TELECOM SOFTWARE: The Stars Shine Bright…

Globally, the telecom vertical is considered to be one of the most lucrative
domains for software companies. The telecom software market caters to both
service providers and OEMs, but the former is considered more lucrative for
software companies.

Sizing up The Market
According to Nasscom, during 2002—05, broadly, IT investments are likely
to happen through the rollout of new services such as high-speed Internet access
through mobile devices and MMS, R&D related to the 3G mobile communications,
wireless technologies, embedded systems for mobile devices and CRM systems. In
2002—03, this market witnessed a growth rate of about 19 percent to reach Rs
5,570 crore, and by the end of 2005, this figure is expected to touch Rs 12,500
crore (Nasscom projections). And with IDC predicting a 15 percent CAGR for the
global market for wireless and mobile infrastructure consulting, integration and
management services with a market size of $37.4 billion by 2006, up from $21.4
billion in 2002, the numbers do look realistic.

The Domestic Market
However, though the bulk of revenues still come from exports, the domestic
market too plays an important role. In 2002—03, the total revenue from the
domestic IT market was around Rs 6,500 crore of which telecom contributed Rs
1,430 crore. The future looks promising especially considering that the telecom
services market in India experienced a combined revenue growth of around 16
percent in 2002—03. The deregulation of the telecom sector together with quick
roll-out of wireless network in the country have created a demand for telecom
software across the physical layer, from switches to the enterprise level.

This is in sharp contrast to the sluggish growth in the North American and
Western European markets which according to the Nasscom’s strategic review of
the IT industry in India for 2003 have witnessed a slowdown in capital
expenditure by 30—35 percent on infrastructure due to financial difficulties
arising from high license fees for 3G networks and lower than anticipated
demand. In addition, growth has been sluggish, with a significant cutback in
spending by telecom majors like Lucent and Nortel. Amitabha Dutta, business
development head, Asia-Pacific, Mahindra British Telecom) too supports this

"The sluggish European and US markets have forced global
companies like Accenture and EDS to look at the Indian market."

Kobita Desai, senior analyst (telecom services and mobile) at Gartner India
concurs, "China and India are growing economies for the telecom business in
the APAC region. As new carriers get into the market, the demand for OSS, BSS
and network management will grow quickly." Companies will need to invest in
infrastructure, improve quality of service, network efficiency and billing
solutions. These factors will drive the domestic market, believes Desai.

Export Scenario
However, the optimistic dissection of the domestic market potential does not
mean that exports will dry up in the near future. In fact, the after effects of
the global telecom could spur the growth of exports too. Service providers who
had a high cost of operational expenditure because of heavy investments made in
networks during the heydays, are now looking at Indian software companies to
provide offshore solutions to manage their network operations, support systems,
billing software, OS integration and business process re-engineering. The top
five telecom software companies in India –TCS, Wipro, MBT, Infosys and HCL
Technologies–contributes a large chunk of these exports. Other significant
names on this radar include Hughes Software, Subex, Sasken and Future Software
amongst others. The major services offered by these companies are OSS, BSS,
network management, billing software, billing mediation, customer relationship
management, fraud management and embedded and equipment testing.

Adds Ranjit Dhuru, chairman and CEO, Aftek Infosystems, "The largest
market for Aftek’s products business, the US, is showing signs of emerging
from a slowdown that severely constrained IT spending during the last year. To
capitalize on the improvement in the market outlook, Aftek is laying thrust on
boosting its products business by ramping up its US operations." That Dhuru’s
remarks is not wild speculation can be substantiated by the fact that in a
recent worldwide survey of communications service providers (CSPs) by the Yankee
Group, not a single one said it had a decreasing budget for analytics and
reporting applications (ARA) from 2001 to 2003, and 55 percent indicated their
budget for ARA spending grew significantly and will continue to grow through
2005. In 2003, an estimated $1.1 billion is being spent on analysis and
reporting software.

Role of Business Intelligence
While software majors with a strong telecom focus are concentrating on
verticals, MNCs like SAS, Texas Instruments or Cisco with captive centers in
India, are aggressively courting domestic clients. The telecom industry accounts
for 12 percent of SAS revenues with blue-chip clients like Orange Mumbai, BPL
Mobile and Bharti. Business intelligence (BI) seems to be one of the key areas
where most of these companies are hedging their bets. Says Krishnamurthy,
"BI will be recognized as a strategic IT investment and companies will look
for enterprise BI suites that serve the needs of multiple types of users. It
will be business users who will provide the impetus to purchase business
intelligence solutions such as those for churn management, marketing automation
and segmentation management. The business intelligence industry is moving toward
packaged industry applications both worldwide and in India."

