Verwaayen has been Chief Executive
at the UK-based telecom behemoth British Telecom (BT) since February
2002, and has been steering the company through a crucial strategic
shift in terms of service offerings. During a visit to India last
month, he shared his vision and strategy for the £18-billion
(Rs 1,51,000-crore) telecom major with Business Today's , even as he staunchly denied having missed
out on a lucrative opportunity in the basic services market in India.
You seem to have been treading pretty carefully
in the Indian market. We don't see too much of BT in most of the
fast-growth telecom segments in India. Why is that?
Well, first of all I am not particularly sure
that is a fair picture. I have a different perspective. The telecom
world globally has changed dramatically in the last three to four
years. We had an interesting period at the end of the 90s in which
people thought that telecom would explode into a licence to print
money, and therefore whatever debt we took on would be okay. The
reality, of course, was that debt grew faster than companies could
absorb and there has been a massive restructuring in the world that
has, I think, affected all telecom companies. At the same time,
the market as such uses all the new technologies so you see two
things at the same time. Telecom companies need to rethink their
business models around the world because their customers are moving
on at high speed. Now comes the next phase of telecom. For a long
time it was a commodity market where we sold capacity. The change
now is from capacity play to capability. You do not simply sell
connectivity; you need to sell integrated services. The second change
is that we lived in the narrowband world where there were specific
networks for specific services: Voice network for voice services,
data network for data services and video network for video services.
That is now all glued together in broadband. Third element-telecom
companies were organised around products. Now it has to change to
being organised around customers. So, if you take those three elements,
you can see a new pattern emerging. For BT, this meant a refocus
of strategy to become for our customers the ICT (information and
communications technology) company around the world. The 'C' clearly
means that communications has nestled itself right in the middle
of the it business. Today you need the capability of getting best-in-class
around the world and not worry about geography. That is the new
thing. Now, if we go to India today, we are not going to the country
as a region to sell capacity or connectivity. We go there because
our customers are there and we are adding capabilities that our
customers need. That's the long answer to your question.
Still, the Indian market per se is booming
in telecom and even in areas where you have managed to establish
yourself, such as international connectivity, your competitors such
as Cable & Wireless (C&W) are doing better than you....
| BT IN INDIA
A primer on British Telecom's activities
The deregulation of India's telecom
sector in 1995 saw British telecom make its first foray into
the country. Its initial strategy was to operate through alliances
with local partners such as telecom major Bharti. BT held a
22.5 per cent stake in Bharti Cellular, which rose to 44 per
cent subsequently. In October 1997, Bharti BT, a 50:50 JV between
BT and Bharti Enterprises, was founded for supplying VSAT solutions.
The JV did particularly well with a marketshare of 27 per cent
and a 97 per cent year-on-year growth in revenue. Then, in 1999,
Bharti BT Internet Limited (BBIL), a 51:49 JV between Bharti
Enterprises and BT, started providing internet subscription
services under the brand name "MantraOnline". BT subsequently
exited all its investments in Bharti in 2001, as part of a global
|Core focus: Arun Seth, CEO, BT
Today, BT focusses on core services like IP infrastructure,
CRM, conferencing and outsourcing, which it provides to companies
in the it, ITEs, pharmaceutical, manufacturing and banking
sectors. On the retail front, BT has entered into contracts
with two suppliers, HCL BPO Technologies and Progeon, to create
two new next-generation contact centres in Delhi and Bangalore.
You keep talking of connectivity, but that is
a market that is old world, to be honest. It's much more about added
capabilities today and, yeah, maybe for some connectivity business,
C&W and other companies are there, but I don't see myself as
a competitor for the C&Ws of this world. I think what we have
tried to do here is establish a capability underground that will
help our customers get the real benefit of BPO and enhanced it services
and that requires much more than just connectivity between A and
B. Now, to comment on India as a market, I am a great admirer of
what has happened here. India has changed the face of the it world.
The model in place is a global one, which means technology allows
best-in-class resources to be in charge of a business that takes
place all around the world. Over time, I see many more global decisions
being taken in India. If that's the case, India is not an outsourcing
hub; it becomes a component of a global business concept. If I am
right about the situation, then I should worry about the capability
of the market rather than connectivity, and from a telecom perspective
we should look to India and expect it to behave as a mature market.
So a lot of the protectionism is unnecessary and unhelpful if you
look at exploitation of capability worldwide. BT is investing in
India. We have directly and indirectly 6,000 people in the country
and are shifting more and more intellectual capability here, which
means you base your own business capability on the ability of India.
That is a different perspective.
However, you have still missed some very
key opportunities in areas like wireless, where you have exited
your investments in Bharti while companies such as SingTel and Hutchison
Whampoa have capitalised on this market. Could you explain this
At the end of the 90s, BT, like many others
(telcos), was in a debt situation that was unsustainable. So if
you go back to redefining strategy, you have to ask yourself where
is it that I have a licence to sell, what does my logo stand for.
The time has gone when you just travelled around the world and put
your own logo on the first tree you see and say 'now I am here'.
There must be a business logic and we have a compelling one, which
is not just bringing our money and jumping into foreign markets.
