Vertical Monogamy Pays Off

At a time when most Indian software services players are harping on a multi-verticalization
strategy, Mahindra British Telecom (MBT) comes as refreshingly different. All
along MBT has solely focused on the telecom vertical and with 2004-05 revenues
crossing Rs 950 crore, it has to be admitted that this singular vertical focus
has been a success. With its breadth of offerings including solution
integration, consulting and professional services across horizontals like OSS/BSS,
security, CRM and BI as well as new generation technologies like VoIP, SMS
gateways, location-based services and wireless, MBT is no doubt one of the most
well known names amongst IT players catering to the global telecom domain.

Though MBT has been able to leverage the global offshoring model very well
with 33% of revenues coming from onsite and 67% offshore, one Achilles heel for
the company has been its over dependence on BT as well as Europe centric clients
to a lesser extent. BT still accounts for nearly three-quarters of its revenues,
while Europe accounts for more than 87% of the topline. Whatever be the
arguments, there is no denying that this kind of a dependence is bad, even
though BT is one of the more innovative communication companies and largely,
these innovations are based on IT. This is particularly relevant, since BT has
no dearth of alternate Indian suppliers like TCS, Infosys, Mastek and may be
some others. In addition, the changing dynamics of the communication industry
could alter the relationship between MBT and BT. Director Al-Noor Ramji was
appointed as the CEO of One IT, the IT unit of BT, in May 2004 and is
responsible for transforming the various IT units that exist across BT into One
IT focused on customer success. In this light, MBT's attempt to grow its
non-BT part, restricting its focus to telecom vertical only and then moving up
the value chain is particularly laudatory.

Managed Services Focus

To better comprehend the changes in the external interface, one needs to
look at the global trends in today's telecom industry. The largest chunk of IT
outsourcing in the telecom domain is datacenter outsourcing (37%), followed by
network outsourcing (30%). However, the creamy layer for India has been
application outsourcing (under 20%). Network outsourcing is the fastest growing
at 10% CAGR and it has important implications for telecom players and IT service
companies serving the telecom domain. And this is precisely the area MBT has
attacked in its bid to become a serious managed services player for telcos.

The Mahindra British Telecom facility in Karve Road, Puna

Telecom service providers are increasingly getting into managing corporate
networks. Plus, they are also looking to manage voice, data, and mobile
applications. Under this new dynamics of the communication industry, the
continued convergence of telecommunications and traditional IT technologies is
creating new opportunities for IT services providers as enterprises embrace the
"networked services" model. There have been many deals in the past
five years pointing towards this trend. There are two types of engagements: IT
outsourcing deals that include networks and full communication deals spanning
voice, data and mobile, without IT services.

Examples include IBM's deal with JP Morgan Chase and BankOne. SITA-Equant,
Unilever-BT Group, Credit Lyonnias-France Telecom. The total value of these
deals are in excess of $3 bn. What this means is IT service providers will both
cooperate and compete with telecom service providers. That is, tomorrow MBT will
compete with some of its own customers. And this precisely explains why MBT is
trying to move up the value chain by delving into managed services.

Obviously, this has resulted in an expansion of services bouquet from the MBT
front. "We are still focused on our core strength and will continue to
be," says CP Gurnani, president of International Operations at MBT. Having
a 40% share of the Indian IT services delivered to Telecom Service Providers
globally and 12% share of the Indian IT services to Telecom Services as a whole,
they seem justified in avoiding the 'me-too' band wagon. MBT's current
strategy is to continue to focus on the Telecommunications Service Provider
(TSP) segment, on the Telecommunications Equipment Manufacturer (TEM) segment
and on Independent Software Vendors (ISVs) and the company's service offerings
are designed to meet the needs of these three sub-segments of the telecom
vertical.

