Tata Communications

For exclusive use at NMIMS, 2015
Indian School of Business

ISB041
June 25, 2014
Srinivasa Addepalli | Prashant Kale
Tata Communications: Emerging Markets Growth Strategy

It was the evening before the quarterly board meeting of Tata Communications (TCL) in July 2012.
Mukesh Verma, TCLs Chief Strategy Officer (CSO), reviewed his presentation. It appeared obvious
to him that the board would support the concept of expanding into new home markets; he had
gathered as much from earlier informal conversations. But his presentation went beyond the concept
stage it included a specific investment proposal. The strategy team had, for several weeks, been
1
hard at work evaluating an opportunity to acquire Pascal, a Russian telecommunications company.
The teams recommendation was to make a non-binding offer to Pascals private equity investors. But
Verma was not sure if it was a simple go/ no-go decision; in fact, he hadnt even discussed this with
many members of the companys Global Management Committee (GMC). If TCL were to proceed
with the non-binding bid due the following week, he would have to convince the Chief Executive
Officer (CEO) tonight so that the proposal could be included in the board presentation. Verma needed
to make a few calls urgently.
THE GLOBAL TELECOMMUNICATIONS INDUSTRY

Globally, telecommunications (telecom) was a US$2.1 trillion industry in 2012, and was expected
2
to grow 5.1% per annum to US$2.7 trillion in 2017. Nearly 60% of the total US$2.1 trillion industry
was contributed by wireless services. Of the remaining US$800 billion in wireline, over 80% came
3
from basic services such as voice and low-bandwidth data services. The market was also segmented
based on the type of customers: enterprises, including small businesses, and individuals (usually
referred to as consumers). Enterprises were estimated to contribute about US$650 billion to the
telecom market in 2012, of which nearly US$250 billion was for wireless services and US$400 billion
4
for wireline voice and data services.
Enterprises purchased a variety of voice and data services from telecom operators. These
included traditional telephone services for voice communications, data lines to link their offices or
connect to the Internet, and newer services that included data centers to store their information
technology (IT) applications and data, audio and video conferencing solutions and outsourcing of their
telecom infrastructure management.
1
Companys name disguised for confidentiality reasons.

Worldwide Telecommunications Industry Revenue to Reach $2.7 Trillion by 2017, says Insight Research, The Insight
Research Corporation, January 2, 2012, http://www.insight-corp.com/pr/1_2_12.asp accessed on December 10, 2013
3
Ibid.
4
Tata Communications internal estimates.
2
Srinivasa Addepalli and Professor Prashant Kale prepared this case solely as a basis for class discussion. This case is not
intended to serve as an endorsement, a source of primary data, or an illustration of effective or ineffective management. This
case was developed under the aegis of the Centre for Teaching, Learning, and Case Development, ISB.
Copyright @ 2014 Indian School of Business. The publication may not be digitised, photocopied, or otherwise reproduced,
posted or transmitted, without the permission of the Indian School of Business.
This document is authorized for use only in Strategic Management . by Dr.Bala K.,Prof.Gayathri S., Prof.S. Addepalli,Prof. Kannan, Prof.U. Jayaram,Prof. Love Tandon, NMIMS from December
2015 to June 2016.

ISB041
In addition, they also paid for wireless voice and data connections for their employees, and were
increasingly adopting value added services (e.g. vehicle tracking systems for logistics purposes and
remote surveillance solutions for security) using wireless networks. The enterprise wireless market
was estimated to grow over 5% per annum to 2017. However, the enterprise wireline market was
expected to grow at a slower rate of 3.9% annually, due to a decline in voice services and an almost
flattish trend in data connectivity services. Managed services and outsourcing were expected to
partially compensate for the decline in traditional wireline services (see Exhibit 1 for a summary of key
enterprise service offerings and terms).
The largest players in the enterprise wireline market were the original incumbent telecom
operators in the developed market countries. With their ownership of extensive wireline (fiber and
copper) networks and strong (though declining) cash flows from providing voice services, incumbents
such as AT&T and Verizon in the United States, BT in the United Kingdom, Orange in France, NTT in
Japan and Deutsche Telekom in Germany dominated the enterprise markets in their respective
countries. Further, with most of the largest multinational corporations (MNCs) having their origins in
5
these five markets, these operators tended to be their primary choice for providing telecom services
for their cross-border requirements.
THE TATA GROUP6

