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Telecom equipment manufacturing: All eyes on domestic players

Despite being the second largest telecom market in the world, telecom equipment manufacturing in India is still to take off. Last fiscal year, the telecom equipment market in India grew by 18.6 per cent, with an overall revenue at Rs 1,368 billion. Among the various telecom equipment sub-categories, the enterprise equipment segment grew by 31 per cent to touch Rs 200 billion. The switch and router segments showed 92 per cent and 65 per cent growth, respectively. According to industry experts, this industry will continue to register robust growth after the roll out of 3G and broadband wireless services.

By Richa Chakravarty

Tuesday, November 09, 2010: Presently, the telecom hardware manufacturing sector is dominated by international majors like Nokia, Ericsson, LG, Motorola, Samsung, Alcatel-Lucent, Huwaei and ZTE, who have set up manufacturing bases in India (except ZTE). Domestic manufacturers have made little contribution to this industry. Local operators and telecom equipment makers are yet to take up innovation as their main thrust—the lack of R&D budgets is being cited as the major bottleneck. However, the contribution of the domestic manufacturers, though just a few in number right now, cannot be ignored. The state run Indian Telephone Industries Ltd (ITI), Himachal Furturistic Communications Ltd (HFCL), Shyam Telecommunications Ltd, etc, are emerging as leading manufacturers.

Huge demand for equipment

Telecom market in India is, no doubt, growing by leaps and bounds. With 300 million telephone subscribers today, India has the second largest telecom network in the world after China. And with the addition of about 8-10 million new mobile subscribers to the network every month, the country is also emerging as one of the fastest growing telecom markets in the world. “The growth of mobile telephony industry and overall industrial development is expected to fuel the demand for telecom equipment in India. The investment in the telecom sector during the 11th Five Year Plan (2007-2012) is projected at US$ 77 billion. The revenue from mobile phone manufacturing is expected to reach US$ 13 billion by 2011. So there is an excellent growth opportunity for telecom equipment manufacturers in India,” says Sajeev Nair, head of product management, telecom division, Matrix Comsec Pvt. Ltd.

Nitanshu Jain, deputy manager, Accord Communications

According to IT minister Thiru A Raja, “In the last five years, not only has urban tele-density risen from 26 per cent to more than 125 per cent, but rural tele-density has also increased significantly from 1.73 per cent to over 27 per cent.”

As per industry insights, this phenomenal growth is expected to fuel the demand for telecom equipment worth about Rs 3200 billion and Rs 4700 billion by 2015. Currently, Indian telecom operators import most of the equipment required for setting up a network. In 2008-2009, equipment worth Rs 462 billion was imported by operators. These statistics clearly indicate the huge opportunity that lies ahead for manufacturers to reap the benefits from this ever booming sector.

“Looking at the huge scope in this sector, a lot of private players have ventured into it,” said a senior official of ITI Ltd. A pioneering venture in the field of telecommunications, ITI Ltd offers a complete range of telecom products and solutions covering the whole spectrum of switching, transmission, access and subscriber premises equipment. ITI has two mobile equipment manufacturing facilities in Mankapur and Rae Bareli. These facilities supply more than 9 million global system mobile (GSM) lines per annum to both domestic and export markets. “India needs to develop a good equipment manufacturing ecosystem if it wants to make any headway,” the senior official of ITI points out.

India’s potential for manufacturing

Sajeev Nair, head, product management, telecom division, Matrix Comsec

The total telecom equipment manufacturing in India witnessed 18.6 per cent growth by registering Rs 1368 billion compared to last year’s Rs 1154 billion. Despite the MNCs doing a good amount of manufacturing in India, all eyes are now on the domestic players. “India has a good potential to manufacture, especially in internet protocol (IP) communication. We are pushing the government to legalise voice over Internet protocol (VoIP) as it has a lot of benefits. Like broadband, it will help to cut down communication costs. Apart from that, the internal cost of communication among multiple branches of an organisation will be free. The government has to offer support and be proactive towards this technology,” says Nitanshu Jain, deputy manager, Accord Communications Ltd. Accord is into manufacturing for turnkey projects, transmission towers, cellular towers and transmission lines.

The Telecom Regulatory Authority of India (TRAI) is also pushing the government to take policy measures that will encourage telecom equipment manufacturing within the country. It is also pushing the stakeholders hard to take advantage of the opportunities of such a lucrative market and start manufacturing. “Recent regulation regarding vendors for telecom operators states that telecom operators have to source 30 per cent of telecom equipment from local manufacturers,” says Sajeev Nair.

