The Power Of I 2018

Data Backbone

IP-driven optical and data networking products have enabled this Indian company to make its mark in 70 countries around the world

RA Chandroo

While India’s strength as a software service provider has been well-established, there were not many success stories on the product side. That changed in 2000 with the launch of Tejas Networks, which not just succeeded in the domestic market, but also bagged large orders internationally. Based out of Bengaluru, it makes fibre optic cables used by telecom companies to transmit voice, data and video signals. Till date, the company has installed close to 400,000 systems across 70 countries, and enjoys 95% repeat business. Leveraging the cost advantage in India, adopting a software-focused approach and constantly investing in R&D enabled Tejas Networks to scale rapidly as well as sail through turbulent times. As technology trends change, the opportunities could only get bigger for Tejas, which has become a force to reckon with, globally.

"Technology is like a treadmill. If you don’t keep running, you fall off,” says Sanjay Nayak, CEO, Tejas Networks, as he walks us through rows of optical fibre products built by the company over the past 18 years. Each product houses a cluster of yellow cables and these fibre-optic cables enable telecom companies to transmit voice, data and video signals from fixed line, mobile and broadband networks using entirely optical (light-based) technology. And today, any internet data or phone call made in India will most likely pass through the network backbone created by the Bengaluru-based Tejas Networks. 

Sounds far-fetched? Not really, when you take a look at the company’s track record. The company was founded in 2000 by Nayak, then MD of Synapsys India, his colleague Arnob Roy and IISc professor Kumar N Sivarajan. From counting major telecom operators such as Bharti Airtel, BSNL, Reliance Jio as its clients to being honoured as the best performing equipment partner by the Government of India for BharatNet Phase 1, and from having strong OEM partnerships in the US to building pan-Africa fibre backbone for South Africa-based Internet Solutions, the company has added several feathers to its cap. Aided by execution of large orders, the company posted a 120% growth in net profit to Rs.450 million for Q1FY19 while revenue rose by 15% to Rs.2.32 billion. 

As people keep buying smartphones, the backbone of the network to support data traffic will need to be strengthened. This means demand for the company’s products could stay robust. “For the next many years, our business is set for high growth,” says a visibly exuberant Nayak, as we enter his cabin on the fifth floor of a commercial tower in Bengaluru.

Made in India

The idea to foray into the telecom sector came after a chance meeting with tech entrepreneur Gururaj Deshpande, who had led a successful telecom IPO of Sycamore Networks. “Telecom was taking off in a big way in India. We felt if we are going to do something out of India, we should pick an industry which is global in nature but with a very big home market. We have created products for multinationals in India so we thought why not do it for ourselves?” says Nayak in a matter-of-fact tone. Determined to create a strong products company in the IT sector out of India, the trio founded Tejas Networks. Sivarajan took on the role of chief technology officer and Arnob Roy is president, engineering.

Tejas, which in Sanskrit means the brilliance of light, reflects their core business — a beam of light carrying signals, while their logo resembles a kolam (rangoli of south India). “We chose it because it also looked like a ‘network’,” reveals Nayak. Interestingly, the founders had secured an investment of $5 million at a valuation of $10 million from Deshpande even before the product was ready [the company has raised $65.6 million till date]. 

“During the ’80s and ’90s, I saw a dramatic change in the tech scene in India.  Infosys, Wipro and TCS emerged as global service companies. Even though service companies have had a dramatic impact on India, I knew that the country needed product companies to solve its problems.  Coincidentally, I met the founding team at Tejas.  Their credentials and track record were spectacular and I took that opportunity to fund a product company in India,” says Deshpande, who is currently the chairman of Sparta Group and Tejas Networks. 

Ironically, Nayak states that two of the three co-founders initially had no clue how to create telecom products. What came in handy was their expertise in semiconductor and electronic automation acquired during their time at companies such as Cadence Design Systems and Synapsys India. “We knew how to build semiconductor chips, and that is what we did. We took an idea from another industry and planted it where people are not used to thinking like that,” he says. 