Founded by Jamsetji Tata in 1868, the Tata group of companies was one of the largest Indian
conglomerates, with over 100 operating companies in seven business sectors: communications and
information technology, engineering, materials, services, energy, consumer products and chemicals.
Tata companies employed over 500,000 people worldwide and earned US$100 billion in revenues
7
during 2011-12. Nearly 60% of the groups revenues came from its international operations, from
markets outside India. Tata Sons Limited and Tata Industries Limited were the two holding companies
that had varying levels of ownership among the group companies. Every Tata company, including 32
that were publicly listed, operated independently and was managed by its respective board of
directors.
The Tata group created Indias first and largest IT company, Tata Consultancy Services (TCS), in
1968, long before India became known for its software prowess. TCS, which began its journey as a
division of Tata Sons, was hived off and publicly listed in 2004. In 2012, TCS employed over 200,000
people and recorded revenues of US$10 billion. TCS served nearly 1,000 large MNCs around the
8
world and its customer base included 49 of the Fortune 100 companies.
The Tata groups first major venture in the communications industry was Tata Teleservices Ltd
(TTL), which began in 1996 as a fixed line telephone provider in the southern Indian state of Andhra
Pradesh and eventually expanded to become a nationwide provider of mobile services by 2005. In
2009, Japans leading mobile operator, NTT DOCOMO, acquired a 26% strategic stake in TTL and
the companys mobile services were rebranded as Tata DOCOMO. A year later, TTL became the first
mobile operator to launch third generation (3G) mobile services in India. TTL primarily served
consumers and small businesses with predominantly mobile/ wireless offerings.
5
293 of the Fortune 500 companies were from the US, UK, France, Germany and Japan. See Global 500, CNN
Money, July 23, 2012, http://money.cnn.com/magazines/fortune/global500/2012/full_list, accessed on December 10,
2013.
6
Tata Group website, http://www.tata.com/aboutus/sub_index.aspx?sectid=8hOk5Qq3EfQ= accessed on December 10,
2013
7
Tata Group website, http://www.tata.com/htm/Group_Investor_GroupFinancials.htm accessed on December 10, 2013
8
Tata Consultancy Services website, http://www.tcs.com/careers/campus/about_tcs/Pages/default.aspx accessed on
December 10, 2013.
2 | Tata Communications: Emerging Markets Growth Strategy
2015 to June 2016.

ISB041
TATA COMMUNICATIONS
Origin and Privatization
TCLs origins can be traced back to the Indian Radio and Cable Communications Company, which
began providing international communications services to and from India in 1932. The company
became a department of the Indian government following independence in 1947, and in 1986, was
incorporated as Videsh Sanchar Nigam Limited (VSNL), a company wholly owned by the government
of India. VSNL was the only company with a license to provide international voice and data
connectivity in India. In 1999-2000, VSNL became the first Indian government owned company to
have a public offering, not just in India but overseas as well. In February 2002, the Tata group
acquired a 45% stake and management control in VSNL the culmination of a long and public
divestment process. The Tata group saw VSNL as filling a gap in its goal of providing a wide bouquet
of telecom services, including international connectivity, to Indian customers. The government
continued to hold a 26% stake in the company, with the rest held by public shareholders. VSNL
shares were listed on the Bombay Stock Exchange (BSE) and the National Stock Exchange of India
(NSE) and its American depository receipts (ADRs) were listed on the New York Stock Exchange
(NYSE).
The government had already decided as part of its liberalization policies that VSNLs monopoly on
international telecom services would end on March 31, 2002. The company faced considerable
competition in its core and highly profitable business of carrying international voice calls to and from
India. Within two years, its revenues and gross margins from that business fell almost 70-80%. The
companys management was left with the twin challenge of eyeing new revenue sources while
undertaking a drastic reduction in its largely fixed cost operations.
VSNLs infrastructure in 2002 was mostly in the form of capacities on international submarine
cables and satellites that helped connect India with the rest of the world. The company management
turned its attention to building capabilities within India, rolling out high-speed fiber networks
connecting about 400 major cities to each other. In addition, VSNL also laid fiber networks within the
top 12 cities to extend international and national connectivity to central business districts. The goal
was to provide large corporates, mostly banks and software and outsourcing companies, with very
high-speed data networks to their various branch locations or client sites. In 2003-2004, VSNL also
began the construction of a submarine cable to connect Chennai on the west coast of India and
Singapore; this was expected to primarily serve Indian IT firms that required connectivity to various
technology hubs on the west coast of the United States.
Global Expansion (2004-07)

The transformation of VSNL from a public sector monopoly to a global challenger was also aided
by several overseas acquisitions and investments during 2004-2007. VSNL acquired Tyco Global
Network (TGN), a division of Tyco International, for US$130 million in 2004. TGN had submarine
cables across the Atlantic and Pacific oceans as well as additional connectivity in Europe. Tyco had
built these cables for a reported US$2.5-3 billion during the telecom boom of the early 2000s, but the
dot-com crash bankrupted many such cable systems. The acquisition of TGN, combined with the
cable systems that VSNL already owned and a few that it built later, made the company a leading
provider of intercontinental high-speed connectivity. The subsequent dramatic surge in demand for
bandwidth (aided by the growth of services such as Facebook, video conferencing, mobile broadband,
etc.), validated the companys bet on acquiring critical and valuable telecom infrastructure during a
downturn.
Within weeks of completing the TGN acquisition, the company announced the purchase of
Teleglobe, an NYSE listed company, for US$239 million. Teleglobe was a leading provider of
international voice services and operated a global Internet backbone network. Teleglobe was
headquartered in Montreal, Quebec and majority owned by the private equity firm Cerberus. The
combination of VSNLs strong international voice position in India and Teleglobes global volumes and
Tata Communications: Emerging Markets Growth Strategy | 3
2015 to June 2016.

