NOVEMBER 7, 2004
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The iPod Effect
Now you see it, now you don't. All sub-visible phenomena have this mysterious quality to them. Sub-visible not just because Apple's hot new sensation, the handy little iPod, makes its physical presence felt so discreetly. But also because it's an audio wonder more than anything else. Expect more and more handheld gizmos to turn musical.

What route other than musical would Panasonic take, even for a phone handset, into consumer mindspace?

More Net Specials
Business Today,  October 10, 2004
"We Have Not Made Any Bubble Investments In India"

Ben 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. Excerpts:

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....

A primer on British Telecom's activities in India.
Core focus: Arun Seth, CEO, BT India
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 consolidation strategy.

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 strategy?

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 customers.

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 come from?

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.

BT also has a JV with M&M for services in telecom.

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 specific strategies.

Your offshoring of directory services to India had come in for criticism last year. What is the status on that?

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 be?

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.

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