Light At The End Of The Tunnel

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Even after a decade of almost daily brainstorming, Kumar N. Sivarajan and Arnab Roy continue to spend hours in the labs of their company Tejas Networks in Bangalore. While Sivarajan is forecasting the future of telecom technology, Roy is tweaking chips and their transistors for optimal data transmission to stay ahead of competition in the ethernet and optical networking space. Tejas is a networking and telecom equipment products company. Today, it has Rs 650 crore in revenues, which has grown 12 times in the past five years.

With the introduction of 3G services, the telecom industry will require equipment that can facilitate network towers to use bandwidth to effectively transmit value-added services such as video on mobile — essentially large amounts of data — without disruption. “A day’s data on YouTube is equal to the entire data that was on the Internet in 2001,” says Sivarajan, chief technology officer at Tejas. “Data and voice have converged; it is now about efficient transmission.”

On the one hand, that gives the people at Tejas the passion to keep innovating, and keeps Sivarajan and Roy, who is president, engineering at Tejas, clocking those long hours in the labs like college boys. But on the other, the company has to make the transition from awkward teenager to mature adult rapidly. To do that, Tejas has to behave like a larger company; future strategy cannot ignore mature overseas markets, for one thing. To realise its professed ambition of being a billion-dollar company by 2015, it has to think big: big competition, big markets and big innovation. Is it ready, though?

From Domestic Anchor...
Tejas has a strong presence in the domestic market. It has a 12 per cent market share in India’s $800-million (Rs 3,680 crore) optical networking market. It has beaten global giants such as Huawei, ZTE and Alcatel. Most telecom operators in India use backhaul carrier boxes to support ethernet — or local area networks — and synchronous digital hierarchy systems built by Tejas. What is a backhaul carrier? Compare the hierarchy of a telecom network to a human skeleton. The core network would be the spine; the backhaul connectors are the arms and legs.

The home telecom market, says consulting firm Ernst & Young (E&Y), is about $35 billion (Rs 1.61 lakh crore); the telecom equipment market is $19 billion (Rs 87,400 crore), and growing. Telecom service providers add a million subscribers each month; the market has grown at a compound annual growth rate of 28 per cent to become a 500-million subscriber base. “Currently, India fetches us about 70 per cent of our revenues. But in sheer dollar value, the market abroad is big, and we need to build this business,” says Sanjay Nayak, CEO of Tejas.

Perhaps, this is the time for Tejas to behave like a large corporation. Tejas is now busy integrating its internal processes with SAP; to make it even more professional, it has roped in V. Balakrishnan, group chief financial officer of Infosys Technologies, as independent director on its board to advise it on growth strategy.

Moreover, being an Indian company is not enough anymore. And that prompted Tejas to rope in Nagendra Venkaswamy, who has worked with IT products giant Juniper, as president, to create a strong customer-relationship management process to constantly interact with clients abroad, and build strong bonds with the likes of the Tatas and Reliance. “My team forecasts clients’ needs, and I pass it on to our management who then would know what each telecom operator wants,” says Venkaswamy.

Preparing for a global shift is key to the strategy. “India did not have a large market,” says Gururaj Deshpande, chairman of Tejas. “Now it has become such a large market, and that encourages Indian firms to design products for domestic and international telecom markets.” But he also says the domestic market is very demanding; companies want the best product in the world, but pay little, due to affordability constraints. “The global business opportunity is $16.4 billion (Rs 75,400 crore) in optical networking, and our share is only about 1 per cent,” says Nayak.

...To Going Global
That scenario presents a set of challenges that Tejas has to deal with. And the history has not been great. For instance, in 2008, the global business with Nortel — its foreign partner then — accounted for 40 per cent of revenues. In fact, Tejas was a private label for Nortel, which labelled Tejas products as its own. That dream run hit a road block when Nortel was acquired in 2009 for $769 million by Ciena, the US-based telecommunications solutions provider. “There is no overlap of our product portfolio with Ciena’s,” says Nayak. “So, the combined entity will give us a larger global channel for sales.” But in 2009, Tejas’s global revenues constituted only 30 per cent of its total revenue, against 40 per cent in 2008.

“See, we are in the business of making backhaul networks and we do not make routers,” says Nayak. He says that being a product company, most thought their major competitors were the likes of Juniper and Cisco. In fact, he says, the products are different. “Think of the telecom industry as a car,  and we are like the steering wheel,” says Nayak.

Now Tejas has to find a new revenue model to get its share of the global ethernet network business, estimated to reach $34 billion (Rs 1.56 lakh crore) by 2013, according to consultancy Infonetics Research. As part of its overall business strategy, Tejas has signed deals with several original equipment makers (OEMs) and channel partners in Europe and the US to offset the loss of Nortel.