Sprinting the Last Mile

Tulip Telecom has seamlessly trascended between the wired and wireless platforms to connect people and places

 Acompany that has changed its name twice in the 16 years since its launch may come across as a bit confused. On the contrary, for Tulip Telecom (which is its most recent name) this has been an indication of an evolving and more mature business strategy. The company started in 1992 as Tulip Software, a partnership firm selling software products. With a proliferation of distributors and thinning margins, its promoters shifted to selling network equipment and setting up wireless networks for companies in 1999. In line with the new business, the name of the company was changed to Tulip IT Services in 2002.
    The next leap was towards providing services, when the company created its own networks that customers could use. This was followed by a second name change in April 2008 when it was rechristened Tulip Telecom, reflecting the company's new focus on enterprise data connectivity and managed services. "In 1999, we did a project for Bank of Punjab (now a part of HDFC Bank) connecting 20 branches but the network was owned by the customer. Today we have our own network and we still work with HDFC Bank," says Lt Col (Retd) HS Bedi, chairman, Tulip Telecom, which clocked revenues of Rs 1,219 crore in March 2008. Bedi took premature retirement from the Army where he was last coordinating the Army's automation plan before embarking on his entrepreneurial journey.
    Today Tulip Telecom's portfolio includes network integration—which means that the company not only designs and develops networks but also manages them for its clients. It is one of the largest Multi-Protocol Label Switching (MPLS) Virtual Private Network (VPN) providers using wireless for last mile connectivity. Simply put, this allows a user to use multiple service providers on a single network to improve reliability of access. Among Tulip's major wins is the Kerala government's Akshaya project where it created a district-wide network in Malappuram for e-enabling education centres, rural online banking, healthcare, placements, e-posts, Internet telephony and most importantly e-governance.
    Tulip is now India's largest MPLS-VPN service provider with about 28% share (source: Frost & Sullivan). The key, explains Bedi, was that while other service providers were using the last mile fibre optic networks of other operators, Tulip chose to create its own last mile wireless network. "That is how we took the lead," he says.
    Four years ago, when the company was building its own network, Bedi recalls that he was on the lookout for private equity funding. "I was wanted Rs 30 crore but had a rough time because private equity players didn't understand the business," he says. But as time went by, the business requirements grew and so did its funding needs. "I was getting greedy and wanted more money to grow the business. Finally in 2006, we decided to go for an IPO diluting 31% of our shares and raising Rs 105 crore," adds Bedi. The stock market slide has affected Tulip's stock as well, pulling it down from a 52-week high of Rs 1,225 in January 2008 to Rs 385 in the beginning of December. The scrip, however, has already begun inching up and traded at Rs 537.50 on 19th December.
    Going forward, the company is reducing its exposure to network integration, which currently makes up a third of its business. "As most corporates try to cut down on capex, we are slowly reducing network integration and will get it down to 15% (of our business) soon," he says. The equipment business too is seeing diminishing margins. The new areas that Tulip is betting on are international bandwidth, high capacity domestic lease circuits and high capacity Internet. For this it's investing Rs 100 crore to roll out fibre optic cables in 10 large Indian cities targeting high-bandwidth customers, by March 2009. It's investing an additional Rs 500 crore to install fibre cables in rural areas over the next two years, says Bedi. In August last year, the company raised $150 million (approx Rs 750 crore) through the FCCB route. "Most of that money is lying in our account at the moment," says Bedi.
    Tulip is now looking at acquisitions in the managed services space in developed countries besides partnering with companies to roll out similar networks in the developing world. Explaining why the company has never forayed into the retail segment, Bedi says, "Retail involves high investments and profits are lower. I once saw the business model of a competitor and he was losing money only because he was in retail." That strategic choice has paid off. Today, margins in the data business (services) are in the range of 30-40%, says Bedi. As for name changes, Bedi assures that there will be no more happening for now.
ravi.sharma4@timesgroup.com