It may have been America’s iconic phone brand, but AT&T Inc. has not been much of a presence in India in the last couple of years after getting out of its two domestic ventures, Idea Cellular Ltd (2005) and BPL Communications Ltd (2003).
Meanwhile, the phone giant’s 47-year-old chairman and chief executive, Randall Stephenson, isn’t happy about the company’s 2% annual growth, even if it is on $120 billion in annual revenues. Recognizing the maturity of his home market, Stephenson is now intent on driving AT&T into new economies in Asia and West Asia. In Asia, he expects India to be the driver for growth and doesn’t think his company is behind the curve.
In April, AT&T came back to India with renewed interest, though not in the booming wireless sector. The company started delivering managed network connectivity to businesses here and Stephenson says the initial response has been good. On a four-day visit to India, Stephenson says AT&T is investing heavily in India and sees terrific opportunities including in wireless. Edited excerpts:
You call yourself a wireless company and you are not there in two of the world’s biggest wireless markets—India and China.
I notice that too! I would love to be in the wireless business in India, but it’s a tough business to enter here now, right? We did have an investment here, and we sold, but who knows.
You think that was an early exit?
Well, of course I think it was an early exit. It could have been worth $10 billion or something (now).
So will you be looking at this market again—through new licences or acquisitions?
We got the licence last October to offer fixed-line services throughout India, and we are investing heavily. We have large business customers here; hopefully, as we scale, we will see where that goes; it could go right down the market (to smaller customers). Right now, the focus is on the business side.
Will you look at the consumer market?
If you look at our history, we start in one place and use that to grow and expand in all segments of the market.
I think it’s a terrific opportunity. This (India) is a great growth story, and we want to be a part of it. Our artery is fixed-line services, we will see where it takes us.
Will that involve setting up data centres and customer support operations here in India?
The starting point for us is that we have really big customers in the US who do a lot of business in India. That’s really the base for us to start with. General Motors and IBM are a classic case and we are going to handle all their Indian telecommunication needs. As we scale this, as we get our footprints in order, you will see us move towards the Indian enterprises. And not just big customers, but even small and medium-sized businesses in India are going to be our target segment.
After we succeed there, where do we go? I don’t know. I had my technology guy with me and we’ve been driving around the town shaking our heads—there’s tremendous opportunity here. If you have spectrum here to deliver services to just small business and consumer market... opportunities like Wimax... I got to tell you that I have been scratching my head in India.
What are your bets for the wireless broadband market in India?
We’d be very interested. I don’t know how they (the government) are going to do that—auction the spectrum or how they will sell it. We just expressed our intent of interest for spectrum in Doha; that is another growing market with wireless spectrum coming up. In India, the beauty is if they auction 2-gigahertz spectrum and we could do voice, broadband and a number of things. My perspective is, you got to find some kind of mechanism to deliver wireless here. The wireless opportunity will be very attractive for us.
Which areas will you be expanding your resource base in India?
It depends on how this market evolves. If we get into a situation wherein there’s demand for hosting a data centre, we will do it. You know, we are investing $200 million worldwide to establish data centres. If there is a demand, we will build them here. On the customer care side, it’s a people-intensive process and we will hire where the customers are.
We are hiring here now. We have 500-600 people in India doing product development apart from networking services. We have got tonnes of product development going out of India.
China is a tough place for us; we can do services, but cannot own infrastructure in China. But, hey look, India is unique—a billion people under one regulatory environment, right? So you get this open access to a billion people across the territory—there’s nothing like this in the world. We don’t have the opportunity to scale in China, like we do here.
We saw one of the biggest deals happening with Vodafone acquiring Hutchison Essar earlier this year. You don’t have that kind of assets now, but would it make sense for folks like you to look at focused acquisitions?
Perhaps, perhaps, perhaps. Who knows. We talked about auctions for wireless spectrum, but I don’t see many companies for sale here anymore.
Were you part of the decision to exit India?
No, I was not. Hmm... Let me put it differently, I had a vote and my vote did not care. When I was in Mexico and I thought how we could ever make profits with a wireless service at $20 a month per subscriber. And coming here (in India), we see companies doing 30% plus margin on $8 dollar monthly revenue per customer. Let me tell you—there is no place in the world where wireless can fetch these kind of numbers. What India has shown on the wireless side is significant to the whole world.
How will India fit into the your Asia strategy?
India is the platform for Asia; make no mistake about it. It’s a billion people under one regulatory environment, you can come here and scale. Everything else is kind of small. You come here and establish a presence; you then leverage that growth into (the rest of) Asia.
Aren’t you a bit late?
I don’t think we are late, we will find that soon, though. Not sure who is ahead of us.
What are the top three risks about AT&T that keep you awake at night?
We are a $120 billion company. If you grow that at 5% a year, that’s $6 billion new revenues every year. In our traditional business, voice services are in decline. Our IP (internet protocol) businesses—broadband and IP services—are growing in double digits; wireless services are growing double digit. That gives plus 2% growth. So, how do you stimulate this growth? I believe it’s (the opportunity is) global now, outside the US.
That keeps me awake at night.
You are talking about growing something at 2%, and the question is where? I think where to grow is the real question, which is complicated, and how to grow that as we go forward. This is the No. 1 thing that keeps me awake.
The No. 2 thing is more about my domestic clients. We are launching a new TV service and we are the first to deploy any kind of scale in this segment—IPTV. Scaling that is a challenge, but it’s going to be rewarding.
Do you see the high-end business taking over wireless revenues at some point in time?
I hope so, it’ll be in the next five years because wireless business is $40 billion growing at double digits, our high-end business is $33 billion; with international markets growing even that will have double-digit growths.
But it will be a while before it takes over wireless revenues. What we are also finding is that our high-end business is also driving dramatic wireless growth. On the high-end side, our data services revenues are growing at 60%, especially on the large business side.
Wireless is going to grow at double digit, and as long as that is happening, it will take time for high-end revenues to catch up. Globally, wireless is what is driving telecom and I don’t expect that to change.
In wireless, where do you see your footprints?
High growth markets are interesting for us. You talked about spectrum auctions here: we might want to participate in that. Wireless is a business that will grow in the next 10 years or so.
Many telecom companies, globally, are turning to India for outsourcing software application development and maintenance. What is your outsourcing strategy?
We outsource a lot, across legacy systems and application development. We work with Infosys (Technologies) and Tech Mahindra. It used to be a great labour arbitrage, but that is not the case anymore. There’s such depth of software talent here that it’s just a great place to get software development done.
How’s iPhone doing? Will that make a difference to your revenues this quarter? (iPhone maker Apple Inc. has exclusively launched its first mobile phone on AT&T’s network in the US.)
(Declines details.) They (iPhone) will make a difference this year, certainly.
Why did Apple go with a single carrier?
It’s hard to do (with multiple carriers). You put that phone out there with a solo national carrier, that’s a long pact to get there, and moreover we had a business model. In the US, we take these handsets and heavily subsidize them. Now, all of a sudden, a guy (Steve Jobs of Apple) comes with a unique handset like this (iPhone) that does not have to be subsidized, as there’s tremendous demand in the marketplace. We can now sell this, and make money on the handset. This kind of turns the model over. Getting this out to market on just our (AT&T) network was a two and a half year deal.