ISB041
operating efficiencies created an industry leader in the international voice market. Further, Teleglobes
Internet backbone and the TGN submarine cable network shared strong synergies.
The VSNL-TGN-Teleglobe consolidation had become a case study on acquisition integration.
Recognizing the superior market knowledge and systems that Teleglobe possessed, the combined
voice business was integrated into one organization under the leadership of the Teleglobe team. This
led to very high levels of goodwill as well as greater than anticipated synergy benefits. VSNLs
leadership believed that in order for the company to be truly global, the organization structure needed
to enable the strategy. The best talent should be hired from wherever it was available and located
wherever it made the most business sense.
Entry into South Africa (2005 onwards)

In 2005, VSNL applied to become the strategic partner (with 26% stake) for a new fixed-line,
second national operator license in South Africa with an investment commitment of about US$200
9
million. After several delays in the licensing process and initial hiccups in rolling out its network,
Neotel launched its services in late 2006. Finding experienced local managers with skills in nextgeneration technologies and services was a major challenge for Neotel, an unknown brand in the
market. While TCL, as VSNL had been renamed at the end of 2007, had sent some of its experts on
deputation to build the business, it decided that Neotel would be developed as a South African
company with a local management team. Neotel was also faced with larger than planned investments
in building a fiber backbone connecting major cities in South Africa; eventually Neotel agreed to cobuild a part of the network along with other operators (who were both competitors and potential
customers), in order to improve the economics of the investment.
In 2008, the Tata group increased its stake in Neotel to 56% by buying out other shareholders; it
10
was expected that the majority stake would promote faster decision making at Neotel.
TCL
considered South Africa to be an important market, strategic to its global enterprise and carrier
strategy. Africa in general, and South Africa in particular, was on the radar of several MNCs; further,
many large South African companies were also seeking to expand into the rest of Africa and Europe.
The TCL and Neotel sales teams had successfully bid for a few large, multi-country network deals and
the pipeline for such opportunities was increasing. TCL had also helped Neotel pioneer some
innovative managed services in the South African market. It was estimated that about 10% of Neotels
revenues in fiscal 2012 from the enterprise segment were the result of this joint engagement with
TCL.
However, it was not all easy going at Neotel. Its losses for fiscal 2010 increased to ZAR 1.15 billion
(about US$157 million) from ZAR 739.5 million the previous year. Towards the end of 2010, Neotel
announced a major restructuring exercise to right-size and right-skill the organization in light of its
slower than anticipated growth. Even so, in 2011, TCL had to increase its stake in Neotel to 61.5% by
buying out some shareholders who were not keen to continue funding its operations.
Finally, during the quarter ended September 2011, about five years after it began operations,
11
Neotel became EBITDA positive. Although it had been an arduous journey, it was becoming clear
that Neotel was a growth driver for TCLs business portfolio. Neotels revenues were at US$360
million (a growth of 19% over the previous year) in fiscal 2012, contributing 12% to TCLs topline (see
Exhibit 2 for TCLs financials from 2010-2012 and Exhibit 3 for segment-wise performance). The
management estimates for fiscal 2013 were to grow revenues by at least 10% and improve EBITDA
margins to about 12%.
Sanjai, P. R. VSNL Eyes $1 Bn Revenue from S Africa, Business Standard, April 21, 2006,
http://www.business-standard.com/article/printer-friendly-version?article_id=106042101001_1, accessed on December
10, 2013.
10
Tatas Hike Stake in SA's Neotel to 56%, ET Bureau, The Economic Times, June 25, 2008,
http://articles.economictimes.indiatimes.com/2008-06-25/news/27693357_1_tata- communication-tata-africa-tc,
accessed on December 10, 2013.
11
EBITDA refers to earnings before interest, taxes, depreciation and amortization.
2015 to June 2016.

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New World of Communications (2008-12)

The VSNL legacy and the TGN and Teleglobe acquisitions had given TCL a strong presence in the
wholesale market, i.e., serving other telecom service providers with voice, data and Internet
connectivity. However, the wholesale business was considered a slow growth and relatively low
margin business; TCL, like many of its peers, wished to grow its revenues from the enterprise
segment, which had stickier relationships and therefore better margins. TCLs major focus during its
first five-year plan period (2007-2012) was to target large corporate customers that wanted multicountry or multi-region telecom services. TCL launched a range of services that leveraged its core
infrastructure strengths to provide connectivity (e.g. virtual private networks), collaboration (e.g. video
conferencing) and cloud (e.g. storage on demand) services to its customers.
TCL termed its strategy a New World of Communications with three major dimensions:
1. Emerging markets focus: TCLs major competitors were developed market players, unlike TCL,
which had its roots in India and investments in Asia, Africa and the Middle East. It sought to
position itself as the go-to provider of services when large corporates sought to expand in the
emerging market regions.
st
2. IP and cloud services: Most of TCLs infrastructure had been built in the 21 century, whereas
its competitors had a significant amount of older technologies to grapple with. This enabled
TCL to offer customers the latest technologies and standards since it did not have to protect
considerably large legacy revenues. Further, TCL sought to offer innovative commercial/ pricing
models that enabled customers to reduce upfront technology investments and only pay per
use.
3. Asian touch customer experience: The telecom industry was infamous for its poor customer
service. TCL, as a challenger, tried to be more flexible and responsive than its peers. In fact,
the company set itself an audacious goal of becoming the Singapore Airlines (SQ) of the
telecom industry.
By 2012, TCL was a global telecom service provider offering voice, network, collaboration and IT
infrastructure services to telecom service providers and large enterprises. TCL was the number one
provider of network services to enterprises in India. It was also number one globally in international
voice traffic with over 45 billion minutes per year. TCL owned and operated the worlds largest
submarine cable network the only network that circumnavigated the globe. It operated a leading
12
Internet backbone, ranked seventh globally by size and was among the top 10 in most regions
worldwide.
TCLs consolidated revenues in fiscal 2012 were nearly US$3 billion (a 13% growth over the
previous year) with an operating margin of 12.6% and a net loss of US$166 million. TCL employed
about 7,000 people in March 2012.
SECOND HOME MARKET STRATEGY

