With USD 10 billion investment committed in telecom infrastructure, and 100 percent teledensity planned, the Indian telecom equipment vendors can only look upward over the next couple of years. With the recent turn of events in USA vis-à-vis Chinese vendors, whether the market remains price competitive remains to be seen.
India is today the second largest and the fastest growing telecom market in the world. The Indian telecom equipment manufacturing industry is well in sync with the Indian government’s all-encompassing vision of transforming India into a telecom equipment manufacturing hub.
Over the past years, the market has witnessed overwhelming growth. The increased network coverage, healthy competition, and cost centric offerings from various providers have served as the catalyst to the growing demand for telecom services in the country. Today, India stands strong with a user base crossing more than 1.2 billion subscribers at a CAGR of 17.44 percent. India is also the second largest smartphone market and is expected to have almost one billion unique mobile subscribers by 2020. Mobile data usage increased from 462 Petabytes in quarter ending September-2016 to 7879 Petabytes in quarter ending March-2018, thereby showing an increase of more than 17 fold. With exponential growth in data usage, India became one of the countries with highest mobile data usage.
The sector has finally consolidated to 3-4 serious players. 2017 was a remarkable year of much-needed consolidation with many mergers and acquisitions. Besides the historic announcement of the Digital Communications Policy, the year witnessed a data revolution, initiation of 5G roadmap and trials, and enormous push to digital infrastructure that includes fibers, towers, satcom, and public wi-fi. The most awesome was the merger of Idea and Vodafone in August 2018, which created the country’s largest telecom company with 408 million active subscribers, the second largest in the world after China Mobile with revenue market share of 34.7 percent.
Reliance Jio sparked a wave of disruption with an aggressive approach and increased focus on rural and remote regions. India witnessed unprecedented increase in tele-density and sharp decline in tariffs.
The telecom players invested heavily in the network. The growth of subscribers, and connected devices required telecom operators to upgrade their existing infrastructure as well as create new infrastructure to provide reliable and secured network. Investment totaled Rs 10.44 lakh crore. Infrastructural capabilities were expanded to build vigorous connectivity and provide uninterrupted digital services to one and all. An indigenous world class telecom infrastructure has been created. More than 300,000 base transceiver stations (BTSs) were added in last one year, taking the total number to 1.76 million providing seamless connectivity. However, the continuous fall in data and voice tariffs put profit margins in danger. The telcos accumulated a debt of USD 110 billion (Rs 7.7 trillion), apart from huge levies. The telcos pay more than 32 percent of their revenues to the government in the form of taxes and levies, a situation made worse with the increased GST rate of 18 percent. This is far too high for essential services providers like the telcos that have to continually invest in new technologies as well as service existing customers while operating in a country like India. They are committed to a further USD 10 billion (Rs 70,000 crore) on infrastructure, which will put additional pressure on their financial health.
The National Telecom Policy 2012 was conceived to transform the country into an empowered and inclusive knowledge-based society, using telecommunications as a platform. Deployment of the cellular technologies viz. 2G, CDMA, 3G, and 4G/LTE in the country has been lagging behind as compared to the deployment of such technologies in prominent markets across the world. Expansion and experience of 4G/LTE has been witnessed in recent couple of years which has resulted in exponential growth of data usage in India. But the coverage is yet to reach small towns as well as rural areas.
High-speed broadband has huge socio economic benefits as every 10 percent increase in adoption can add 1.38 percent to the country’s GDP. There was a massive improvement in 4G and broadband adoption as the sector added 136 million broadband subscribers (almost 11 million per month) in 2017-18. Still, almost 900 million people are yet to be connected, which provides a huge opportunity to add value to the economy.
Emergence of new security threats is posing new challenges for operators.
The sector has abundance of spectrum post consolidation to provide new technology and better QoS whereas lack of physical infrastructure such as fiber backhaul, telecom towers, small cells, and wi-fi access points are major challenges to provide better QoS to the subscribers. There is little realization that 10 Gbps of data bandwidth is going waste all over India from satellites while rural India remains starved of connectivity. Satcom is quick and economical to deploy in rural areas as compared to terrestrial technologies.
