Several recent developments and the changing market dynamics promise to alter the contours of the Indian telecom vendor ecosystem.
Factors such as the Government’s focus on Atmanirbhar Bharat, the Production Linked Incentive (PLI) policy, and the growing market opportunity because of anti-Chinese sentiments bode well for the development of domestic telecom vendors. Further, the forthcoming entry of Reliance Industries in the telecom vendor space is likely to disrupt and possibly provide the required impetus to the sector.
The most significant factor is that it is much easier to enter this space now than it was a few years back. The emerging concept of Open Radio Access Network (Open RAN) is software-centric, making it easier to enter this field. This has led to the emergence of several new vendors, including Altiostar, Mavenir, Parallel Wireless, among others. Reliance’s upcoming 5G solution is also believed to be based on the Open RAN concept.
“Till 4G, the technology was very proprietary in nature. Now, 5G is a disaggregated technology where every part of the network is based on an open concept. It is cloud-based and the technology itself is driving itself to be non-proprietary. This, along with Government initiatives like Make in India and PLI-scheme, make it a good time for India’s ecosystem to develop,” explains Dr. Anand Agarwal, Group CEO, Sterlite Technologies.
The second factor is the imminent entry of Reliance Industries in the 5G vendor space, which promises to disrupt this sector. Last year, RIL Chairman Mukesh Ambani announced that the company had developed its own 5G solution, which it endeavors to sell in global markets after deploying it in its own network in India. The company plans to launch 5G services later this year. It acquired the US-based Radisys Networks in 2018 to drive its vendor aspirations.
The entry of a major player like Reliance Industries, with significant influence and ample financial resources, will significantly impact the industry. The company is exploring acquiring Indian vendor to gain technology competencies in building and manufacturing 5G products. This is great news for the Indian vendors. Even so, the biggest contribution is going to be in terms of mindset and perception change where Indian vendors are concerned.
“It [RIL’s entry in the vendor space] shows confidence in the country’s ecosystem. The fact that it will also make products in India is a good move. At the same time, a product mindset is fundamentally different from a services mindset,” says Sanjay Nayak of Tejas Networks, one of the few homegrown telecom vendors.
Even so, Jio’s entry is not without challenges. “I believe Jio’s solution is likely to be deployed in the developing market. By the time it is able to deploy in India and then market it in other countries, most of the developed market would have already deployed 5G. Besides, open RAN is a new technology, and it will be five to ten years before it gains scale,” says Ashwinder Sethi, Principal, Analysys Mason.
Besides, the geopolitical reasons have made it challenging for the Chinese vendors, Huawei and ZTE, to do business in India. Globally, there are security concerns regarding the Chinese vendors. The recent reports suggest that Huawei and ZTE are unlikely to be included in the list of `trusted vendors,’ which opens up space for the Indian vendors. Further, there is a concerted effort from the Government in terms of Make in India and PLI policy to push the domestic telecom vendors.
“Things are moving in the right direction. The government-led initiatives coupled with the open nature of 5G will spur the domestic vendor ecosystem. Further, now we have a vibrant startup and Venture Capitalists ecosystem, which was not the case earlier,” says Dr. Agarwal of Sterlite Technologies.
To answer whether the local domestic vendors are ready to capitalize on these opportunities, one needs to step back in time and see their evolution.
What ails domestic telecom vendors?
It is safe to say that the Indian telecom equipment sector has not been able to keep pace with the growth and expansion of the country’s telecom services. While telecom equipment export increased from just $0.6 million in 1998 to $1.2 billion in 2018, the imports touched $21 billion in 2018. On the other hand, the teledensity increased from just 3.58% in 2001 to a whopping 93.27% by the end of 2018.
This sorry state of the Indian telecom manufacturing reflects the lack of commitment to promote this sector. Lack of research and development investment and a clear policy roadmap to promote indigenously designed, developed, and manufactured telecom equipment are responsible for this bleak picture and a lost opportunity.
“There are three key things one needs to develop telecoms vendor ecosystem: Investment, high-end engineering talent and IP culture. Regarding investment, while we have entrepreneurs, they are generally focused on low-risk and quicker returns. Deep technology startups, similar to the ones in Israel are still missing in India. Further, while we have engineers who can develop a concept, we need to nurture and retain design and architecture talent, which can conceptualize and build things from the scratch.” says Amresh Nandan, Research Vice President – CSP, Gartner.
“Further, we need a culture to acknowledge and appreciate people who build IP. This cannot be driven by just one company. Government and industry will need to run a concerted program to achieve such a thing ,” he adds.
Traditionally, state-owned ITI Limited and Centre of Development of Telematics (C-DoT) were the only telecom vendors in India. As the service providers expanded the coverage and launched new technologies, they imported most of the required equipment. Nokia, Ericsson and Cisco have globally dominated this space. Over the last few decades, while the telecom’s services side grew from strength to strength, the domestic vendor space was left languishing.