Ever since TCL embarked on its strategy of targeting large MNCs for their global connectivity and
services requirements, it had felt the need for home markets beyond India. In the 2009 strategic
planning exercise, TCLs three-year revenue forecast was compared with that of its major competitors
(see Exhibit 4). It was very clear that even with 12-15% annual growth, TCL would be a very small
player in the global business-to-business (B2B) communications market. The major cause for this was
the relatively small size of the Indian enterprise telecom market compared to the home markets of
TCLs primary competitors such as AT&T, Verizon, BT, Orange Business Services, etc. Given the
high fixed costs (operating expense and depreciation) of building and operating global networks and
12
Zmijewski, Earl. A Bakers Dozen, 2012 Edition, Renesys, January 17, 2013, http://www.renesys.com/2013/01/abakers-dozen-2012-edition/ accessed on March 22, 2014.
2015 to June 2016.

ISB041
products, the scale of business had a strong correlation with profitability. TCLs competitors had
average operating margins of about 20%, whereas TCL had just about broken even in its US$550
million enterprise business.
Further, TCLs network presence outside India was still relatively small. TCL had grown rapidly
since 2006 but it still had some weaknesses compared to competitors who had built up their networks
over decades. In its 2010 Magic Quadrant for Global Network Service Providers report, leading
industry analyst firm Gartner commended TCL as a niche player but also noted, Outside of India,
Tata Communications lacks deep in-country infrastructure, making it less competitive for networks
requiring many sites in each country.
A possible solution was to acquire a meaningful player in one of the developed markets, for
instance the US, the UK, France or Germany. TCL evaluated several deals during the 2007 to 2012
period and came close to concluding a few. In early 2012, TCL considered a US$2 billion bid for
Cable & Wireless Worldwide (CWW) in the UK. However, a major acquisition would not be easy to
pull off without a very strong balance sheet, something that TCL obviously did not have.
The alternative option was to persist with the emerging markets expansion strategy and replicate a
Neotel-like presence in other large and growing emerging markets. This would surely require less upfront investment than a large acquisition, but it would also mean a time-consuming journey towards
creating the desired scale. TCLs continued investments and support for Neotel reflected a larger
strategic intent, that of making South Africa its second home market after India. In a June 2012 article
in the Indian Express, the then corporate strategy head of TCL was reported as saying, "In the global
market with entrenched leaders, our brand and credibility is still young Since pure greenfield
venture takes much time, it may be better to acquire companies that have infrastructure, people,
13
systems and processes in place.
After TCLs unsuccessful attempt to acquire CWW, its leadership team revived the plan to
aggressively pursue entry into new emerging markets. The company had prioritized and analyzed the
top 30 emerging markets, including the identification of possible partners and acquisition targets in
key markets. A cross-functional group at TCL had subsequently prepared an updated list of the
priority emerging markets, limiting the list to the top 18, primarily from Southeast Asia, the Middle
East, Africa and South America (see Exhibit 5). These countries were prioritized on the basis of TCLs
existing network or enterprise business presence in the region.
The board presentation was to highlight the need for a second home market strategy and discuss
a possible means of financing the expansion. It was clear that a strong presence in Brazil, Russia,
China, Indonesia and Nigeria in addition to India would create a home market that by 2020, would
14
be comparable to the entire G7. TCL predicted that it could increase its existing home market size,
15
which stood at about US$3 billion in 2011, by four to six times by adding these new markets. Such a
plan, though ambitious, was not inconceivable. The company had identified one or two possible
investment/ partnership opportunities in each of these markets. Verma envisaged an investment of
about US$250-300 million during 2013-2016 to stitch together three to four deals of up to US$100
million each. The proposal was to create a special purpose vehicle (SPV) for all these second home
market investments (including Neotel) and obtain financing from private equity investors to fund the
deals. This would help TCL bypass the constraint of not being able to raise further equity or debt on
its own balance sheet. With 60-70% shareholding in this SPV, TCL would be able to exercise
management control over these geographically dispersed entities as well as provide the integration
services to extract synergies across all the operations.
13
Upadhyay, N. and M. G. Arun. Tata Comm Eyes Deals even as Debt Weighs, The Indian Express, June 25 2012,
http://www.indianexpress.com/news/tata-comm-eyes-deals-even-as-debt-weighs/966281/0, accessed on December
10, 2013.
14
G7 or Group of Seven is a coalition of the worlds largest industrialized nations, namely,
Canada, France, Germany, Italy, Japan, the United Kingdom and the United States.
15
The size of the enterprise data market in India and South Africa together.
2015 to June 2016.