S Nair, deputy general manager, HFCL

The stakeholders are of the view that capital requirements, economies of scale to achieve a competitive cost structure and increased investments in R&D are the main requirements to make manufacturing viable.

“Wireless revenues and enterprise equipment revenues in Middle East and Africa regions are growing at a high rate and these regions are already doing good business with India, and for the next few years it will provide an excellent opportunity to the Indian telecommunication equipment manufacturers for exports, provided government liberalise exports norms and facilitates exports of telecom equipment,” opines Sajeev Nair.

Factors that can boost manufacturing

Some of the major factors that will boost manufacturing of telecom equipment in India are rural telephony, 3G and broadband wireless access. Though most of the telecom industry growth has come from the urban market, 27 per cent growth has come from rural India, which had 77 million fixed and wireless in local loop (WLL) connections, apart from 551,064 village public telephones (VPT) last year. Therefore, 92 per cent of the villages in India have been covered by VPTs. The universal service obligation (USO) subsidy support scheme is also being used to share wireless infrastructure in rural areas with around 18,000 towers, by the end of this year.

Herbert Merz, head of operations, Nokia Siemens Networks

With the successful conclusion of the 3G and BWA auctions, telecom operators have begun to focus on their networks to facilitate these services. India’s predominantly microwave centric back haul network is all set to transform into a fibre based one, leading to a huge demand for optical fibres in the country.

“With the advent of 3G and the continuing penetration of 2G across the country, the need to manufacture is likely to grow. We expect this growth to happen soon and, hence, we began large scale mobile infrastructure manufacturing in India well in time—ahead of many competitors, in order to support the growing demand effectively,” says Herbert Merz, head of operations, Nokia Siemens Networks.

The company has been operating its plant in Chennai since 2008, and also has a production facility in Kolkata, which produces fixed line products. At its Chennai facility, Nokia manufactures base stations, switches, transmission equipment, charging systems, etc. It has invested US$ 70 million over three years. It is also the country’s first telecommunications infrastructure vendor to manufacture 3G products locally.

KS Rao, COO, telecom, Sterlite Technologies Ltd

“Our manufacturing presence helps us stay close to Indian customers and cater to local demand via local production. It also helps to shorten the time to market, improve flexibility, enhance delivery reliability, reduce costs and tap talent in India. By producing 3G equipment in our Chennai facility we offer Indian operators a quick and easy option to deploy 3G networks in the Indian subcontinent,” opines Herbert Merz. For Nokia Siemens Networks, India is not just a high growth market but also an innovation hub. The manufacturing operations in India reflect Nokia Siemens Networks’ unwavering focus on the country.

Says NK Goyal, chairman, Communications and Manufacturing Association of India (CMAI), “The successful conclusion of the 3G and BWA auctions has further paved the way to increase tele-density and expand broadband coverage in the country. Over the next three years, there is a huge market potential worth US$ 3 billion for those into local manufacturing. India offers the unique opportunity for telecom equipment manufacture and there’s no doubt that the country will soon emerge as a manufacturing hub.”

Airing the same views, Jeanne Elise M Heydecker, head of marketing, Vihaan Networks Ltd, says, “India has good scope in manufacturing but the country needs to have global quality products certified by international organisations. Also, it has to learn the sales cycle in order to market and operate in various countries, which involves a lot of time and money.” Increasing broadband penetration is further paving ways for India to take up manufacturing as current broadband penetration is 0.3 per cent against world average of 6 per cent. “The increasing need of Internet for both residential and business purpose is going to boost the growth of broadband in India. Currently, broadband subscribers are only 8.03 million and expected to grow to 30 million by 2012-13. Launch of 3G and WiMax services will also fuel the growth of mobile data services and this will fuel the manufacturing of mobile equipment and indirectly enhance enterprise equipment manufacturing,” informs Sajeev Nair.

Major manufacturers in India

The presence of some major manufacturers, like Nokia, Ericsson, LG, Motorola, Samsung, Alcatel-Lucent, Huwaei and ZTE, has given a fillip to telecom manufacturing in India.

Specialising in manufacturing boosters and repeaters to enhance indoor and outdoor mobile coverage, apart from IP backhaul radios, Shyam Telecommunications is one of the domestic players that has created a niche for itself in this sector. “Domestic manufacturing enables us to tap local innovation capabilities and develop an ecosystem to usher in holistic growth for the country. This not only helps our economy to boom but also makes us self-reliant,” opines Gaurav Nanda, senior manager (Africa and Middle East), Shyam Telecommunications Ltd.

