Segments: Wireless Infrastructure: Lull After The Storm

The wireless infrastructure market had shown a steep rise in FY 2004-05, but
the same was not seen in FY 2005-06. BSNL, the largest buyer of telecom
equipment in the country did not place any new order in GSM, but gave expansion
order to Nokia and Nortel. Even for Reliance Infocomm, things were slow, as the
company was busy restructuring. Bharti Airtel and Tata Teleservices were active
along with Hutch. So, with two out of five large operators going slow, it has
impacted wireless equipment industry in a big way. 

Both worldwide and in India, the wireless infrastructure equipment usually
follows the sine curve and demands pick up every alternate year. Since we had
seen a crest in FY 2004-05, there was a trough in FY 2005-06. Once the
infrastructure is completely developed in all parts of India, one can expect
regular expansion orders. But with an upward movement of technology, we might
see sine curve again.

Presently, the vendors are trying to increase rollout of services from 3,500
towns and cities to 5,000 towns. Not only regular expansion, but we are close to
seeing 3G deployment in India in FY 2006-07 and all this will help the market
grow at a brisk pace for at least couple of years.

In FY 2005-06, the wireless infrastructure equipment market in India is
estimated to be around Rs 11,411 crore ($2.53 bn) and has achieved a minimal
growth of around 1.2%   

FY 2005-06 has started on a good note. We have already seen three tenders/RFPs-BSNL's
2.5G/3G deal of 45.5 mn lines, Bharti's 2.5G/3G deal of over 60 mn  lines,
and MTNL's 2.5G/3G deal of 2 mn lines for Mumbai. Apart from this, 2 mn  lines for MTNL Mumbai's 2.5G/3G has already been allocated
to Alcatel. Even for BSNL's 2.5G/3G, one region has been reserved for Alcatel.
All this opens up good opportunities for wireless infrastructure players in
2006.

The incumbents

This year has been special for Nokia, as the company has been able to break
Ericsson's monopoly in the wireless infrastructure space. In terms of sales,
India ranks 4th for Nokia. Having done well year before last, the company
consolidated its position in FY 2005-06. Apart from expansion orders in Bharti,
the company was able to bag expansion orders plus managed services deal with
Hutch and Bharti.

BSNL has awarded Nokia GSM/EDGE and GPRS network expansion project in North
India for $141 mn. Bharti has chosen Nokia for its managed GSM/GPRS/EDGE
networks in 8 circles for  $125 mn.
It will manage and expand over a three-year period and will cover 5,000 towns,
up from 2,700 across India. Nokia has also sold intelligent content delivery
system (ICD) solution on Idea's mobile networks across India. The solution
allows Idea to provide data services such as downloadable ringtones, music,
games, browsing, streaming, MMS, and content based SMS to both prepaid and post
paid customers and charge for them differentially.

Having done well during the last two years, the company also launched its
manufacturing operations in Chennai for wireless infrastructure and handset.
Plans are afoot to locate Nokia Global Network Solutions center in Chennai. The
center will perform network operation tasks for select operators in the Asia
Pacific region as well as Europe, the Middle East, and Africa. It will initially
employ around 100 people.

The company is now eyeing 3G as well. Nokia has done well globally and has
bagged 47 out of 109 deals. The list is equally impressive in the Asia Pacific.
The company has bagged around 13 out of 24 deals. All this will help Nokia India
push its technology to Indian service providers. Apart from 3G, the company is
planning to be aggressive in rural expansion, with reduced total cost of
ownership. 

FY 2005-06 was not a good year for Ericsson, as BSNL, Maxis, and Idea orders
were unable to keep it at number one position. The company was ranked number two
and has shown negative growth. Ericsson has signed a
$250 mn managed capacity expansion contract with Bharti Airtel to provide
managed services and expand its GSM/GPRS network into rural India. Ericsson's
technology and managed services solutions will enable Bharti to expand into
around 3,000 towns and villages in 15 regions. Even in Dishnet Wireless (Maxis),
Ericsson carried out expansion deals in several circles. The company was also
active on Idea, both on infrastructure as well as VAS.    

Ericsson has won a deal with Idea Cellular to provide its Ericsson Mobile
Organizer (EMO) solution, breaking new ground for mobile data services in the
Asia Pacific region. The company also got lot of hosted service contracts for
BSNL, Reliance, and Bharti. 