The World is Wide

Even as the bulk of revenue (more than 70%) continues to come from BT, the
company is now figuring out a strategy to diversify the revenue base. "APAC
is a huge market for us," says TS Narayanan, group head, Center of
excellence, Intelligence Networks. Thailand, Taiwan and Singapore are all
countries where new technologies are being tested out. And this is where MBT has
decided to focus energies. New offices are coming up in Cairo and Sydney. Focus
would be on the African markets as well. Interestingly, the markets in Asia and
the Middle East are in the growth mode, the US and European markets are in the
process of consolidation. Here, applications are required to integrate the
legacy systems with new customers. Earlier, MBT followed a client selection
model with a pre-planned strategy-in Western Europe (mainly Germany and the
UK) as well as in the US; it was primarily the large established operators.
While in Asia-Pacific it chose to work with greenfield service providers who
were making heavy initial investments. According to Gurnani, the strategy will
continue. "We continue to focus on key accounts across the globe,
developing long-standing relationships with each one." That MBT's
strategy is very much on the right path is evident from the industry dynamics of
telecom service providers and the geographical diversity of their IT spends (see
table How Telcos Outsource Across Geographies).

It Happens in India too

Another external transformation was MBT's strategy to look seriously at
the domestic market, one it has traditionally ignored till now. The company
experienced an early success when they were selected by BSNL to design, develop
and deliver an ASP style Interconnect Billing solution that went live on March
28. With BSNL, MBT has created a Managed Service Bureau solution for wire-line,
wireless and IP traffic for the North Zone enabling BSNL North Zone to handle an
estimated volume of 44 mn CDRs (Call Data Records) per day-rising to 60 or 70
mn over time.

We are still focused on our core strength and will continue to be” CP Gurnani, president, International Operations, MBT

MBT has deployed a team of highly qualified support staff, including
programmers, systems integrators and software engineers. The company has
supplied, installed, commissioned, and is operating and maintaining an
agency-based solution for BSNL. This entails the establishment of a data center
in Pune which hosts the hardware and software required for CDR collection and
interconnect bill processing. MBT has also established a disaster recovery
center in Mumbai to protect against a catastrophic loss of data. System support
services ensure 24/7 functionality. Commenting on the success of the project,
BSNL's chairman & managing director, AK Sinha, said: "This new
capability is fundamental to our future growth and business development
planning. We selected three Application Service Providers for covering entire
BSNL network against strong competition and MBT is one of them who has strong
domain experience particularly in the Bureau processes. MBT's global
experience and its track record of joint delivery with Azure, Europe has
provided an understanding of the importance of, and processes involved in
keeping large revenue-generating systems up and running."

The New Bosses

No company can undergo a complete successful transformation unless supported
by strong internal changes. The most prominent manifestation of this has been
the widespread change in the top management, whereby it has tried to rope in
professional expertise to run managed services operations through lateral hires.
A top-level management team is in place at MBT. Interestingly, these have been
largely drawn from HCL-Vinit Nayyar as the CEO, Sanjay Kalra as president
(strategic initiatives) and CP Gurnani as president, (international operations).
In addition, two new members have been brought on board.

Products and Patents

Another creditable internal strategy was MBT's focus on developing its own
patents. It recently launched a new language conversion software, which
facilitates fully automated conversion of outdated computer programs to
state-of-the-art programming languages. For its first customer, a Scandinavian
telecommunications company, where manual conversion would have taken 75
man-years, MBT's converter, with ten specialists, modified the interfaces
inside just six months-less than 10% of the time originally scheduled. MBT
completed automatic conversion of a million lines of source code in less than a
single day. The Gartner Group estimates that 70% of all business and commercial
applications are based on the mainframe language, Cobol. Says Gurnani, "We
have filed for a patent for our Language Conversion Framework in the US and we
have also filed in Patent Cooperation Treaty for patent priority protection. Our
focus is on improving processes and inventing innovative ways to deliver
solutions to our customers."

Rajneesh De in
Mumbai with inputs Nanda Kasabe