Over the past few years, rental test and measurement (T&M) equipment has gained traction in the telecom industry. The challenges associated with owning T&M equipment have prompted telecom companies to slowly move towards renting equipment. In order to survive in the highly competitive environment, telecom companies have to constantly adapt themselves to new technologies. This requires the deployment of the latest equipment to better serve customers. However, technology is changing at a fast pace. This means that as soon as a new technology is introduced, the existing equipment becomes obsolete. In order to stay abreast with the latest technologies and not lose their competitive edge, companies are required to constantly replace their equipment. Earlier, companies used to change their equipment every few years, but now that trend has changed and the equipment is being upgraded within a few months. This puts a significant burden on a company’s capex. In addition, owning T&M equipment involves opex for repair and maintenance.
Transition to renting T&M equipment
The rapid evolution of standards and technologies in the T&M industry, as well as the industry’s convergence with other industries, is expected to create opportunities for rental models. This is primarily due to the inefficiencies of the traditional capex or ownership model pertaining to asset purchase, replacement and disposal.
The rental companies buy T&M equipment from several original equipment manufacturers (OEMs). Operators can approach these companies and take the latest equipment on rent. In this situation, all the three parties (OEMs, the rental companies and the customers) benefit. Some OEMs also give the option of renting new equipment.
Renting also has benefits for operators. They are required to pay rent for a stipulated time period instead of spending a huge amount on new equipment again and again. This brings down the opex for equipment maintenance and capex for the replacement of equipment. In fact, the rental option is very useful for those companies that urgently require T&M equipment. Small operators may not have the needed cash required to buy new T&M equipment, but renting equipment could meet their requirements.
The rental market may sound feasible in terms of cost and speed of procurement, but purchasing new equipment provides tax benefits in the form of depreciation. Further, leasing companies have to stay up to date with the latest technologies, which is a key challenge. They should be capable of providing the right equipment at the right time. Companies engaged in the rental business also need to invest substantial capital to buy equipment from OEMs. Further, OEMs may be reluctant to give away their equipment on rent.
As per industry estimates, the rental T&M market globally generates $500 million in revenue per year. However, the reach of the rental T&M market has been largely restricted to the developed areas of North America and Europe. It has not found its feet in the developing countries in the Asia-Pacific region.
In India, almost all telecom service providers purchase T&M equipment from OEMs. The rental market is still at a nascent stage in India, and very few companies have set up shop in the country. That said, the Indian market is highly competitive. Further, aggressive pricing and falling tariffs have pushed several operators into bankruptcy. In such a dynamic environment every operator is trying to undercut the market share of its competitors, and trying to obtain the latest T&M equipment to deliver enhanced service quality.
The need, in the big picture, is to reduce both capex and opex in any organisation and convert capex to opex by leasing T&M equipment rather than buying it. “In order to garner customer share, a combination of an excellent OEM and flexi-leasing companies is required. A robust procurement process based on the total cost of ownership and aimed at bringing about a capex-opex balance will be a win-win approach for all,” says Vishnu Goel, independent telecom consultant.
With the roll-out of 5G and next-generation technologies like big data, artificial intelligence and internet of things, and owing to the issues associated with the ownership model, the requirement for rental T&M equipment is going to increase in the coming years.