Typically, a company would either buy a semiconductor chip that has functionality embedded into it (which is what Qualcomm and Intel do) or build application-specific integrated circuits. The team at Tejas Networks took flexible silicon platforms — a chip without the brain — and powered the hardware with field programmable gate arrays (FPGAs). “This helped us tackle the economies of scale and also use time as an advantage as it could be easily reprogrammed, enabling a quicker product cycle than anyone else,” says Nayak. 

The company today has about 277 semiconductor IPs, which serve as ‘building blocks’ to build new systems and alter existing ones. Using these semiconductors, the company creates products scaling from megabits to terabits and which can be remotely upgraded. Their applications include ‘broadband’ to provide connectivity to homes, offices, gram panchayats, etc. The second is ‘wireless backhaul’. “Think of how a small road with less capacity merges onto the ring road, state highway and then a national highway. Similarly, we build the data network for carrying the traffic from base stations to national networks,” explains Nayak. The third application is building ‘metro networks’, which means connecting all the base stations of every region. 

Amresh Nandan, research vice president, Gartner, states, “When you move from 2G to 3G, the change in various parts of the network is incremental. Same holds true for 3G to 4G. However, between 4G and 5G, which will largely be cloud infrastructure based, there is massive change. Hence, for leading telcos, virtualisation is becoming crucial for network and operations transformation.”

And Tejas Networks is well-poised to address this change, says Nayak, as the company has always adopted a software-focused approach. The decision to use FPGAs allows them to keep changing the product by upgrading the software. “Two years ago, 80% revenue came from voice. Today it has reversed for operators. If we had built the network with hardware-focused approach, then it would have been a waste. We just reprogrammed the same equipment. Our platform was always software-defined and our products are far more flexible,” he adds. 

Besides coding their own software, Tejas Networks also maintained an asset-light business model by outsourcing the manufacturing to companies in Bengaluru and Chennai. “What took $100 in the US could be done at $25 in India. So we decided to do double the R&D at half the cost. We were making use of India’s cost advantage. But this time, for products; not for services,” adds Nayak. 

Selling to the world

When approaching the first set of customers, the co-founders faced a strange situation. “Most potential customers asked us who our (international) partner was. In those days, partnerships between Indian and foreign technological companies were common. It took some time convincing them that we did it on our own,” laughs Nayak. The first company to believe in Tejas’ technology was Tata Power, for whom they successfully helped build India’s first high-speed dense wavelength division multiplexing (DWDM) network in Mumbai. 

From then, it was all about hitting one milestone after another. They received an order from RailTel Corporation for a pan-India optical multiservice provisioning platform (MSPP) network covering over 400 stations, registered customer wins at Airtel, Tata Communications, Power Grid, Oil India, Gas Authority of India and also became among the first in the world to come up with a single network for both voice and data. 

“The Indian telecom market is the world’s most competitive as the cost of telecom services is the lowest. Average revenue per user is $2/month, whereas a user in the US pays $50-60. Thus, people supplying to them have to be as innovative. If you can succeed in India, you can succeed anywhere in the world. And we had already solved the toughest problem,” says Nayak. 

The company then made its international foray in 2005 by executing their first global OEM agreement with Nortel Networks. “We serve directly in India, Southeast Asia and Africa. For the rest of the world, we tied up with OEMs,” Nayak says. With this, Tejas kept its sales and operations cost low yet earned revenue from territories that it didn’t operate in directly. 

Fall and rise

Consequently, business grew rapidly for the company. By 2006, it had hit revenue of Rs.4 billion and also turned profitable. Armed with a strong order book as well as a $25-million investment from Goldman Sachs, Tejas Networks was about to go in for an IPO when, suddenly, things took an unexpected turn. 