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PASCAL: THE RUSSIAN OPPORTUNITY

Sometime in the summer of 2012, Vinod Kumar, the CEO of TCL received a call from an old
industry friend, Rick Murphy. There was an acquisition opportunity in Russia an interesting Internet
service provider (ISP) called Pascal that had built a strong base of enterprise customers over the past
five years. Its investors, mostly private equity firms, were considering an exit. Would Tata
Communications consider such an opportunity?
Verma studied the key investment highlights in the teaser document and responded:
I think this is worth looking at. If we aren't going down the developed market home route,
16
we have to create the BRIICS market portfolio. Excluding China for the time being due
to regulatory reasons, Indonesia, Brazil and Russia have to be on our agenda for us to
become the go-to player for emerging markets.
The Pascal leadership team, supported by an investment bank, had put together a comprehensive
information pack that included details on the market, competition, company strategy, product and
technology roadmap, sales and marketing, operations and financials. Visa issues prevented the TCL
team from actually visiting Moscow, so the two parties held discussions via videoconference for 10-12
hours over a few days. Whatever information was necessary at that stage of the evaluation was
obtained.
Pascal
Pascal was founded in 2003 by a group of telecom executives led by Rick Murphy, an American
with 25 years of B2B telecom sales experience in the US, Europe and Russia. The other founders and
key executives were Russians who had worked with Murphy in previous jobs. Pascals shareholder
group included five private equity firms the largest, at 25%, was a well-known Russian investor and
the others were western European telecom-focused funds. The management team had a stake of
approximately 10%.
Pascal was one of the leading providers of broadband wireless services to large and mid-sized
businesses in Russia with a market share of about 6% of revenues and 4% of volumes in 2011.
Rostelecom, the government owned incumbent, dominated the market with a 46% share of revenues;
the other large mobile operators, Vimpelcom and MTS, each had an 8% share.
17
The large corporate segment accounted for 60% of Pascals 2011 revenues of US$65 million; the
18
19
medium segment came in next with 30% and small businesses contributed 10%. Over 80% of
revenues came from domestic connectivity services Internet leased lines and virtual private
networks. The rest was from voice and managed services. Pascal did not offer any international
connectivity or voice services.
Pascals wireless network, built using worldwide interoperability for microwave access (WiMax)
20
technology, was present in nearly 200 cities in Russia. The company leased bandwidth from
Rostelecom and others to connect all these cities on a high-speed national backbone network. In
2011, Pascal employed 1,825 people, of which about 650 were in customer-facing functions, 850 in
operations and the rest in administrative functions.
16
BRIICS refers to the countries of Brazil, Russia, India, Indonesia, China and South Africa.
Defined as the top 200 companies in Russia, including multinational corporations with a presence in Russia.
Russian companies ranking from 200 to 2000.
19
About 50,000 in total.
20
WiMax is a wireless communication standard that provided up to 1 gigabit per second speeds to fixed receivers.
17
18
2015 to June 2016.

ISB041
Pascals plan for 2012 was to grow revenue by 30% to US$85 million and improve EBITDA from
21
US$6.8 million in 2011 to US$20mn in 2012. Over the next five years up to 2017 (see Exhibit 6 for
Pascals business plan), the management expected to almost double revenues to US$167 million and
treble EBITDA to US$67 million. The focus would remain on large corporates and new multinationals
that were expected to enter Russia on its accession to the World Trade Organization (WTO) in 2012.
Pascal also planned to make use of some of its unutilized spectrum in the 5GHz band to build nextgeneration wireless networks using long term evolution (LTE) technology. Given that spectrum was
scarce and Pascal already had licenses to the spectrum, the management believed this to be an ace
up its sleeve. The company had planned for capital expenditure of about US$15 million in 2012; over
the subsequent five-year period, it anticipated spending about US$18-20 million per annum in capex.
Due Diligence
The TCL team for Project Pascal included senior leaders from enterprise sales, network services
product management, network and services engineering and corporate finance, in addition to the
corporate strategy team. Following is a summary of the teams due diligence report:
Russia is growing at a gross domestic product (GDP) rate of 4% and is expected to have
continued economic growth that we can leverage and add to our top line. Pascal brings
customers, assets and a positive EBITDA business to the table. Overall, telecom market
size is expected to grow at 5.5% in Russia; the analyst firm Ovum expects enterprise
data revenues to grow 6-7% to 2016. However, according to the IT research firm
Gartner, enterprise market growth is likely to stay flat at about US$1 billion.
The current business is focused very heavily on wireless connectivity. As is the case in
most emerging markets, wireless connectivity is required to get effective coverage;
however, TCL must consider additional investment capital expenditure to target the
untapped international connectivity market in a few business hubs through a fiber
network.
22
23
A comparison of the BRIICS countries (excluding China ) on major macroeconomic