Commenting on the advantages of manufacturing in India, S Nair, deputy general manager, HFCL, says, “Sourcing, manufacturing and distributing close to customers ensures short lead times, delivery reliability, flexibility and low costs. Today, India does not have the technology. China has, and as a result it is producing at a massive scale and at a very low price. Despite the low cost of manpower, India is lagging behind in manufacturing,” says S Nair. HFCL is one of the domestic players involved in manufacturing wireline/wireless equipment and optical fibre cables. With three units in Solan, and one each in Chennai and Goa, the company has been catering to clients like BSNL, Aircel and Tata.

“We are in the process of finding suitable partners of repute for joint ventures so that technology transfer can be done easily. Right now, the sector is in the process of upgradation and this gestation period will end soon,” says S Nair.

Sterlite Technologies Ltd is also among the top five global manufacturers of optical fibres and cables. Its scope of activity ranges from copper telecom cables and structured cables, to telecom integration projects and managed services. Sterlite continues to be a preferred supplier to the buyers of fibre optic cables and copper telecom cables, such as BSNL, Reliance, Tata, Bharti and MTNL.

“There is a marked shift to fibre-to-the-home technology, which is driving demand for optical fibre in developed and developing economies. India, China and other countries in Southeast Asia are deploying fibre networks in their mobile backhaul to cater to the increased bandwidth requirements due to their fast growing wireless subscriber base. Having said that, the demand for optical fibre in India in 2009-10 was approximately 6 million km, as against the annual global demand of 180 million km. Clearly, there is a huge opportunity for the fibre business in the country,” says K S Rao, COO, telecom, Sterlite Technologies Ltd.

What lies ahead

Though there is huge scope for manufacturing in India, technology transfer should happen fast. Manufacturers are very positive about the growth in this segment and are confident that once the technology has been acquired, India can even compete with the giants from the developed countries. “The Department of Telecom (DoT) and other R&D institutions have not developed new technologies, which has resulted in greater dependency on foreign vendors to keep pace with providing customers the latest technology. But with technology transfer and with government support we can compete with other nations,” says S Nair.

The government has been supportive in terms of excise free zones. Encouraged with the vision of ‘inclusive growth’, the government has now set an even more ambitious target of achieving rural tele-density of 40 per cent by 2012. However, the industry expects to achieve much more than this. Only few special economic zones (SEZs) for equipment manufacturing are established, besides Chennai and Pune there are no location in India which provides incentives to telecom equipment manufacturers.

Another area that requires attention is the manufacture of components. Although Indian production facilities in the telecom sector have fostered the growth of many local partners and suppliers for electrical and electromechanical components, not all components can be sourced locally and are procured through global suppliers. Indian semiconductor policies are encouraging FDI to manufacture semiconductor wafer manufacturing and ancillary manufacturing, which ensures cost effective electronics components availability inside the country and, thus, helps in reducing overall equipment cost. Cheap resources and quality suppliers are encouraging factors for entrepreneurs. So India will have to make an extra effort to see how these component suppliers can set up base in the country. This will, in turn, help in lowering the cost of procurement, thereby making manufacturing cost effective.

The Cellular Operators Association of India (COAI) believes that the government can leverage the existing Telecom Centres of Excellence (TCOE) initiative to promote R&D, create a dedicated R&D fund, put a conducive tax structure in place, and exempt companies from the minimum alternative tax (MAT) for a specified period to encourage equipment manufacturing in India.

Industry also believes that it is necessary that certain incentives be given to telecom operators to use equipment that has not only been manufactured in India, but has also been designed by Indian companies. Such incentives will not only increase the R&D base in the country, but will also lead to the creation of an export base. “Though the government has formulated several policies for related industries like IT, ITeS and semiconductor, telecom equipment industry is ignored at large inspite of huge potential available. No incentive is provided for R&D investment for telecom equipment manufacturing; approved R&D projects for telecom equipment are below 2 per cent,” says Sajeev Nair.

The government should also support Indian manufacturers in their endeavour to create an ecosystem that can make India a force to reckon with in the global telecom equipment manufacturing domain.

Domestic manufacturers

  • Shyam Telecommunications Ltd
  • Vihaan Networks Ltd
  • Tejas Communication
  • Coral Telecom
  • Bhansali Cables & Conductors
  • Indian Telephone Industries Ltd
  • Accord Communication Ltd
  • Himachal Furturistic Communications Ltd
  • Matrix Comsec Pvt Ltd
Electronics Bazaar, South Asia’s No.1 Electronics B2B magazine

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