In 2008, Lehman Brothers filed for bankruptcy and the world slipped into a financial crisis. Add to that the 2G scam in the domestic market, due to which operators in India stopped buying. Nortel, Tejas Networks’ most important OEM partner, also filed for Chapter 11. If that wasn’t enough, Cyclone Thane in Puducherry wiped away the entire inventory of Tejas Networks housed in a factory. “For a three-year period, things fell apart. Business shrank. It was a complete mess,” says Nayak. 

Further, its predecessor, Deshpande-led Sycamore Networks, shut shop in 2013 after its net worth fell from $45 billion to $64 million. A Wall Street Journal article attributes this to the company’s inability to adapt to the shift in technology. 

A series of such unfortunate events must have prompted any entrepreneur to cut costs. But the team at Tejas Networks was unperturbed. “Attrition was high and what we thought would be a small blip continued for a prolonged period. But through it all, we were sure about continuing to invest in research and development,” says Nayak. Even when revenue fell from Rs.6 billion to Rs.2 billion during this period, they invested Rs.600 million in R&D, which “helped us stay relevant when markets began seeing a revival post 2013,” he adds. 

But the worst wasn’t over yet. Just when things began looking brighter, their office caught fire. “It was early 2013. The fire had made its way to the R&D lab, destroying most of the equipment. We had an international release to make. In a small room, our people quickly began cleaning the soot, picking out some equipment that was left, and started working on it, ensuring that we met the deadline. That was our level of commitment,” Nayak recalls.

Thankfully, the mishaps are now a distant memory, but the competition is increasing. Firstly, Chinese companies enjoy strong support and subsidy from their government. Secondly, many operators are now looking to beam internet from space in a bid to enter untapped markets.

“Laying out fibre is costly and also invites political and social issues from local, municipal and private parties. That is where the idea of reviving satellite communication came back into the picture. Many companies are investing in creating low-orbit satellites, which could be used for data transportation. It is likely to be targeted in regions where fibre deployment is proving to be cost-prohibitive. Although still evolving, it might soon become an alternative transport technology. But it will coexist with fibre technology,” says Nandan.

As for Chinese competition, Nayak believes that it only challenges them to offer better quality at that price. “The journey at Tejas Networks has been similar to sitting on an adventure ride or like white water rafting. In the end, you feel, ‘I lived through this too’. Now every challenge looks like an interesting thing to solve,” he says.

Tejas 2.0

Having sailed through the crises, the founders are now preparing for a robust future. A step in that direction was taken by listing on the stock market last year. “We were financially fine but an IPO will help build our brand further. Post the IPO, we have enough money to target international sales, and we will now explore that option. Finally, our investors have been very patient. There are also about a 100 millionaires in the company with this IPO,” chuckles Nayak. 

Today, Tejas is present in over 70 countries. Deshpande believes that an ability to master advanced technologies, products that have kept up with the latest innovation and a business model with a 40% gross margin differentiate them from their competitors. 

Even its clients are full of praise. In a recent press statement, Mark Hilton, COO, MCM Telecom, Mexico, was quoted, “After evaluating multiple equipment vendors, we picked Tejas Networks for both our Metro and Inter-city optical network rollouts across Mexico. Tejas has an innovative portfolio that enables the delivery of a versatile mix of resilient and high-quality connectivity.”

Earlier this year, the company received a new purchase order of Rs.3.36 billion from BSNL for expansion of BharatNet Phase 2. In a first for India, Tejas Networks has become the 7th voting member in the world on the 5G standards body. “We felt that India is a unique market and needs to have a say in the standards, for which we formed the Standards Development Society,” says Nayak. The body has representation from the Government of India, telecom operators, as well as IITs, and helped define the rural broadband mode for 5G as Low Mobility, Large Coverage. 

The wheel of innovation is constantly turning at Tejas Networks. Developing higher capacities, densification of network and innovating on new protocols are some of the things they are currently working on. FY19 has already begun with the largest order book in the company’s history. The global trend of software-defined networks and rapid adoption of broadband/data services in emerging markets plays to the strengths of Tejas Networks, and Nayak and his team seem set to take advantage of this, at 5G speed.