We are building on our existing global customer base. We have the
largest growing ICT network in the world; 19 out of the top 20 major
financial institutions do business with us. In the consumer business
in India, there are enough players who have the licence to sell.
They don't need us, and the fact that you can bring money is not
good enough to sell.
I am not so sure that we have missed the opportunity,
but to be fair, we are in the restructuring phase and one of the
things has been to spin off our mobile operations. So we are now
in converged services and innovating in several areas but in the
traditional mobile operations, BT is not active. Whether or not
it's a missed opportunity, it's a fact.
Even in broadband where a 10-fold growth
in subscriber base is expected in the next four to five years, you
have no presence in India either....
You keep talking about us and the opportunity
in the basic services and we are not in those services. Two reasons
why-we don't have a licence to sell here and reselling is not allowed
in the market, which I think is a flaw that needs to be corrected
since the market is mature enough and India is important enough
to be in that phase. In the value-added services, however, you can
see a very strong stride from BT. If you look at BT in India, there
are two things-business market and value-added services. Other than
that, we have a major interest here in BPO for ourselves and our
Your revenues have been more or less static
in the last three years at about £18 billion. Are you planning
any major push on the revenue front? If so, where is it going to
What you see under the flat 18 billion figure
is a major turbulence, which is going from old to new. The old traditional
capacity play is changing dramatically to capability. So our new
wave has stuff we didn't have three years ago, growing at 30 per
cent-plus. In us dollars, it is a $5-6 billion business-broadband,
ICT, new mobility services. The older stuff is growing at 5 per
cent. This is part of a changing process. We are building a new
BT without closing shop, and the way we are doing it is very interesting
for our shareholders-it's basically a transformation story. What
we will do in the next three to five years is build the first integrated
worldwide network. We will stop having PSTN (public switched telephone
network) and separate data networks and have an integrated single
broadband network. If you have to build that and at the same time
look to growth, you can only do it by augmenting with an international
strategy. Our international strategy is based on our customers-we
go where they go and they are going more and more to India.
| THE OTHER INDIAN CONNECTION
BT also has a JV with M&M for services
Mahindra British Telecom (MBT),
a JV between British Telecom and auto major Mahindra &
Mahindra, focusses exclusively on services for the telecom
sector and has six software development centres, four in the
UK and two in India (Mumbai and Pune). Its customer service
centres are in the US, the UK, Germany, the UAE, India, Singapore,
and Australia. Boasting global clients of the likes of Alcatel,
AT&T, Cap Gemini, Ericsson, MCI Worldcom and BT Openworld,
MBT has seen consistent growth, clocking $165 million (Rs
759 crore) in revenues in 2004, a significant rise from $129
million (Rs 587 crore) in 2003. Profits, however, have dipped
from $34 million (Rs 155 crore) to $15 million (Rs 69 crore)
in the same time period due to investments in infrastructure,
training and offices. In recent times, MBT has been exploring
various options to raise capital, including a private placement
and/or an IPO in the domestic market, but these are still
at an embryonic stage. "We still plan on an IPO at some
point, but we have nothing to announce right now," remarks
a company spokesperson.
Telcos worldwide are looking increasingly
to software services for growth. Is that your strategy for Mahindra
British Telecom (MBT)?
I don't know what software services are; I only
know what services are because every single service has a software
component. Most of the new services are based on software capabilities.
But I think it's like asking a car manufacturer if he has engines.
What people buy from us is capability. A company that wants our
capability will no longer talk about software or technologies, they
will talk about what they need for their business and will want
the same access for information systems wherever business managers
are. So they will need flexibility for services. When you are sitting
behind that desk it should be no different whether it is Mumbai,
Tokyo or Washington. MBT per se is a very important company in its
own right and I can't speak on their behalf with respect to any
Your offshoring of directory services to
India had come in for criticism last year. What is the status on
I hate the word outsourcing; it's always better
to say worldwide sourcing because it is the capability to get best-in-class
regardless of geography. The directory enquiry business in the UK
has changed dramatically in a rather clumsy way and the market has
practically collapsed-lost 40 per cent of volume. To be honest,
looking just at call centres and saying that's outsourcing, really
sells the concept short. You are talking of using capabilities around
the world. The model has shifted from "I will write the manual
and you do the work" to "hey! we will use your brains".
My main focus here is not on call centres, but on intellectual capability.
You are clearly seeing the opportunity in
India more as part of a global sourcing model than as an end market,
but in the final analysis where will the real financial pay-off
You keep talking of what we have missed, but
from a financial point of view I would like to see the public calculations
of how much we have "missed" because a lot of people have
lost their surety here due to major investments. We have not made
any bubble investments in India and I am not sure at the end of
the day who has made better investments. Second, you talk of basic
services-there is no licence for us to operate directly here; we
have to go through others. We had a great relationship with Bharti.
You talk of us missing out, but time will tell who was right. I
would rather talk of the opportunity we now have-a massive one.
India is no longer the lowest cost country, it should not aspire
to be one, it should aspire to be part of the intellectual capacity
in global sourcing.