Enterprise Agility Is New Demand Driver

Striving to become more responsive to their customer needs, enterprises opened up more to the Ethernet and MPLS solutions and delivery models like cloud

The continued global focus on India as an emerging economy, despite a slowed GDP growth rate in the recent years, coupled with a growing domestic market across various verticals, kept the enterprise data services in good health, though growth was not ubiquitous and always a given.

The economic pressures weighed on the enterprises, which drove enterprises to do more with their network investments. The unsaid need to transform and become more agile and responsive to the demands of their customers, in turn, made enterprises favor the more dynamic data connectivity options over the relatively fixed ones.

This implied that wherever possible, enterprises preferred to go for connectivity services based on MPLS and Ethernet technologies that could serve more bandwidth options to suit the different budgetary constraints of enterprises, as compared to the options like TDM-based leased lines that offered relatively smaller range of bandwidth choices. Moreover, the circuitswitched nature of legacy services made them less agile and cost effective for enterprises than the packet-switched nature of the new-generation services.

Leading Players

Enterprise services are a relatively smaller but also less crowded business segment for service providers. The key telcos focused on this segment are Bharti Airtel, BSNL, Reliance Communications and Tata Communications. Their suite of offerings include: domestic leased circuits, international leased circuits, MPLS VPN and Ethernet-based services, among others. Most of these players also offer a wide range of thirdparty data center services and have also been working to strengthen their cloud service portfolios.

Some of the leading IT service providers, ISPs and pure-play data center service providers like Sify, Wipro and Netmagic also compete with the telcos in various sub-segments of enterprise data services, most of which can be offered in two flavors—as stock services and as managed services.

For Airtel, the quarter ended December 2013 was particularly good and represented a growth of 13.9 percent to Rs 1,69.5 crore as compared to Rs 1,421.9 crore in the corresponding quarter last year. EBITDA stood at Rs 413.9 crore during the quarter as compared to Rs 215.4 crore in the corresponding quarter last year, a growth of 92.1 percent. The increase in EBITDA during the quarter was also helped by a one-time settlement with other carriers and bad debt recoveries from customers. During the quarter, the company said, it also tactically reduced the lower margin voice business.

Tata Communications also performed well during the year. Tata Communications had said in an earlier filing that revenue from leased circuits (international and national) and Indefeasible Rights of Use (IRUs) increased from Rs 1,301.5 crore in fiscal 2012 to Rs 1,644.6 crore in fiscal 2013. The increase was predominantly due to growth in revenues from other service providers and the addition of new circuits, it said. Indefeasible rights of use refers to the company’s right to exclusively use a substantial portion of the capacity in the cables for substantially all of the economic lives of the cables.

Revenues from Internet leased lines had increased from Rs 589.8 crore in fiscal 2012 to Rs 726.5 crore in fiscal 2013. The increase was predominantly due to growth in revenues from enterprise customers and the addition of new circuits. Also, Internet data center revenues grew to Rs 378.1 crore in fiscal 2013 from Rs 350.3 crore in fiscal 2012 mainly due to an increase in the company’s data center capacity globally and increased sales to customers, it had noted in the filing.

Reliance Communications boasted of a corporate clientele of over 39,000 Indian and multinational corporations, including small and medium enterprises and over 830 global, regional and domestic carriers. The enterprise customer base of the company included 880 of the top 1,000 enterprises in India, it said.

In next 3-5 years, RCom had noted in its last annual report that it would be lining up a host of high end products for internet connectivity for specific industry segments, like BFSI and retail keeping in view varying needs of various segments. It also said it was in an advanced stage of launching a unique IPV6 solution in the market.

RCom also said it would continue to strengthen its focus on the SMB market, to provide cost optimized and efficient connectivity options to SMB and enterprise customers. It used a strategy to setup a focused unit for the Government segment, which it said had paid off well and would continue to be a growth driver, given that the government is expected to continue investing in automation and digitization.

What Next?

Going forward, the role of data centers is expected to become more and more important in the delivery of various enterprise data and connectivity services. Next-generation models like Cloud, Network Function Virtualization and Software Defined Networking would help make data centers play a pivotal role in the delivery as well as management of the services.

As data center and cloud-based delivery models mature, enterprises could be looking forward to automated provisioning of services though web-based dashboards, among other such offerings.

As such, telcos would be looking at their data center businesses more strategically than ever before. Players like Tata Communications and Bharti Airtel were understood to have considered plans to grow their data center businesses into separate entities, though there have not been any concrete announcements from them in this regard. Nevertheless, this continues to be a strong thought process in the top echelons of the industry.