The rural tele density of 58.45 indicates that a huge chunk of rural community is still unconnected. Telecom services and data tariff at the current tariffs are affordable by the rural community provided the infrastructure is in place. Type B and C circles consumed around 50 percent (~ 1000 petabytes) of the total data consumed via 4G internet, indicating a rising demand of data and regional content in rural areas. While the government is connecting gram panchayats with fiber backhaul, providing last mile connectivity can create a good revenue stream for operators.
Apart from high tax and right of way issues, there still exist ambiguities between gross revenue (GR) and adjusted gross revenue (AGR) in an unclear regulatory environment. Layers of service providers, that is, network, infrastructure, and services are resulting in cascading of taxes. Spectrum usage charges (SUC), spectrum pricing, and interconnect charges need be rationalized.
Availability of budget smartphones and cheaper data tariffs have eased the accessibility of social media among Indian youth. Almost 65 percent of the millennials communicate with each other digitally than through personal interaction. With 270 million Facebook users, 30 million Twitter users, and 225 million monthly YouTube subscribers, Indians are among the highest consumers of social media. The average Indian spends 52 minutes per day watching videos which is expected to rise to 67 minutes in 2019. Addiction to social media is increasing which has a huge negative impact on work productivity, interpersonal relationships, and physical fitness. This is one of the reasons why the networks are getting choked up as the data consumption has gone into petabytes.
Emerging technologies and the future of Indian telecom
With growing demand for data and speed among new age consumers, the thrust has been seen across the industry. Among the various BWA technologies, the recent developments such as LTE and emergence of the IoT technologies have seen tremendous interest from industry counterparts. Reliance Jio, Bharti Airtel, and Vodafone have already launched VoLTE services in select regions with BSNL looking to join the queue.
The government’s vision for smart cities has also provided the much-needed impetus to adoption and investment in newer industrial technologies including the likes of IoT. In urban areas, telecom services are the new enablers for the next-generation smart society. IoT and M2M devices backed by robust telecom networks are enabling smarter services such as home security and surveillance, connected vehicles, and digital payment systems. The Indian government is planning to develop 100 Smart City projects, where IoT would play a vital role in the development of those cities.
Broadband is at the heart of the National Digital Communications Policy (NDCP). The policy addresses broadband infrastructure as its very first objective – Connect India. It recognizes that the digital era cannot happen without India marching toward the Fiber First initiative that constitutes setting out a system of optical fiber links throughout the nation for fast internet. Laying of optic fiber connecting 250,000 gram panchayats under BharatNet, steady increase in number of base stations and towers, the massive push to increase fiberization of towers, the tremendous thrust to link up homes with fiber (FTTH) – all these initiatives are humungous by any global standard. NDCP targets to supply five million wi-fi hotspots by 2020 and 10 million by 2022. For India to reach today’s global average of 1 hotspot for 150 persons, India would need another eight million hotspots.
The crux of the policy is to have broadband for all. As such, India has touched only 30 percent broadband penetration, and that too on mobile; 70 percent of the growth still remains to be tapped. This 70 percent growth ahead of us is what makes the government fairly confident that this is the strongest and most robust growth that the market has seen as far as the digital communication sector is concerned in the medium to long-term.
The government aims to attract USD 100 billion investments in the telecom sector in 5 years. It plans to focus on rationalizing license and spectrum usage charges and the Universal Services Obligation Fund. It is opening employment avenues through schemes such as BharatNet and public wi-fi. It is also working with the Telecom Sector Skill Council to find ways to retrain and redeploy people and also make them competent enough to work in the 5G network. Almost 200,000 people are employed in the industry, directly or indirectly. Progressive government programs such as Make in India, and Digital India have been playing important roles toward this end.
Liberalization of the telecom sector has provided a platform for India to address many of its challenges. Today, the platform is broader and services are converged and efficient as the sector is equipped with new-generation technology and innovation. There were massive transformations in terms of technology, competition, and pricing in the past but the last few years have pushed the sector into a new era where adapting to future technology and providing quality of experience are challenging the traditional voice and data businesses.
