GLOBAL ANALYSIS: The West is Looking Up To the East

Traditional telecom equipment companies such as Nortel and Lucent, which were
slow to adopt new technologies, lost
their foothold in the market. They lost out to Alcatel, which continues to
dominate the DSL market with Fujitsu leading the Sonet market. Ericsson, Nokia,
and Motorola continue to move ahead in the wireless space taking up major chunks
of the market. The year also saw acceleration of shift from traditional TDM
towards IP infrastructure. Cisco continues to enjoy market leadership in the
networking space, pushing Ethernet and IP standards, and adding capabilities
like voice over routers and switches. The year also saw global vendor's
allying with Asian players to gain a foothold in the equipment market. Nortel
and LG Electronics entered into a marketing and R&D deal. China Putian
Corporation also entered into a JV with Nortel to do R&D, manufacture, and
sale of third generation mobile telecommunications equipment. Broadband, IP,
wireless (3G), and DSL were some of the drivers for growth of the equipment
market. Worldwide, telecommunications and communications equipment market
forecasts strong growth in the existing markets. Markets at $197.6 billion in
2005 are anticipated to reach $446.9 billion by 2010. The top ten
telecommunications equipment provider markets, at $166 billion in 2004, are
forecast to reach $381 billion by 2010.

The Chinese Invasion

It was the year of aggression by Chinese vendors as they went all out and
actually grabbed market share from leading equipment vendors worldwide in
numerous infrastructure product categories and had good prospects for further
expanding their reach. 

Given the kind of deals struck by Chinese vendors, the myth that Chinese
vendors manufacture low cost, low quality products was shattered. With the fall
in tariffs, service providers realized the importance of decreasing capex,
resulting in their experimentation with the Chinese vendors. The Huawei deal
with BT was a coup of sorts in the telecom business and there were rumors of a
possible takeover of Marconi by Huawei. A market report placed Huawei as the
number two provider worldwide in the DSLAM market leadership after Alcatel.
Even, UTStarcom, a company based in US but having Chinese lineage, emerged as
the number two vendor worldwide of IP DSLAMs, according to a report by Light
Reading. The report attributes low labor costs allowing Chinese vendors to price
their equipment at 10—15 percent lower than established telecom vendors. Early
this year, ZTE entered into vendor financing arrangements with the Indian
subsidiary of Bermuda-based Atlas group of companies. The deal worth $1 billion
is for supplying broadband equipment to BSNL.

Telecom Infrastructure Services Market

An emerging trend during last year was network outsourcing, which attracted
several non-telecom players including Accenture, IBM Global Services, EDS, and
HP. These players, along with the telecom vendors Ericsson, Alcatel, Lucent,
Motorola, Nokia, and Siemens saw an opportunity in telecom infrastructure
services which includes: consulting, deployment and management services, and
professional and maintenance services. IBM's outsourcing deal with Bharti,
which IBM terms as 'first-of-a-kind business transformation agreement' was
the first major deal worth $700—750 million during FY 2004—05. IBM will
consolidate, transform, and manage comprehensive information technology (IT)
infrastructure and applications for Bharti Tele-Ventures. It may be recalled
that Bharti also entered into a $400 million outsourcing contract with Ericsson
to outsource the management of its cellular network in 2003.

According to TBR: Ericsson, IBM, and Alcatel were the top three telecom
infrastructure service providers during FY 2004—05.

Sudesh Prasad

Statistics and Trends on Global Telecom Equipment Market

Source: Infonetics Research, IDC, and V&D estimates