When it comes to buying telecom equipment, mobile companies have never thought beyond Ericsson, Nokia Siemens, Huawei and a few other foreign vendors. Indian equipment manufacturers such as Tejas, Kaveri, Vihaan were never in the reckoning and rarely featured in any big purchase deals.
Production work
But this is about to change soon. The reason - advent of 4G technology based services. Unlike earlier mobile technologies like GSM, CDMA or 3G, fourth generation technology standards are entirely new. While the European and American tech firms have a huge lead when it comes to older technologies, 4G offers Indian players an opportunity to put their foot into the multi-billion dollar equipment market.
Bangalore based PointRed Telecom, for instance, is planning to set up a Rs 200 crore facility to produce 4G gear. “There is a huge market opportunity in this space with the total market for such equipments expected reach at $6-7 billion over next five years from few hundred crore right now,” Mr Balaji Kulothungan, Chief Executive Officer, PointRed said.
In addition to the core equipment, Indian gear makers are also looking at supplying back haul network gear.
“4G will generate a lot of bandwidth and data and there has to be high speed bandwidth backhaul. Coverage is there and not too many towers are required, but what we need is backhaul,” says Mr Sanjay Nayak, Cofounder and CEO of Tejas Networks. Tejas Networks put in about Rs 100 crore last year to develop products to add to its portfolio, and is also mulling entering the wireless space PointRed Telecom that has all along been only in the wireless space is also getting into fibre backhaul. The company invested $5million on R&D for wireline technologies.
Manufacturing equipment
Bangalore-based company Kavveri Telecom which works on Radio frequency (Rf) products and antennas required for wireless telecom is entering into embedded technology to convert its analog products to digital radiofrequency based products and this upgrade their telecom offerings.
And the churn in the industry with companies foraying into newer domains and entering into partnerships doesn't stop with technology, but extends to new business models as well.
Tejas Networks, for instance, works on a model where it relinquishes competition as it partners with other companies where Tejas does the R&D, build the products and sells it to them.
The model earlier on was that the western world companies used to come to India after they made money in their home markets But according to Mr Nayak, those markets are not growing fast anymore and prices in India are a tenth of what they are elsewhere.
“This is relevant for India because what it is driving down is that cost of innovation in India is much less than doing the same in the US or Europe.
A lot more development will happen in such geographies provided there is talent because India has talent and there is a big home market,” Mr Nayak says.
According to him, the next big thing in the company is the economics of how technology products require innovation. “If we leverage this, technology inflection points will come and there will be opportunities,” he says.
PointRed also said that while the 4G technology as such is standardized, there is scope for innovation in terms of implementation. “How you implement the standards and adds value to effectively use bandwidth is where we can create intellectual property (IP),” says Koluthungan. PointRed will work on security features, networking features and authentication are some things PointRed will work on, he said.
Considering it is a new technology, Indian companies will be fighting out with international giants to win IPR, but that apart, Indian companies are confident of winning against competition. “This won't bring about any change in the competition scene- it will be just as good or as bad as before,” Koluthungan said.
Total solutions
Kavveri Telecom on the other hand believes that its wider service offerings will help it beat competition. “Our biggest advantage in competing with International firms is that we provide total solutions to the customers instead of selling products and this has really put us way ahead of the competition,” Mr Shivakumar Reddy, MD - Kavveri Telecom said.
But can the desi manufacturers give a fight to the likes of Ericsson and Nokia Siemens. “Indian companies have lagged behind in terms of IP for technology, and one can't say whether it will suddenly change today,” Ernst & Young analyst Akshay Grover said, adding that it was because a lot of investment in R&D will have to go in to create IP before a product is launched. Another concern, he said, was that of scale and volume economics and whether Indian companies would able to deliver volumes like that of international ones. “There is also a challenge of winning customers' trust,” he pointed out.
Unfortunately, despite a large user base at home and abundant intellectual talent, India doesn't have as many product companies as it should, to cash in on these opportunities, according to experts. Venture funding and R&D investment are part of the problem but the sore point seems to be government policies.
While the Government, to promote domestic manufacturing, has come up with policies incentivising companies that purchase India-made telecom equipment gear, TEMA believes that it won't solve the problem. Mr Ashok K. Aggarwal, Honorary Director General, Telecom Equipment Manufacturers Association (TEMA) told eWorld that while the Preferential Market Access (PMA) under the National Telecom Policy would help Indian telecom equipment companies, the policy, in its present stage wouldn't benefit Indian companies.
While telecom companies like Tejas Networks and Kavveri telecom believe that the policy would do them good, TEMA says that changes are in order.
For instance, the policy gives incentives to ‘domestically manufactured products', but the definition of domestically manufactured product has to be first adopted properly so that the benefit accrues to domestic products, he pointed out. Breaking the nexus between dominant Indian players and foreign ones, and thwarting lobbying would help, he added. “Indian manufacturers would be able to overcome all these and come out as winners in the end, if Government of India takes up this wakeup call effectively,” he added.
Yet, the spirits of Indian telecom manufacturers aren't dampened and they are on a high, for, they are finally on the global map. And clearly, going by the fierce investments they're making on the technology, this is just the beginning.