5G will supersede 3G and 4G with a speed of up to 10 Gbps, higher capacity to serve better QoS, negligible latency, and the ability to connect billions of connected devices. The government has allocated Rs 500 crore (USD 77 million) for 5G development with an aim to introduce 5G by 2020 whereas some operators, network vendors, and technology institutes are investing for the development of the technology. The government has also allocated Rs 224 crore for the creation of a 5G testbed, which will be established in collaboration with the Indian Institute of Technology (IIT) and Indian Institute of Science (IISc).
Furthermore, the Indian telcos too have started exploring advanced radio technologies, including (MIMO) and carrier aggregation. Airtel, has already deployed carrier aggregation and massive MIMO for operational and spectral efficiency. The other mobile network operators, including Vodafone India, are also experimenting with massive MIMO. The coming few months are likely to witness many more trials of such advanced radio technologies for 5G and their relevant use cases as the 5G standardization process gathers momentum. The 5G new radio (NR) non-standalone (NSA) standard was approved in December last year. The next set of standards are likely to be announced later this year. An Ericsson study estimates that 5G-enabled digitization revenue potential in India will be USD 27.3 billion by 2026 -around USD 13 billion of which is service provider potential. Innovation and collaborative working by ecosystem players, including service providers, will be key to fulfilling that potential.
The advent of any new technology demands changes in the network, and 5G will be no different. 5G will require significant upgrades and overhauling of existing networks, and likely more so than previous generations of mobile network technology. Unlike previous technologies, 5G is not just about enhanced network speed but promises to fundamentally change the way we live, work, and play.
Preparing Networks for 5G
Rajan S Mathews
While 3G and 4G networks were optimized and designed to transport mobile broadband traffic, 5G demands a different approach, as it will carry a myriad of traffic types with very different networking requirements. Mission critical services, the IoT, and extreme mobile broadband services are just a few examples of the kind of traffic 5G networks will be supporting; for which each of them have very different performance requirements that the 5G network will need to deliver.
To better address the increasing data demand, service providers will need to rethink the way networks are designed, deployed, and managed.
Centralized and virtualized Radio Access Networks (RAN) architectures will be at the center of mobile networks of the future to allow for more capacity, network flexibility, and scalability. The network connection between radios and baseband units, referred to as fronthaul, will be profoundly impacted by this evolved RAN architecture. A new and standards-based fronthaul interface is vital to support virtualized architectures such as C-RAN, or cloud/centralized RAN.
The Common Public Radio Interface (CPRI) is the dominant standard for 4G-based fronthaul transport. 5G demands harmonious coexistence of macro, micro, and small cells for a flexible and scalable network. Today’s CPRI simply does not scale to 5G rates, which opens the door to a new and standards-based fronthaul transport implementation, such as radio IQ data packetization over IEEE 802.3 Ethernet; the latter tweaked with time-sensitive networking capabilities.
India’s service providers will also need to leverage the principles of virtualization through software defined networking (SDN) and network functions virtualization (NFV), which enables network slicing, where service providers can logically carve a single physical network into a number of virtual slices and operate them with different performance parameters. It is this concept which ensures low latency, high capacity, and prioritization of services, beyond just native MPLS L3VPNs or L2VPNs as seen in LTE networks today.
Service providers will also need to upgrade the backhaul network from microwave to fiber. Fiber densification of the network is also a crucial aspect in preparing the networks for 5G. According to Deloitte’s study developed for India’s Department of Telecommunications titled “Broadband Infrastructure for Transforming India”, less than 15 percent of the base stations are fibered in India. The existing microwave technologies can no longer support the required backhaul capacities. Massive fiber densification in the access layer will be central to the successful commercialization of 5G. What this means is that as the data requirements on mobile network grow, mobile network operators will need to deploy more cell sites, which ultimately will be connected by fiber and Ethernet, especially for the case of 5G fronthaul.
Current Indian telecom networks face a long road ahead to meet the requirements of 5G. Indian service providers need to overhaul the network to leverage the full potential and vast possibilities of 5G technology.
5G demands networks that are programmable, intelligent, and automated. The right mixture of automation, intelligence, and scale is essential to continuously tweak the network to adapt to the changing capacity, massive number of devices, and frequent device mobility. It is then essential to disrupt the current network architecture, so that it is more adaptive and in keeping with the changing times and market reality. 5G will be a long, multi-year journey, and an interesting one at that.