The general market drivers like consolidation in the industry and fierce
competition leading to customer churn that have fuelled robust growth in the BI
software market over the past few years are still very much in evidence. The
need and demand to access accurate data and analyze it at the right time is
increasing. High-end and predictive analytics will be seen as critical to
generating ROIs and will be increasingly packaged within BI solutions for
business users. The unified license regime will only further fuel the demand for
business intelligence solutions like those for churn management, marketing
automation, activity-based management, customer segmentation etc. The BI market
in India is currently estimated at $16 million in India as per Frost &
Sullivan and is only slated to further grow at a CAGR of 33.9 percent to touch
$53.2 million by 2008.

Other Key Areas
Indian telecom service providers need software not only to keep the telecom
network up and running, but also to manage revenue streams. So companies like
MBT believe that the future of telecom software lies in business services
support to create good telecom billing system, billing mediation, customer
relationship management and fraud management. The global wireless software
market is dominated by software companies like Nokia, Ericsson, Motorola and
Symbian and big global services companies like Accenture, IBM Global Services,
EDS and Fujitsu. In India, there are companies like MBT, who work as application
integrators on third-party software, especially in areas like OSS and BSS.
Majors like Wipro and TCS have telecom verticals that offer various level of
solutions in the wireless and telecom space.

There are also Indian telecom software companies with products in niche areas.
Hughes Software has over voice-over-packet protocol stacks and frameworks with
protocol stacks for GPRS and UMTS. Firms like Sasken are primarily in telecom
software and solutions in the areas like wireless networks and wireless LAN.

Leading Telecom Software Vendors
CompanyRevenue (Rs/Crore)Area of SpecializationKey clientsStrategy
TCS890Mobile data services, IN platforms,
network management services
British Telecom, Verizon, 
AT&T, America Online, Qwest, Nokia, Motorola
Shifting the revenue concentration more towards service providers from
equipment vendors; still maintaining a balance between carriers and OEMs;
targeting customers positioned towards wireless and 3G services; Tier 1
and Tier 2 telcos targeted for large outsourcing or offshore business;
Tier 2 or Tier 3 telcos for systems integration
Wipro654Wireless applications, 
billing, equipment testing, VoIP
Ericsson, Nokia, Nortel, 
Motorola, Reliance Infocomm, AT&T, NTT DoCoMo
Look aggressively towards service providers
to bolster a declining topline; reduce excessive dependence on equipment
manufacturers like Alcatel, Cisco, Nokia, Ericsson, Nortel; attract more
carriers on the domestic market
MBT617CRM, BSS, security,  network planning, inventory
management, telecom
information assurance
British Telecom, MCI Worldcom, Rockwell,
Qatar Telecom, Starhub, Alltel, Ericsson, Microsoft India, HP India BSNL,
Reduce dependence on the parent British Telecom; concentrate on 2/3
premium accounts in each geography instead of numbers; focus on CRM, BSS,
security and network planning including inventory management
Infosys551Wireless, wireline, broadband, optical, VoIP solutions, OSS,

network management

Telstra, Belgacom

and Proximus, Nortel, Lucent, Cisco, Verizon, Cable & Wireless
International, Telenet, Korea Telecom

Cater to both carriers and OEMs with a multiple bouquet of services
instead of specific areas of specialization; leverage its .NET expertise
to build telecom solutions on this platform; looking at acquisition in
overseas market (recent acquisition of Expert in Australia)
HCL Technologies5423G, GSM, GPRS, DECT, EDGE, Imode, PHS, IS41, Mobitex, Wireless LAN, NMS/OSS,
UMTS/Switching, Mobile Internet, Wireless/RF stack
Alcatel, British Telecom, Cisco,  Convergys, Intelsat, Lockheed Martin, Logica, Marconi, NEC,
Rockwell Collins, AT&T, Connexant Systems, Nortel, Glenayre, Anite
Telecom, Trillium
Leverage strengths/relationships of group companies like HCL Infosystems
and HCL BPO; focus more on non-US geographies
Texas Instruments270*WLAN, GPRS, DSL, telematicsNAIncrease R&D focus on WLAN, DSL, GPRS; start concentrating in the
area of telematics; start production of the ADSL router-on-a-chip
developed this year
Hughes Software Systems210High speed mobile  data, VoIP, broadband, switching, wireless, network
Microsystems,  ADC, Johnson
Controls, Nokia, Lucent, Cisco, Alcatel, NEC
focus on development of protocol stacks; concentrate on key areas of GPRS
and UMTS; leverage the acquisition of Lucent’s software division
Sasken Communications Technologies105Wireless networks, wireless LAN, 
mobile Internet, wireless protocol stacks, IP optical control
plane, network test solutions
Nortel, Intel, NTT
DoCoMo, Sony
New focus on T&M companies; forming JVs with global leaders in the
telecom solutions market; increase R&D investments in the embedded
Subex Systems70Revenue maximization 
(fraud management  and billing software solution)
Bharati, BPL, Idea,  Escotel,
RPG Cellular, Sonatel, Cypress Telecom Authority, Sprint, Global,
Teleglobe, Ikatel, Cora de Comstar
Increase focus in the OSS/BSS market; concentrate more on products than
services especially in the fraud management and billing space; have a
balanced mix of domestic and overseas clients
Future Software57SS7, IN platforms, V5.2/GR303 access
networks, VoIP gateways, xDSL
Huwaei Technologies,  Nera
Broadband Satellite, NetTest, Trend Communications
Focus more on offshore work for overseas carriers; recruiting veterans
and heavyweights from the telecom industry to devise a changed policy
Axes Technologies56OSS, BSS, SoftSwitches, 
NMS, wireless, broadband,  VoIP
stacks & protocols, SS7, ISDN
protocols and stacks, PSTN call processing
NAReduce dependence on a single client; focus
on areas like Internet mailing solutions, facilities management and
network implementation (LAN & WAN)
* Being a wholly owned subsidiary, the entire revenue is through internal billing to Texas Instruments Inc
**The top five telecom software companies command a market size of Rs 3,264 crore, which translates into 58.6 percent of the market

