Alternative carriers, build-outs spur India’s telecom growth

Oct. 1, 2005

The emergence of alternative carriers, infrastructure build-outs to support a growing wireless market, and the sheer population of India-now more than 1.1 billion-are driving growth in the region. The potential volumes have caught the eye of many North American vendors that are learning on-the-fly how to do business in the world’s second most populous nation.

Until 2000, India’s telecommunications market was controlled by two government-owned carriers, Bharat Sanchar Nigam Ltd. (BSNL) and Mahanagar Telephone Nigam Ltd. (MTNL). The Indian government established MTNL in 1986 to deliver telecom services to the country’s two biggest cities: Delhi, the political capital, and Mumbai, the business capital. BSNL, meanwhile, has been providing wireless, Internet, and long-distance service to the rest of the country since its inception in 2000. In the last few years, three formidable competitors-Reliance Infocomm, Tata Teleservices, and Bharti Tele-Ventures-have emerged, driving down prices and increasing teledensity.

According to the Telecommunications Industry Association’s (TIA-Washington, DC) “2005 Telecommunications Market Review and Forecast,” there are about 5.89 landlines per 100 people in ­India today, up from 2.66 landlines per 100 in 1999. Despite this increase, India’s teledensity remains at just 5%. By 2008, teledensity is expected to increase to 7.5 per 100 people. Most of the infrastructure currently being deployed in India is used to backhaul cell sites, confirms Joe Savage, author of the report, “Broadband Access and ­FTTx in the Asia-Pacific Region,” recently released by KMI Research (Providence).

Despite recent deployment activity by Reliance Infocomm, Bharti Tele-Ventures, and others, India still suffers from a relatively poor telecommunications infrastructure. As a result, wireless adoption has skyrocketed since it is a less expensive means of reaching more subscribers. This year, the number of wireless subscribers in India should exceed the number of landline subscribers, says the TIA. There are currently 50 million wireless subscribers in India, making it the third largest wireless market in the Asia-Pacific region, trailing only China and Japan. By 2008, the number of wireless subscribers in India should top 200 million.

All of which spells good news even for India’s traditional telecom carriers, reports Amit Chawla, executive vice president of global marketing at Veraz Networks (San Jose). “The infrastructure has to catch up to support all these millions of handsets that people are running around with on a daily basis,” he says. “As mobile traffic grows, that traffic has to terminate somewhere. If I’m making a call from my cell phone, I’m either terminating the voice on somebody else’s cell phone or I am terminating that onto a landline. In the last two years, every carrier-from the public or government carriers to the private multiservice operators-they’ve all been very busy looking at next generation switching solutions, otherwise known as VoIP solutions.”

India’s long-haul market also may be poised for growth. Chawla believes the Indian carriers are poised to become household names even in North America. International carriers like British Telecom, France Telecom, and Deutsche Telecom are fairly well known, thanks to their ability to carry transatlantic, transpacific, and transnational traffic. But two recent acquisitions may push Indian carriers to the fore as well.

In January 2004, Reliance Infocomm acquired U.S.-based FLAG Telecom’s global fiber-optic network for $211 million. Ten months later, Videsh Sanchar Nigam Ltd. (VSNL), India’s leading long-distance provider, purchased the Tyco Global 60,000-km submarine network for $130 million.

The cost points for Indian carriers could be orders of magnitude lower, notes Chawla, because they can move their network operations centers and back-office operations to the Indian subcontinent. “Based on capacity, technology, and price, I think [the Indian carriers’] competitive skill set or their ability to compete in the global market will challenge the incumbent global providers in a big way,” he adds.

So what does all this mean for North American vendors hoping to tap into the potentially voluminous Indian market? “For companies to succeed in India, they need three key ingredients,” asserts Eric Banoun, APAC vice president of sales and marketing at ECI Telecom (Petah Tikva, Israel). “One is technology, an advanced technology or latest technology. The second would be pricing, because pricing is a major factor in India. And the third, which is extremely important in India, is very strong customer support. You cannot succeed in India if you don’t invest in the market in terms of technical support.”

Nan Chen, vice president of marketing at Atrica (Santa Clara, CA), reports that Indian carriers are more likely to embrace next generation, bleeding edge technologies. “They tend to be open to such a discussion because they don’t have to legacy infrastructure,” he says. “A lot of the reluctance to deploying new technology within North America has to do with the existing infrastructure. From a Greenfield deployment perspective, a lot of the legacy baggage is not there [for Indian carriers.] It’s not like in the U.S., where you have to consider backward compatibility and such.”

Also contributing to India’s willingness to embrace cutting edge technology is the competitive nature of the market, notes Chawla. Long-distance rates coast-to-coast in the U.S. today are retailing for about 5¢ per minute. In India, by contrast, a coast-to-coast call retails for less than half a cent per minute. “When you are talking that order of magnitude reduction in revenues, the carriers, to be competitive, are looking for leading edge technology that will give them that competitive edge and the operational cost reductions that they absolutely must have,” he adds.

KMI’s Savage urges U.S. vendors to find a strong local partner. “It is similar to entering the Chinese market,” he says. “You need to establish partnerships and name recognition at the local level.” A local partner might prove advantageous for other reasons as well. “You have to be really responsive to their demands because they are accustomed to a fast response time with their own IT departments,” explains Chen. “They provide a fast response to their customer issues, and I think this is another challenge for U.S. suppliers.”

Chawla agrees that India is “a high-touch market. You really have to spend a lot of time in the market, hearing the people and developing trust. If they trust you and agree with what you’re saying, you have a much better shot than someone else.”

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