COAI has already put together a 5G forum, called 5G India Forum, that acts as a platform for the exchange of ideas and dialogue amongst the experts of the world. The industry and the government are working together to ensure that India and Indians are the real winners and that can only be possible with timely intervention by the government to resolve the financial crisis affecting the telcos. It is only through private-public partnership and the active involvement of all stakeholders that India can get the best that technology has to offer and head into the future with self-assurance and belief.
Market Dynamics – Global Scenario
Telcos have been rapidly expanding their respective 4G networks besides ramping up their backhaul to up capacity to support rapid data growth. To free the sector from acute financial distress and help it embrace newer technology innovation, brought in the form of 5G, AI, AR, VR, M2M, and the like, it is imperative for India to become a global telecom equipment manufacturing hub. Estimated revenues from the telecom equipment sector of USD 26.38 billion by 2020 must be realised.
On a global level, the comprehensive end-to-end portfolio of products and services, addresses a market that encompasses mobile and fixed network access infrastructure, IP routing, and optical networks as well as software platforms and applications. The primary market, which may be defined as network and IP infrastructure, software, and CSP services market is estimated at $123.62 billion (Rs 783,170.8 crore) in 2017.
In addition, an adjacent market includes customer segments such as webscale companies, energy, transport, public sector, and TXLEs. In the product dimension, this includes the traditional networking in addition to new solutions like SDN, analytics, IoT, and security. The adjacent market is estimated at $27.60 billion (Rs 174,882.8 crore) in 2017.
Leading vendors catering to this segment are Nokia, Huawei, Ericsson, and ZTE. Technology experts include Juniper Networks and Cisco in the IP networking and security segments, and Ciena, Adtran, and Calix in the optical networks and fixed access segments. Both the optical networks and the applications and analytics market segments are still highly fragmented.
Mobile Networks. The primary market for mobile networks business group includes technologies for mobile access, core networks, and microwave transport. This encompasses access and core network technologies ranging from 2G to 5G licensed and unlicensed spectrum for both macro and small cell deployments. The primary addressable market for mobile networks is estimated at $32.41 billion (Rs 205,297.2 crore) in 2017. The adjacent market for mobile networks includes solutions for the public sector, TXLEs, and webscales, and drives expansion into domains such as LTE for public safety, private LTE, and unlicensed radio access. The adjacent market, including verticals, is estimated at $4.82 billion (Rs 30,414.4 crore) in 2017.
The mobile networks market is a highly consolidated market. Leading vendors catering to this segment are Nokia, Huawei, and Ericsson. Additionally, there are two regional vendors, ZTE and Samsung, that operate with an estimated below 10 percent market share. As network infrastructure gets virtualized and cloudified, IT companies, such as HP Enterprise and Cisco, are expected to emerge in this field.
Fixed Network. The primary market for the fixed network business group includes technologies for fixed access and related services in addition to fixed network transformation services with a focus on transformation of legacy fixed switching networks. The primary market for fixed networks is estimated at $10.08 billion (Rs 63,870.24 crore) in 2017. In this market, a shift from copper to fiber technologies is seen, and networks increasingly use a combination of multiple technologies, such as copper, fiber, and wireless. The adjacent market, including verticals, for fixed networks includes virtualization solutions for cable access platforms, digital home (IoT), and passive optical LAN. The adjacent market, including verticals, is estimated at $0.24 billion (Rs 1520.72 crore) in 2017.
“While Indian Telecom service providers are largely ensuring 4G services to be available pan India, they are now vying to bring the niche 5G service to the country. Leading the race is the state owned telecom operator, Bharat Sanchar Nigam Limited (BSNL).The work on ultra-fast 5G technology is on globally and the top network players and mobile operators are planning to upgrade their network for 5G; many global players such as Nokia , Verizon etc. are already set to rollout their 5G campaigns soon.
