Tata Comm bets on Neotel turnaround

Tata Communications expects its loss-making South African joint venture, Neotel, to post profits at the operational level by this fiscal end.

“Neotel has been in an investment phase and the investments have a fairly long gestation period, but we expect to make the company operationally profitable before the end of this fiscal,” said Vinod Kumar, who was recently promoted as Tata Communications’ chief executive officer.

The venture is still in the investment phase, with network-expansion still underway, he said.

For the year ended March 31, Tata Communications reported a net loss of Rs854 crore, of which Rs551 crore was on account of Neotel, where Tata Group companies together hold about 56% equity stake. Tata Communications alone has a 49% stake.

In fiscal 2011, Neotel spent about $250 million on building a national long distance network and data centre facilities. It plans to spend another $125 million this fiscal. The company had revenues of $321 million in the year ended March 31, as against $234 million during the same period a year ago.

Much like Tata Communications in India, Neotel offers networking and data storage services to enterprises in South Africa, and competes against state-owned Telecom SA Ltd and Internet Solutions Ltd, a part of Dimension Data that was bought by Japanese technology giant NTT in July 2010 for a little over $3 billion.

“We believe we have about 10% market share in the South African enterprise networking market now and hope to increase this,” said Srinivasa Addepalli, senior vice-president corporate strategy, at Tata Communications.

“Competition is primarily from a state-owned firm and some smaller internet service providers, and we believe we have sufficient differentiation to gain market share,” he said.