OEMs under Pressure
It is likely that while carriers will flourish in the telecom software
market, OEMs will come under pressure. Financial forces are today driving global
carriers to implement OSS, BSS and enhance network efficiency with the aim of
lowering operational expenditure and it is these carriers who will drive future
growth in telecom software services. On the OEM side, carriers are not excited
by new technologies like 3G and GPRS as they are yet to mature to the extent
estimated earlier and are not yet widely deployed at the mass level. Plus, there
are apparently no or very little funds to support new technologies. Because of
these factors, cash inflow to OEM vendors seems to have dried up.

However, some Indian companies are involved in designing for OEMs too. Mumbai-based
Aftek Infosys has come out with a personal wireless gateway called Angelia that
offers seamless connectivity to various communication networks like GSM/GPRS,
802.11b and VOIP. Angelia’s other value propositions include Blue Tooth
front-end connectivity, WiFi, GSM/GPRS back end connectivity, 802.1x security as
well as dual sim support. Aftek’s Angelia is based on its Jadoogar technology,
though its acquisition of Munich-based Arexera Information Technologies was the
catalyst behind the initiative. This is by way of Arexera bringing along its
client G-tec who is currently marketing Angelia in East Asian markets like
Malaysia, Korea with plans to ventre into Japan too. In a few months time, Aftek
would market this product in India also and is therefore currently negotiating
with a host of service providers for this.

This shows that even in an year otherwise impacted by global slowdown
strategic acquisitions could play a stellar role in bolstering the company’s
fortunes. Other than Aftek, a more high-profile acquisition was that of Lucent’s
software division by Hughes Software Systems. The move opened multi -million
dollar contract opportunities for the company and gave it new customers and
access to additional development capabilities. Also, it extended its reach into
the wireless market significantly. The acquisition gave Hughes the scale,
recognition and the potential for future business with Lucent and Lucent’s
customer base.

Predicting the Future
What will be the market drivers in the future for Indian telecom software
companies? In developed markets where high-end technologies have been deployed,
the need to increase operational efficiency will drive the market. While in
developing regions like APAC, the driver is system integration capability
amongst open platforms. Technologies such as IN, SS7 and other software for TDM
switching were hot a year back. The current favorite is the entire wireless
gamut–EDGE, UMTS and CDMA–this is where most Indian software companies are
currently concentrating their efforts. A small but extremely important segment
is that of telephony-based applications, software patches for VoIP and VoIP/TDM
integration. Routing/MPLS is another small, but hot area, in the telecom
software scene in India. Then there are emerging application areas like IP QoS,
broadband aggregation and wireless-IP integration.

According to Gartner, the Indian telecom market is slated to grow among the
fastest until 2006. Currently there 1.1 crore cellular subscribers in the
country and this number is envisage to increase over 4 times by 2006. At this
stage the telecom industry in India is definitely going through a period of
consolidation after the recent mergers and acquisitions. Thus in addition to
managing a growing customer base, cellular operators will also have to deal with
issues of customer churn, network optimization and increasing cross-holdings
within existing customers. For telecom service providers, it is imperative to
understand the reasons for consumer churn and contain them. One of the key
deterrents to churn is effective customer service. For this, it becomes
necessary to have solutions in place, for registering customer data, studying
and analyzing behavior and spending patterns to predict the propensity to churn
and enable the players to effectively address issues and increase customer
loyalty and retention.

Rajneesh De

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