WIRELESS EQUIPMENT: Storm After the Lull

Wireless networks both on the CDMA and GSM side were on an expansion mode
last year. The overall market of the wireless equipment in FY2004-05 was
estimated to be around Rs 11,277 crore-a 68 percent year-on-year growth. The
subscriber base crossed 53 million as on March 31, 2005, from about 33 million
as on 31 March 2004. In October, the wireless services overtook wirelines in
terms of numbers. And Bharti becomes the first operator to have an all-India
footprint to offer services across all the 23 circles, with its introduction of
GSM services in Jammu and Kashmir and the Northeast.

It
was not Bharti alone that was expanding. Tata Teleservices placed expansion as
well as capacity orders, and Reliance added more lines in the CDMA space. BSNL
realized that demand was higher than the lines being put up and placed
additional orders. Similarly, Hutch, Idea, and Spice were also in an expansion
mode.

Railways also placed orders in the last financial year for its GSM-R project.
Four tenders have already been awarded and the letter of intent for another two
northern zones has been given to Siemens. Nortel bagged the first tender for the
eastern region and Siemens got the north-east, north-central, and east-central.
For Siemens, the three tenders are of Rs 57 crore and the LoI is for a Rs 100
crore project.

All the vendors cashed in on the boom and recorded good growth. Ericsson
emerged as the top equipment vendor of the FY 2004-05 with a market share of
almost 28.1 percent and revenue of Rs 3,165 crore. Nokia was at the number two
slot with Rs 2,771 from BSNL, Hutch, and Bharti projects, and expansions in Idea
and BPL circles. But the biggest surprise was that of Nortel. It bagged the
major 7 million lines tender from BSNL and occupied fourth position.

Though Ericsson lost BSNL's 11-million lines expansion tender to Nokia (4
million) and Nortel (7 million), a $400-million deal from Dishnet compensated
for the loss. Similarly, Ericsson managed to do good business from its existing
contract with Bharti, Hutch, and Idea. The Bharti-managed network deal has
entered its second year. With EDGE, GPRS, and other data services making their
entry on the networks, the initial 3-year, $400 million deal is all set to rise
in value and volume terms as well.

Motorola also had a good year. Even after losing out BSNL and Bharti
contracts, it still managed to get the Tata Teleservices deal in June 2004. This
year, they also executed the $307-million deal that included BSNL, MTNL, and
Tata Teleservices. However, Motorola could not dent Lucent's dominance in
Reliance. But it is expecting some Reliance deal this year.

For both Motorola and Ericsson, Siemens has been supplying bits and pieces
for the small regional tenders floated by BSNL divisions periodically. On BSNL's
CDMA network, ZTE has been implementing a Rs 200-crore project for 1 million
lines. There is another for 4.5 lakh lines, which is scheduled to be
commissioned this year. ZTE also supplied GSM infrastructure to BPL and Spice
Telecom. For BPL, it has also supplied caller ring back tunes (CRBT) solutions.
And it has, along with CellNext, bid for CRBT solutions for BSNL. There is
another 1.1 million line CDMA tender for BSNL for which bids have been received
and would be opened somewhere in June 2005.

Nokia, on the other hand, had slices of business from Hutch, Bharti, BPL, and
Idea and witnessed good growth rate in the ongoing long-term projects. For
Hutch, Nokia has implemented expansion as well as new infrastructure orders to
the tune of almost Rs 330 crore in 9 circles. For Idea, the projects were in
tune of Rs 105.6 crore for three circles of Andhra Prdesh, Delhi, and Haryana.
Nokia has also been working with BPL in Mumbai, Maharashtra, Tamil Nadu, and
Kerala. These projects are in addition to the Rs 1,210 crore for the ongoing
Bharti project in five circles.