Along with GSM manufacturing in Jaipur, the company also announced the
opening up of its first R&D facility and Global Service Delivery Center (GSDC)
in Chennai. The facility focuses on developing value added applications
for the pre-paid and multimedia segments, and GSDC will cater to global
customers.

With the completion of Marconi acquisition this January, Ericsson definitely
has an advantage over its competitors, and it depends on how they plan to
leverage in future tenders. 

For Lucent, it was only expansion order in Reliance Infocomm. Last year was
also significant for Nortel as the company made inroads into Infocomm and broke
Lucent's monopoly after a long time. The company got order for one circle in
Reliance. Though Nortel implemented the BSNL deal, the company was not able to
limit its losses by expanding BSNL's GSM/GPRS/EDGE network in southern and
eastern India.

For Motorola, the company was able to get a good expansion order from Tata
Teleservices. Even in MTNL, Motorola got expansion for 800,000 GSM lines. Huawei
bagged the order of supply of switches. Even in the latest tender of 2 mn line
2.5G/3G tender of MTNL, the company has opted for Huawei switches. And plans are
afoot to go ahead with either Siemens or Huawei for 45.5 mn BSNL tender.

Last year, Motorola launched its lab in India and it will focus on applied
research in the areas of converged networks, autonomic networking, enterprise
applications, embedded systems, and physical sciences. This research focus
supports Motorola's vision of seamless mobility: easy, un-interrupted access
to information, entertainment, communication, monitoring, and control.

Having tasted success on the handset and fixed wireless front, ZTE is now
actively looking at the infrastructure space. Recently, ZTE has bagged Tata
Teleservices' rural telephony project where plans are afoot to install around
2,400 BTS. The company has also applied for MTNL's 2.5G/3G tender for 2 mn
lines and is also planning to participate in BSNL tender.   

For Siemens, the company strengthened its market share in GSM space. The
company got new contracts for East Central Railway and North Central Railway to
build communications platforms on the basis of GSM-R. The company also increased
its market share in mobile infrastructure by bagging new circles of Idea such as
UP(E), UP(W), and Kerala. On the manufacturing front, Siemens
has not yet finalized  the
location but has applied for Industrial Enterpreneur Memorandum (IEM) for
Chennai.

The New Players

ZTE, Huawei, and UTStarcom  are
having high hopes  for 2006. ZTE has
bagged around 2,400 rural BTS order from Tata Teleservices, whereas Huawei is
implementing MTNL GSM expansion order along with Motorola. Huawei is planning to
invest around  $100 mn over two to
three years, of which  $40 mn will
be for software development center and  $60
mn  for manufacturing. UTStarcom is
heavily focusing on managed services offering, which includes program
management, network operation,  management,
and   monitoring. The company
is betting big on IP-CDMA in 2006, as it has a complete solution compared to
other players.

2005 was an eventful year for Alcatel in India.
The company is now an emerging player in the GSM market (with technology
transfer to ITI).  It implemented
one mn lines in the western region. ITI became Alcatel's full-fledged partner
having set up plants for manufacturing GSM BTS in both Mankapur and Rai Bareli
in July and November respectively. Alcatel also ventured into the WiMax arena by
setting up a joint venture with C-DoT for development of broadband wireless
access solutions, starting with WiMax CPE. The company is also implementing the
first 3G project for India with MTNL in Mumbai. 

With BSNL and MTNL's 3G projects under its belt, Alcatel is planning to
unsettle the wireless equipment player ranking in FY 2006-07.  

The Road Ahead

The Department of Telecommunications is planning to achieve 250 mn
connections by 2007 and 500 mn connections by 2010.

With network expanding at a fast pace, service providers are focusing more on
marketing and leaving the network for experts, so managed services will see a
lot of traction. Due to rapid expansion, quality of service is also becoming a
bottleneck.  One can see a lot of
expansion in in-building coverage with the use of nano-BTS.     

On the 3G front, we can expect some network deployment, but major subscriber
addition is expected only in 2007. We can expect large 3G network deployment in
FY 2006-07, if the government gives a go ahead to spectrum. The government is
paying Rs 1,000 crore to defense for releasing 45 MHz of spectrum by 2006 end.
With data and non-voice revenue increasing, service providers are focusing a lot
on value added services. And this will increase further with the launch of 3G
services in the country. Vendors who can encash on these opportunities will be
clear winners in the future.

Pravin Prashant

pravinp@cybermedia.co.in