The entry of six new licensees in the sector in 2008 has had a significant impact on the telecom sector and has resulted in aggressive competition, substantial network rollout and service launches. Among the key beneficiaries of these developments have been telecom vendors who are cashing in on the opportunity, even as existing operators are expanding and upgrading their networks. Besides, the completion of 3G and broadband wireless access spectrum auctions will also result in huge network orders from telecom operators.
The top five global telecom vendors – Ericsson, Nokia Siemens Networks (NSN), Alcatel-Lucent, Huawei and ZTE - have been awarded over 40 contracts in 2008 and 2009.
The volume of business given to these vendors has been immense. Under the revised estimates of the Eleventh Five Year Plan, Rs 3.45 trillion is expected to be invested in the telecom sector, which is 1.3 times higher than the Rs 2.58 billion estimated at the time of the formulation of the plan. This is largely due to the increase in private sector investments, which are 1.59 times higher than the investment envisaged at the time of plan’s formulation.
Key trends
As telecom operators, both incumbents and new, find their way into smaller towns and villages to commence the next level of growth, they need to enhance, upgrade and better-manage their telecom networks. Outsourcing the supply, implementation and management of networks to telecom equipment makers or specialists, as Bharti Airtel refers to them, is a key trend. Almost all operators have outsourced the management of their networks to telecom vendors, apart from contracting network deployments to them.
For instance, Aircel has recently awarded a $300 million network equipment and services contract to NSN. Under the contract, NSN will install the network and will also manage it for four years. NSN has also won a $700 million network expansion and outsourcing contract covering eight circles from Bharti Airtel. Bharti renewed its network outsourcing contracts in early 2010. It has awarded a $1.3 billion outsourcing contract to Ericsson to expand and upgrade its network in 15 circles.
Initiating a new trend in this space, operators such as Bharti Airtel and Reliance Communications (RCOM) have formed separate joint ventures (JVs) with telecom vendor Alcatel-Lucent. Bharti, the minority partner in the 26:74 JV (formed in April 2009), is paying the new company about $500 million over a fiveyear period for managing its landline and broadband business in about 100 cities for the next five years. RCOM’s 33:66 JV with the vendor, Alcatel-Lucent Managed Solutions, was formed earlier and the model has proved to be successful. Within the first year of operations, the RCOM-Alcatel JV saved operational costs by 20-25 per cent.
The outsourcing movement has been gathering steam in the telecom’s information technology (IT) space as well. Tech firms such as Tata Consultancy Services, Infosys, HCL, IBM and Wipro have been busy chasing multi-billion contracts from potential telecom customers including Bharti Airtel, Aircel and Uninor. Some of the large IT outsourcing contracts signed over the past year include Etisalat DB’s 10-year contract worth Rs 15 billion to Tech Mahindra to manage the former’s customer billing services, among other IT services; IBM’s seven-year contract with Idea Cellular for providing messaging and data services platforms to the operator; and Bharat Sanchar Nigam Limited’s (BSNL) Rs 18 billion contract to HCL Infosystems for managing all its IT infrastructure needs for the southern and eastern zones.
Apart from IT outsourcing, vendors have also won orders for deploying IT networks and solutions for telecom operators. For instance, Unitech Wireless awarded a five-year, multi-million dollar IT contract to US-based software service provider Telcordia, which has also been providing prepaid recharging solutions to Idea Cellular, Tata Communications and Aircel.
With the government pushing the case for mobile number portability (MNP), deals that involve operators making their networks compatible with the service are picking up. RCOM’s multi-vendor contract for Rs 700 million-Rs 800 million is a key example.
Wi-Max deployment has also been gaining traction. BSNL and Tata Communications have played a leading role in Wi-Max implementation. The segment is likely to get a further fillip once the auctions for broadband wireless access spectrum are over.
Top five vendors
NSN has won multiple deals including Aircel’s $300 million contract to supply GSM radio, core and microwave network equipment; Bharti Airtel’s $700 million network expansion contract covering eight circles; Uninor’s GSM network deployment contract across six circles; Idea Cellular’s order to upgrade its network across India; and an agreement with Vodafone Essar for expanding its infrastructure across seven circles.
Alcatel-Lucent, too, has witnessed a huge revival in its fortunes in the Indian domestic market. It is one of the seven vendors selected by RCOM for its contract to implement MNP across its network. Uninor has granted a $150 million GSM network contract to AlcatelLucent. The company is also a front-runner to win Bharti Airtel’s upcoming contracts to manage and maintain its optic fibre cable networks. It already has a fiveyear $750 million multi-technology managed services agreement with RCOM.
India is the second largest market for ZTE and Huawei outside China. ZTE’s sales in India increased by 50 per cent in 2009-10 and contributed over 10 per cent to its $8.8 billion revenues during this period. From annual revenues of just $170 million from India in 2005, Huawei registered revenues of over $2.3 billion as of end-2009.
However, despite enjoying a substantial share of the Indian telecom equipment market, the two firms have found themselves under the increasing scrutiny of Indian security agencies. Recently, BSNL has cancelled a mega GSM contract awarded to Huawei citing security issues. In an attempt to change the public perception in India about Chinese firms, both ZTE and Huawei are Indianising their workforce in the country, not simply at the middle level, but their board of directors as well.
Ericsson has won one of the biggest network deployment and outsourcing contracts from Bharti Airtel. It has also won a $500 million equipment supply and installation contract from Uninor for three circles.
Upcoming contracts and the way forward
Bharti Airtel has invited bids to outsource the management of its 120,000 km-plus intercity optic fibre cable network. The contract is likely to be valued at $1 billion.
State-owned BSNL, which has the country’s largest fibre network comprising about 600,000 km route, is also set to invite bids to outsource the management of its network. The two contracts are expected be the largest outsourcing deals in the country in 2010-11.
According to a Frost & Sullivan study, the Indian telecom sector will dominate the Southeast Asian and Middle Eastern markets in terms of capital spending, thanks to the huge size of these markets. In fact, the biggest chunk of investment in the near future will go towards paying for 3G spectrum and setting up 3G networks. While mobile services are likely to constitute a major part of the capex, investments in broadband and carrier networks, telecom infrastructure, and multimedia and value-added services will also increase significantly.
Dolly Khattar