Miles to Go

The simple arithmetic of the number of subscribers being added indicates a
massive demand for expansion in the number of lines by all the major operators.
Estimates peg a market size of almost $25 billion to $35 billion in the next
three years. Now, as mentioned earlier, all eyes are on the 40 million lines
tender from BSNL. BSNL is planning to invest almost Rs 75,000 crore in the next
three years on its network expansion. Similarly, MTNL is planning a tender for 4
million lines. For sure, these tenders would decide which way the market moves,
but a lot of business is also expected from the next phase of expansion of the
private operators in the rural areas.

Reliance and Bharti have already made announced their aggressive plans to
enter the B- and C-class cities. Reliance Infocomm plans to cover 4 lakh
villages by December 2005. This would involve 8,500 BTSs towers. The total plan
outlay till date for the company is Rs 24,000 crore of which they have already
invested about 15,000 crore. Though internal problems of the Ambani brothers
appears to have affected the expansion plans to a certain extent, still Reliance
has not come out with any revision of its plans. Though Lucent is the main
contender for this project, Motorola would be trying hard make inroads into the
Lucent bastion.

Bharti is also expanding and has set a target of 10,000 base stations to
increase its pan-India coverage by the end of this financial year. Here, the
operator would be relying mainly on Ericsson and Nokia, and, to a certain
extent, Siemens to achieve the target. Bharti is expected to announce the rural
expansion from July this year. On the other hand, operators like Hutch, Idea,
Dishnet, Spice who don't have a pan-India presence, would also be looking at
expansions and improving their networks.

In the financial year 2004-05, Chinese vendors like ZTE and Huawei were not
very active in the wireless equipment side. But they would offer a good
competition to others this year as they would be a strong contender on the PSU
side. These Chinese companies have been making inroads into the European market
and also emerged strong on the 3G platforms. With equipment costs dropping
almost 30 percent in the last couple of years, it would be an interesting battle
for the market share.

Turf heats up

It is clear that competition would increase in the days to come and the
operators have to come out with innovative marketing ideas to reduce the churn.
Reducing capex is an area of concern for the operators. And outsourcing network
management services appears to be a win-win proposition. In this arrangement,
the operator just concentrates on designing new plans and services and the
network management part is looked after by the vendors. Though Bharti started
this trend, it has not really picked up. Apart from Nokia and Ericsson, no other
vendor has bagged any contract for such network management nor has any operator
come out in support for any such deals. But some of them are understood to be in
talks for such outsourcing deals that are expected to be closed this year. This
year, we might also see multi-vendor network management services also gaining
momentum.

Not Much On QoS

Contrary to the perception of an improvement in the quality of service due
to managed services, we have not seen much action on this front. Though the roll
out of GPRS and EDGE on existing as well as new networks were fast, the low
adoption rate has taken away its shine. This might be due to the evolutionary
stage of the telecom industry and the focus being more on the extending coverage
area rather than on the services side.

ONto the Next Phase

The migration path to next generation networks and incorporation of new
services are the talk at any telecom forum. Vendors have been particularly very
active in marketing 3G. On the operator side, pilots for 3G networks have also
been initiated. However, spectrum allocation and handset pricing need to be
resolved before the roll out starts happening. While MTNL would be incorporating
the 3G part in the next tenders, BSNL has been conducting trials on at least 10
BTSs.

For
the GSM operators, the next networks would be in UMTS and WCDMA. CDMA operators,
on their part would be evaluating EVDO kind of technologies. This year,
convergence of IP with multimedia application over the mobile networks would be
a value proposition and vendors have to gear up for the challenge. Similarly,
services would be the differentiating factor and new application would be
incorporated on the networks. Data-enabled networks and wireless broadband areas
are also the key focus areas for the operators this year and vendors have to
align themselves accordingly. In the past, selling data over mobile networks has
not worked here. It needs expertise and marketing skills-different from that
of voice. The opportunity is huge but the market would be challenging.

The next two years would be crucial for the wireless stakeholders. In the
first phase of wireless revolution in India, many vendors like Nortel, Huawei,
and ZTE had lost out. The buzz for the big tenders has been there for some time
now and all vendors had enough time to formulate their strategies. However, the
next phase of expansions would give a fair chance to these companies to fight it
out.

Pravin Prashant &
Anurag Prasad