Tulip Telecom Blooms in India

Indian telecom Tulip grew by focusing on data services to business. But its recent expansion may bring it head-on against larger rivals

New Delhi's Tulip Telecom isn't about to compete directly against big Indian telecom operators like Bharti Airtel and Reliance that focus on voice. Instead, Tulip has carved out a niche for itself as the leading Indian company providing data services to business. Ranking No. 8 on BusinessWeek's annual Asia Hot Growth Companies list, Tulip began designing and developing networks for corporate and rural clients a decade ago and entered the last-mile wireless data connectivity business in 2004.

The company, which began as a technology trader in 1992, shuns retail customers, focusing instead on corporate clients. With a presence in 1,300 locations nationwide, Tulip has a 28% share of the market. To keep costs under control, the company shares infrastructure with the larger telecom operators. "We lease intercity fiber bandwidth from them, and they lease intracity bandwith from me," says Hardeep Singh Bedi, chairman and managing director of Tulip.

Spectacular Growth

Tulip's game plan seems to be working. Net profit for the fiscal year ended March 2008 was up 92%, to $47 million, on revenues of $309 million. Bedi, who learned the rudiments of technology during his Indian Army days, says that he chose wireless because it provided a 50-kilometer range for data, compared with less than 2 km for copper, fixed-line networks. The connectivity demand from banks and the state governments helped Tulip grow, says Bedi, who made getting the networks up and running quickly a top priority. "I understand technology at a macro level and hire people who know how to roll out the network fast," he says.

Now, Tulip is gradually evolving as a full-fledged telecom player in data. It is building a fiber network to provide higher bandwidth, has obtained licenses for international and national long-distance markets, and narrowly missed winning a cellular license in January. (The company lost out on a technicality, says Bedi). The expansion plan means Tulip will collide head on with the telecom heavyweights, and that is a matter of concern for analysts. "It's surprising that Tulip wants to enter a capital-intensive territory, when the connectivity model is still underserved," says Aditya Sanghi, managing director investment banking at Yes Bank, one of the banks that loans to Tulip.

Bedi argues the new, expansion strategy is necessary, since getting into new businesses will extend the size of Tulip's potential market from the current $240 million to $1.2 billion.

Raising Capital in Spite of Stock Plunge

Tulip, a family-controlled concern, went public in January 2006, with the stock listing at $4. It hovered at $23 early this year, but has since plunged 63% closing at $8 on Dec. 5. Still, cash shouldn't be a problem. Last year, the company accessed the foreign currency convertible bond market to raise $150 million, of which it has spent just $35 million to extend its network. Bedi says that his company is adequately leveraged, and is confident that Tulip's new extensions will help it emerge as an end-to-end solutions provider to its corporate clients, which include Bloomberg, Vodafone (VOD) AT&T (T), and Accenture (ACN).

Bedi says that although Tulip might not succeed in getting a cellular license, the future will have to include voice as well as data. The growing popularity of Voice over Internet Protocol (VoIP), which transmits voice calls over the Internet by breaking them into small packets of data, will likely lead Tulip to compete against companies providing voice service, regardless of what happens with the license. "Tulip just might become a de-facto voice player," he says.

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