parameters shows that Russia is reasonably well-positioned in terms of size and growth
(see Exhibit 7).
Finance
Pascals CFO had mentioned that the companys net working capital was about 5% of
sales and that it had a cash balance of about US$3 million. Pascals cost of capital was
in line with the Russian benchmark of about 11%, but TCLs cost of capital was 14%.
The treasury team confirmed that TCL could easily raise new debt up to three times
additional (or acquired) EBITDA. This could be stretched to five times additional EBITDA,
but that would come with an additional borrowing cost of at least 150 basis points.
Technology
Pascal had followed a wireless network strategy similar to TCLs; its equipment vendors
were the same as TCLs. There could be some knowledge reuse from our India
experience of rolling out similar wireless networks for enterprise customers. The wireless
equipment used in about 150 cell sites could require upgradation over the next few years
because of technology changes. This could add about US$4-5 million in capex between
2014 and 2016.
21
After accounting for a US$2.8 million one-time restructuring cost in 2011 due to headcount reduction.
Prepared by the corporate strategy team.
23
TCL had attempted a joint venture investment in China during 2008-10, but abandoned the project because of
regulatory issues.
22
2015 to June 2016.

ISB041
We have no internal view or experience in rolling out the next generation of wireless
networks or using LTE technology for enterprise customers. A quick Google search
pointed to an article that mentioned a 120 cell-site LTE pilot roll-out in Malaysia that
incurred capex of US$15 million; however, that operator anticipates having to build at
least 1,200 LTE cell sites over two to three years to cover the entire country.
Product
Pascals revenue growth numbers seemed to be reasonable and consistent with past
performance trends (but outgrowing the market). Its senior management was very
impressive in terms of technology and operations knowledge, and its IT systems (mostly
in Russian) appeared to be state-of-the-art and, in some cases, better than those at TCL.
Cost forecasts appeared to be aggressive. The question was: as the network expanded
to smaller cities, would capacity utilization remain as high as it was currently? The jump
in EBITDA (projected) from 10.5% to 23.5% in FY12 was spectacular, almost
unbelievable (even after accounting for the one-time cost in 2011). We would be more
comfortable with a stable EBITDA margin of about 35%. There could be some cost
synergies in reusing TCLs product capabilities, particularly for managed services, but
local customization and language translation would surely be required. Our Neotel
experience shows that savings can be at best 5-8% of Pascals indirect costs.
Enterprise Sales
We looked at recent customer requirements related to Russia connectivity from each of
the four regions. About 20% of the deals from the Americas and Europe had Russia
requirements (mostly for Moscow and one or two other cities), but almost none for Asia
and India. Admittedly, Russia connectivity is not a major sales or marketing pitch for TCL
at this time.
Deal Mechanics
Pascals financial advisors had indicated that the deal was to be for 100% of the shareholding and
that the shareholders had invested about US$75 million over the past four years about US$50
million as equity mostly in 2008 and 2009, and about US$25 million in shareholder debt during
2010 and 2011.
Even as the teams were going through the due diligence process, Kumar and Verma were
debating whether the deal was worth the effort it was beginning to require (see Exhibit 8 for an e-mail
exchange between them). Meanwhile, Murphy shared news about a major deal that had recently been
announced in the region. Alem Communications, a WiMax provider in Kazakhstan with revenues
24
reportedly under US$50-60 million, had been acquired for US$170 million.
The strategy team also looked at market valuations for listed telecom companies in the region as
well as acquisition multiples for publicly announced deals, although in most deals, accurate
information was not available (see Exhibit 9). It was not clear if these multiples could be used to value
Pascal.
BOARD MEETING
Pascals advisors had indicated that the sellers were expecting bids at a valuation north of US$150
million and that a preliminary, non-binding bid was due the following week. Verma had to decide
whether there was a reasonable business case to make an investment either a 100% acquisition or
24
English translation of the report can be accessed at http://www.comnews.ru/print?nid=67367.
2015 to June 2016.

ISB041
a strategic stake in Pascal. Finding good acquisition targets in emerging markets, particularly a
market like Russia, was not easy. If they delayed responding with their bid, it was possible that some
local player might easily acquire Pascal for its spectrum. Thus, it was very important to determine
what Pascal was worth to TCL. Moreover, this would not be an easy deal in a familiar market. What
challenges should TCL be prepared for?
Tata Communications had taken contrarian market positions on several occasions in the past and
those risks had paid off for the most part. Could this be another black swan?
2015 to June 2016.