BSNL does not want to miss the 5G bus along with others. Unlike delayed adoption by BSNL in case of 3G and 4G , BSNL will become one of the first mobile network operator to bring the 5G technology to its user. BSNL is planning to run trials before the commercial launch of 5G services. While the plan is still in the early stages, BSNL is aiming to launch full-fledge service by 2020. Latency, the time taken by data to reach one point to other, is going to be the key in 5G technology. 5G eco system will be developed based on use cases which will differ from country to country. For example smart car parking may not be having that much priority for India but IT, E-Health, and waste management can be prominent use cases for India. The DoT panel has also recently claimed that the air waves in the 700 MHZ can be made immediately available to run the 5G services in the country.
BSNL has already signed MOUs with leading telecom companies like Coriant, Nokia, ZTE, Ericsson, Aeris, NTT-AT, Cisco etc. for working on 5G Technology. BSNL and NTT-AT Corporation have signed an MoU to collaborate in futuristic technologies such as artificial intelligence/IoT and jointly create a 5G test bed.”
Vendors catering to this segment are Nokia, Huawei, and ZTE, and a handful of other vendors with estimated less than 10 percent market share.
Services. This includes network implementation, care and professional services for mobile networks, in addition to managed services for the fixed, mobile, applications, IP, and optical domains. The primary market for mobile networks services is estimated at $33.61 billion (Rs 212,900.8 crore) in 2017. The adjacent market for global services, including services for mobile networks vertical segments, is estimated at $6 billion Rs 38,018 crore).
Vendors catering to this segment are Nokia, Huawei, Ericsson, ZTE, and Cisco, while for the service-led businesses like managed services and systems integration, companies such as Tech Mahindra, HPE, and IBM are becoming aggressive.
IP/Optical Networks. The primary market for IP/Optical Networks includes routing and optical technologies and related services sold to CSPs. This market includes technologies such as IP aggregation, edge and core routing, mobile packet core, Wave Division Multiplex, and packet optical transport networking solutions. Can include Analytics and end-to-end Software-Defined Network (SDN) solutions too. The primary market for IP/Optical Networks is estimated at $30.01 billion (Rs 190,090 crore) in 2017.
A growing portion of IP/Optical Networks revenue is derived from its adjacent market, which includes customer segments like webscales and enterprise.
The adjacent market is estimated at $7.20 billion (Rs 45,621.6 crore) in 2017. Vendors catering to this segment are Ciena, Nokia, Huawei, Tejas and ECI Telecom.
Ciena Leads The Indian ON Market
Over the last couple of years, Ciena appears to have enjoyed a dream run in India’s optical transport market. Ciena has been the vendor of choice of India operators when it comes to optical networks and WDM with 22 percent market share of the overall India Optical networks market in 2017. The vendor has been consistently maintaining the leadership position since 2015. This company is the number-one optical supplier to Indian telcos, according to Ovum.
Ciena continues to invest in innovation that provides its customers with best-in-class solutions, enabling them to offer unmatched quality and experience to their end users. Its latest solutions combine highly instrumented, programmable hardware with advanced software applications to help operators extract the most value from their network, massively scale at lowest cost per bit, and fully monetize their network resources – all while using APIs and standard interfaces to support customers’ requirements for an accessible, open architecture.
Ciena is planning to start local manufacturing of its products to support the growth in the Indian market, having recently expanded its campus in Gurgaon to support the research and development efforts globally. The vendor provides converged packet optical and Ethernet solutions to all Indian telecom operators, including Reliance Jio and Bharti Airtel. It has the maximum market share in India’s transport space, including access, aggregation, and long distance.
Senior Director Sales – Public Network,
On the telecom equipment industry in 2018
Telecommunications is one of the most thriving sectors in India. Telecom equipment industry, on the other hand, witnessed a colossal growth in recent years. With the Indian government’s flagship initiative – Make in India, many projects among telecom industry have been started which further enhanced the business of telecom equipment vendors in India.
With the push from TRAI to increase investment in local manufacturing units of telecom equipment, 2018 had been a quite excellent year for many startups in India. This step had built a safe niche market for many small players serving telecom businesses. Also, increasing demand for advanced fiber optic cabling components and services, lifted the cabling manufacturers’ business growth.
The companies’ R&D departments are investing in developing more advanced future proof products and solutions. Many mergers and acquisitions helped the equipment makers retain favorable market positions. Thus, 2018 has seen a significant surge in the telecom equipment industry.
