise business presence
in Russia unlike the ones it had in the top 18 emerging markets.

Pascal as entry vehicle into Russia:

Strengths and Weakness

Already had licenses to scarce spectrum that

would drive future growth
Customers, assets, and positive EBITDA
Reciprocal Synergies - Pascal followed wireless
netwrok strategy similar to TCL
Cost Synergies - reusing TCL product
capabilities.
State-of-the-art IT systems
Very Impressive senior management in terms of
technology and operations knowledge
One of the leading providers of telecom services
and connected nearly 200 cities in Russia

No international connectivity or voice services

No internal view or experience in rolling out the
next gen of wireless network using LTE
technology

Various entry options in Russia:

Acquisition deals are competitive, based on market prices, and
risky; alliances are cooperative, negotiated, and not so risky.
Three sets of factors need to be analyzed before deciding on a
collaboration option:
1. The resources and synergies the organization
desires,
The company didn't have much of redundant resources
2. The marketplace it competes in,
Overall the telecom market is expected to grow at 5.5%,
however a Gartner report claims that enterprise market
growth is likely to stay flat at about US 1Billion$
There is tough competition in the Russian broadband
services market. It is dominated by Rostelecom, a govt.
owned company.

Valuation of Pascal for TCL

Other Russian Firms

Pascal

Company Name
VimpelCom
Total Equity : USD 50 million

Mobile
Total Debt : USD 25 million
TeleSystems
(MTS)
For 2012 (PASCAL)

Rosetelcom
EBITDA : USD 20 million

Enterprise value : 20*3.5 = USD 70 million

Sistema

Equity value : Enterprise value Total debt

+
Average

cash

= 70-25+3
Parameters
Total Cost

Direct Cost

Indirect Cost

Saving
6.5%of IC

=
USD 48 million
2012
2013

EV/EBITDA
3.6
4.4

3.3
2.6
3.5

65.3

74.7

2014
82.1

5.5

7.2

8.5

9.6

10.8

11.7

59.8

67.5

73.6

79.9

84.8

88.2

3.887

4.39

4.78

4.8

5.51

5.73

suming net savings as 6.5% (5-8 is the best)

2015
89.5

2016
95.6

2017
99.9

Valuation of Pascal for TCL

CAGR : (5.73/3.89)^(1/5) 1 = 8 percent

After merger happens :

Net worth : 3.89/0.08 = USD 48.625
million
Premium paid = USD 102 million

So based on valuation TCL will

have a net loss of over USD 50
million

allenges and risks if TCL acquired Pas

The regulatory regime in emerging markets:
Service provision in emerging markets is ultimately
governed by the local regulatory regime. Licenses are
either totally unavailable to foreign operators, seriously
limited in number or are prohibitively expensive and can
take years to finalize far too long for a multinational
corporation to wait for local connectivity.

The costs of the initial investment:

Acquiring a 100% stake in Pascal would pose the
challenge of funding the need to leverage relationships
that can facilitate effective agreements with local
operators. TCL was facing a constraint of not being able
to raise further equity or debt on its balance sheet

allenges and risks if TCL acquired Pas

Understanding the local culture and its
distinctive business practices
Making connections with local businesses
Finding skilled staf
Deficiency in the necessary infrastructure
in place to provide enterprise customers
with services:
Pascal did not offer any international connectivity or
voice services. Also the company leased the bandwidth
it operated on

Growth issues:
Overall the telecom market is expected to grow at 5.5%,

Thank You