ISB041
EXHIBIT 1
ENTERPRISE TELECOM SERVICES OFFERINGS
Connectivity Services
Most enterprises or organizations created a private network that securely connected all their
servers or computers. Within the same building or premises, this was done using a local area network
(LAN); in most cases, these connections were internal to the enterprise. Multiple offices that were
geographically distant could be connected directly to each other using high-speed data lines called
private leased circuits these circuits were often leased from telecom service providers. Such a
circuit within a country was called a National Private Leased Circuit (NPLC) and one across borders
an International Private Leased Circuit (IPLC). These networks could be used to carry both voice and
data connections.
Increasingly, employees were required to access their enterprise applications such as e-mail or
Intranet from outside their office locations. This required the organization to extend its private network
and allow employees to connect from their homes or via mobile phones. Further, there could be
several remote branch or warehouse locations that needed to be connected to the corporate network
but were too numerous to be economically connected by leased circuits. A Virtual Private Network
(VPN) extended the corporate network using the public Internet while retaining the security and
control of a private network.
Enterprises also needed to be connected to the Internet for their employees to access websites or
e-mail or for their customers or partners to access their websites. An Internet Leased Line (ILL) was a
dedicated connection to the Internet provided by an ISP or telecom service provider. ILL speeds
typically ranged between 2Mbps and 1Gbps.
Managed Services
Managed services was a widely used but loosely defined term to represent various value-added
services, often integrating multiple information technology (IT) and telecom components. Further, the
term was meant to distinguish complex, outsourcing-like services from commoditized voice and data
services, with the inherent assumption that managed services led to sticky relationships with
customers and greater margins.
In their most complex form, managed services could involve the outsourcing of IT software or
applications, the servers on which the software resided, the data centers where the servers were
located and the telecom networks that connected the data centers to the corporate offices and the
Internet. The trend was not to use customized or dedicated IT software or hardware, but rather to
purchase access to the resources as and when needed. Such shared (standard) software or
hardware, charged on a pay per use basis and delivered using the Internet, were known as cloud
services.
Source: Prepared by the authors.
2015 to June 2016.
1382
1551
-48
-47
-3
310
2484
FY11
CORE
1550
1581
10
25
53
377
2600
FY12
-97
-84
-49
-28
98
FY10
-123
-108
-68
-41
134
FY11
STARTUP
-176
-175
-59
-3
363
FY12
TCL FINANCIALS (HIGHLIGHTS), FISCAL YEAR 2010-12

In US$ Million
EXHIBIT 2
-126
-143
-105
213
2350
FY10
-170
-155
-71
269
2618
FY11
CONSOLIDATED
-166
-150
-6
374
2963
FY12
Source: Company investor presentations.
INR/US$ exchange rate: FY10 at 47.48; FY11 at 45.57; FY12 at 47.91
* Core business refers to TCL, excluding the startup segment which was primarily Neotel.
# After accounting for minority interest in startups.
Note: FY12 has Neotel consolidated line by line at 100% and 61.5% at the PAT line; 43.16% and 49% in FY11 and FY10.
While TCL consolidated Neotels debt in its balance sheet, the Neotel lenders did not have any recourse to TCL. Therefore, TCLs primary focus was on managing its core debt.
1224
-29
PAT
1377
-59
PBT
Net Debt
-56
PBIT
Gross Debt
241
2252
FY10
EBITDA
Gross Revenue
US$ million
ISB041
2015 to June 2016.

ISB041
EXHIBIT 3
TCL FINANCIALS (BY SEGMENT), FY09-12
In US$ Million
FY09
FY10
FY11
FY12
CORE
Revenues
Voice
1224
1295
1432
1422
SP Data
498
565
557
621
Enterprise Data
444
462
495
557
2166
2322
2484
2600
318
243
310
377
Revenues
130
235
322
385
EBITDA
-40
-60
-87
11
Total
EBITDA
NEOTEL
Note: The core business had three business segments: Global Voice, Service Provider (SP) and Enterprise. The SP
and Enterprise segments offered connectivity and managed services.
Neotel revenues and EBITDA are for 100% of the company and on a stand-alone basis, without any TCL inter-company
eliminations.
Source: Company investor presentations and annual reports.
2015 to June 2016.

ISB041
EXHIBIT 4
COMPARISON OF TOP GLOBAL ENTERPRISE AND WHOLESALE SERVICES
PROVIDERS
FY12 Forecast Revenues (US$ billion)
Verizon
AT&T
NTT
BT
FT
C&W
Tata Comms
Level 3
Sprint
Global Crossing
Incumbents in the US, UK, France and

Japan dominate the market
Source: TCL Internal Analysis (2009).
2015 to June 2016.

ISB041
EXHIBIT 5
PRIORITIZED LIST OF TOP 18 EMERGING MARKETS
Countries
Sales
Opportunity
Enterprise
Presence
Government
Relations*
Telecom
Regulations
Overall
Malaysia
Philippines
Indonesia
Vietnam
Thailand
Saudi Arabia
United Arab
Emirates (UAE)
Qatar
Oman
Egypt
Turkey
Brazil
Argentina
Mexico
Kenya
Nigeria
Tanzania
Angola
* International trade volumes used as a proxy.