On expectations and outlook for 2019
In 2019, the telecom equipment industry can expect a positive market in India. Introduction of 5G technologies play a vital role in receiving huge orders as it requires deployment of hardware infrastructure. Industries can expect a colossal revenue growth due to implementation of 5G services in India.
The government has decided to conduct spectrum auction for telcos in second half of 2019. This step would project a better market dynamics and potential revenue schemes to the industry. From various market sources and research, we understand that there will be a competitive market and a price war among telco giants in buying spectrum. ARPU (Average Revenue per unit) is likely to increase. Overall, 2019 would be a year notable for all telecom equipment players.
Putting things in perspective
It took Huawei about 28 years to become the world’s biggest supplier to communications service providers. Founded in 1987, it finally overtook the 139-year-old Ericsson in 2015. But its loss of the coveted top spot could happen in a relative heartbeat.
Government authorities or operators in six countries, including a few of the world’s biggest economies, have now restricted Huawei Technologies Co. Ltd. in some manner, supposedly out of concern that Chinese vendors are a threat to security. Under apparent pressure from the United States, others are said to be weighing their options. A domino effect, as a multitude of countries raise the drawbridge on Chinese suppliers, would seriously curtail Huawei’s prospects.
How likely is this? The governments that have so far moved to limit Huawei’s activities are mainly members of the so-called Five Eyes partnership, under which Australia, Canada, New Zealand, the United States, and the UK share information on crime, espionage, and terrorism. But Japan, a country with a large US military presence, has this week banned its ministries and defense forces from buying and deploying Chinese IT and telecom equipment. The new rules seem bound to influence the network decisions taken by Japanese service providers.
Elsewhere, US authorities have been lobbying against Huawei in Europe, according to a spokesperson for the Chinese vendor. In the UK, security watchdogs this year flagged vulnerabilities in Huawei’s products, while BT Group plc, the telecom incumbent, was this month revealed to be stripping Huawei out of its mobile core and optical networks. So far, however, any US pressure appears to have had little effect on other European countries. Despite earlier reports of German concern about Huawei, the country’s interior ministry this week said there are no legal grounds for excluding any vendor from the 5G market, according to Reuters.
But what is unfortunate for Huawei might be good for Western rivals such as Ericsson and Nokia. Competition from low-cost Chinese rivals has been a nightmare for the Nordic suppliers since the early years of the millennium. Given suspicions in the United States that Chinese companies have ripped off others’ intellectual property, there is unlikely to be much sympathy for Huawei and smaller rival ZTE Corp. in the vendor community.
Huawei’s troubles with Western governments are more than just a setback for telco equipment sales. The vendor’s problems could result in a delay and the slowed development of 5G networks around the world. Huawei has shipped more than 10,000 5G base stations outside of China, so its reach and influence is formidable.
Back home. The international developments do not seem to have deterred the Indian operators yet. Very recently, Vodafone Idea awarded deals worth $1.3-1.4 billion to various telecom gear makers, with China’s Huawei and ZTE gaining at the expense of Europe’s Ericsson and Nokia.
Huawei Technologies has reportedly won contracts for seven circles, including the Delhi and Chennai metros, while ZTE picked up work in five. Nokia and Ericsson were awarded nine and eight circles respectively, with Nokia landing jobs in Mumbai and Kolkata. While the European vendors still have more circles than Huawei and ZTE, their share of business has fallen from 80 percent to 65 percent. The contracts, are for the expansion of 4G networks to boost coverage as well as network capacity.
The already bealeagured Indian service providers insist that its gear is already subject to the most rigorous testing. The biggest potential impact on most readers of a Huawei ban will be the higher prices and the tardy introduction of 5G services. Restricting an operator’s choice of vendors would inevitably drive up its costs considerably. To guard its profit margins, the telcos would be forced to increase service charges. That is not what the government would want in its quest for 100 percent teledensity!
As we go to press, there is news that the Telecom Equipment and Services Export Promotion Council plans to write to the national security advisor asking for similar restrictions to be imposed in India on equipment manufactured by Huawei and ZTE as USA. This could mean a serious turn in the state of affairs!