Even so, C-DoT has had a profound impact on the Indian telecom industry by nurturing technology leaders. Several stalwarts of the industry today started their careers from C-DoT. PK Bhatnagar, President, Reliance Industries, who was earlier heading Rancore Technologies and played a crucial role in Jio’s network strategy, is former President of C-DoT. Similarly, Shyam Mardikar, the current Chief Technology Officer at Jio, started his career from C-DoT.
Because of the capital-intensive nature of telecom gear development, it demands sustained investment and commitment from the administration, and this has been missing in India. One can cite the example of Huawei, which was founded only in 1987 but was able to leapfrog and put up an intense fight against established vendors Nokia and Ericsson. The role of the Chinese Government can hardly be ignored in the growth of Huawei. It could pump in massive investments in R&D and offer lucrative payment deals to the telco clients only because Huawei had the backing of the Chinese Government.
“Historically, there is a lack of push from the Government to promote this sector which has resulted in this bleak picture of the Indian vendor ecosystem,” says Ashwinder.
Recently, the Government has tried to involve academia in the development of new products. It set up a 5G test-bed in collaboration with some of the premier institutes of the country.
While India is one of the world’s largest wireless markets, it has hardly played a role in the development of standards. Last year, the Telecommunications Standards Development Society, India (TSDSI), a part of India’s Department of Telecommunications (DoT), came up with its own Radio Interface Technology (RIT) for rural coverage. This was approved by the International Telecommunications Union looks as an IMT-2020 standard.
Only a handful of technology vendors, such as Tejas Networks, Sterlite Technologies, HFCL, and Vihaan Networks, have emerged in the last few decades. Of these, Sterlite has emerged as one of the top ten fiber manufacturers in the world. Tejas has also made a mark in the global space as an Indian vendor.
“A major issue we faced in our initial years is the problem of economies of scale. A startup may be able to build a world-class product, but it will not be able to match the price offered by established players. It is here that Government’s support is needed. It is a classic chicken and egg problem,” says Sanjay Nayak, CEO and Managing Director of Bengaluru-based Tejas Networks.
The policy and Government’s support could have Indian gear makers achieve greater success. Just to put this in perspective, Huawei (1987) and Sterlite (1988) started operations at around the same time. While Huawei recorded revenue of INR3,288 bn in 2019, Sterlite recorded revenue of INR53 billion in FY2019-20.
Can you sell it if you build it?
The Indian telcos also face massive mindset issues in increasing their market share in the domestic market. The recent BSNL’s 4G-tender is also a case in point. There was a strong resistance and lack of trustworthiness from the state-owned telco in going for indigenous technology. BSNL has raised concerns over being asked to use only locally-made gear for 4G core. The company believed that the indigenous core technology and equipment was unproven and will significantly increase its deployment cost.
The recent developments indicate that while the foreign vendors, like Nokia, Ericsson and Samsung, are likely to be allowed to participate in the tender, the Chinese vendors will be barred from doing so. This seems to reflect a bias against the Indian vendors and their technology expertise.
“We need to shed away our lack of confidence in technologies developed in India. The criticism that fewer companies will lead to a lack of competition is completely unfounded. Globally, there are no more than ten optical transmission vendors, so even if there is a single Indian vendor in a category, the Government should support it,” says Nayak. He believes that the Government must nurture domestic companies, whether public or private.
“For 4G, there is an established supply chain, which is now almost eight-to-ten years old. For someone to get 4G from the domestic ecosystem means re-developing something that is already there. The resistance is possibly for this reason. However, with 5G and forward, where the ecosystem is built on multiple components, we do not see any pushback on that front,” says Dr Agarwal.
Going forward, the foreign vendors may look for collaboration or manufacturing partnerships with the Indian vendors to ensure they are able to get business from the Indian state-owned telcos.
Geopolitical factors are likely to play a crucial role in the upcoming technologies. This is apparent from the role played by the US in getting Huawei barred from several countries, including the US, UK and Australia, among others. Huawei was close to being banned in Brazil but the country seems to have decided to trade in the coronavirus vaccine in exchange for Huawei’s participation in its communications market. As Indian vendors grow their profile, they will need support from the Indian government to promote them not just in India but also in other parts of the world.
Further, the initiatives need to be sustained over a long period. “There is a growing realization that the initiatives have to be continuous and sustained. We hope that it continues to be maintained with a great degree of focus. The development of the ecosystem will not be just great for the Indian market but will help India become a global manufacturing base,” says Dr Agarwal.
While typically the Indian vendors have focused on the global market because of better margins, this may change now as the size of the market grows and the Indian communications industry matures. The tide is certainly turning in their favour. As India marches towards 5G, the Indian vendors stand an excellent chance to increase their domestic market share. It remains to be seen whether they are able to grab this opportunity or not.
(Gagandeep Kaur is a Delhi-based independent telecoms reporter)
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