Note: Highest priority to existing sales opportunities.
Source: TCL Internal Analysis (2012).
2015 to June 2016.
-3.3
-11%
EBIT
EBIT Margin
-0.3
-1%
4.2
3.9
14.0%
2.0
7.0%
13.5
48.0%
4.2
15.0%
4.5
16.0%
24.3
Actual
Source: Pascal Management Presentation.
Capex
Capex to Sales
5.1
1.8
6.0%
EBITDA
EBITDA Margin
Depreciation
2.4
8.0%
15.1
50.0%
4.8
16.0%
6.0
20.0%
28.3
28.2
-6%
30.1
Revenues
% Growth
Direct Costs
% of Revenues
People Costs
% of Revenues
Operations Costs
% of Revenues
Other Costs
% of Revenues
TOTAL Costs
2009
2008
US$ million
ISB041
-0.9
-2%
6.9
6.1
14.0%
2.6
6.0%
21.3
49.0%
6.5
15.0%
6.9
16.0%
37.3
43.4
54%
2010
13.0
20%
-3.0
-5%
9.8
6.8
10.5%
4.6
7.0%
32.9
50.5%
10.1
15.5%
10.7
16.5%
58.3
65.1
50%
2011
15.4
18%
7.7
9%
12.4
20.0
23.5%
5.5
6.5%
32.8
38.5%
13.2
15.5%
13.6
16.0%
65.3
85.3
31%
Est.
2012
PASCAL BUSINESS PLAN
EXHIBIT 6
18.4
18%
15.4
15%
12.3
27.6
27.0%
7.2
7.0%
36.8
36.0%
15.4
15.0%
15.4
15.0%
74.7
102.4
20%
2013
18.1
15%
24.2
20%
14.5
38.7
32.0%
8.5
7.0%
38.7
32.0%
16.9
14.0%
18.1
15.0%
82.1
120.8
18%
2014
19.3
14%
32.4
24%
15.8
48.2
35.0%
9.6
7.0%
41.3
30.0%
17.9
13.0%
20.7
15.0%
89.5
137.7
14%
Forecast
2015
20.0
13%
40.9
27%
17.7
58.6
38.0%
10.8
7.0%
43.2
28.0%
18.5
12.0%
23.1
15.0%
95.6
154.2
12%
2016
20.0
12%
48.3
29%
18.3
66.6
40.0%
11.7
7.0%
43.3
26.0%
20.0
12.0%
25.0
15.0%
99.9
166.6
8%
2017
2015 to June 2016.

ISB041
EXHIBIT 7
COMPARISON OF BRAZIL, RUSSIA, INDIA, INDONESIA AND SOUTH AFRICA
GDP 2011
(US$
billion)
India
GDP
Growth (1116E)
Population
(million)
Area
sq. km.
(000)
Ease of Doing
Business
Ranking
Urban
Population
(%)
1887
7.8%
1202
3287
132
30%
408
3.5%
49
1219
35
62%
1857
4%
142
17075
120
73%
Indonesia
846
6.4%
246
1904
129
44%
Brazil
2474
4.0%
193
8515
126
87%
South Africa
Russia
Source: Company records.
2015 to June 2016.

ISB041
EXHIBIT 8
E-MAIL EXCHANGE BETWEEN TCLs CEO AND CSO
From: Vinod (Kumar)
Subject: Pascal
To: Mukesh (Verma)
When is the site visit planned? We should take our product team along to meet their management
and see the operations on the ground.
Can you sync up.
Best regards,
From: Mukesh
Subject: Re: Pascal
To: Vinod
We are having two Telepresence sessions of 4 hours each with them today and Friday ... meeting
was getting delayed due to a combination of visas, travel/ holiday schedules, etc.
Depending on our views after these presentations, as well as our thoughts on funding such a deal, we
can plan a visit at short notice. Will share the presentations with product team and keep them in the
loop regarding any travel plans.
Do you have an idea of who else is likely to bid for this? Any chance we can go in as a 'strategic'
partner to one of them? Doing a 100% on our own would be difficult for two reasons: funding and
operations.
Regards,
From: Vinod
Subject: Re: Pascal
To: Mukesh
I think the other bidders will be domestic companies. I am not sure if they will make good partners
from a governance perspective, but we should seriously consider this option.
But before we dive too deep into this, we should review and prioritize between three markets ...
LatAm, Africa, Russia.
2015 to June 2016.

ISB041
EXHIBIT 9
COMPARABLE VALUATION MULTIPLES
Table 1: Trading Multiples of Russian/ Central & Eastern European Peers
EV/'11 EBITDA
EV/'12 EBITDA
Russian Publically Traded Peer Set

VimpelCom
4.8
3.6
Mobile TeleSystems (MTS)
4.8
4.4
Rostelecom
5.0
3.3
Sistema
3.2
2.6
Average
4.5
3.5
Magyar Telekom (Hungarian)
4.7
4.1
Telefonica Czech Republic
5.8
5.7
Telekomunikacja Polska (Polish)
5.2
Netai (Poland)
4.3
4.8
Average
5.0
4.9
Other Players
Table 2: Acquisition Multiples (Enterprise/ Fixed Line Players)

Acquiror
Target
B2B Broadband Provider
Price
(US$
million)
EBITDA
Multiple
Date
MTS
Tascom
38
3.7
2012
MegaFon
Synterra
754
NA
2010
Sistema
Comstar
1,280
NA
2009
Vimplecom
Golden Tel
4,300
NA
2008
2015 to June 2016.

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For exclusive use at NMIMS, 2015

Indian School of Business

Srinivasa Addepalli | Prashant Kale