RealTime IT News

India Worth More Than Outsourcing

Bangalore, Mumbai, New Delhi. Not long ago, these Indian cities were little more than echoes from geography class, dots on a map marking the edge of an empire upon which the sun finally set.

More recently, they've been associated with (for better or worse) offshoring, as multinational corporations build call centers, factories and software development labs there.

But telecom gear makers now look at India for more than inexpensive, tech-savvy labor. They see a burgeoning market for products and services with growth rates outpacing the United States and Europe.

There's been a steady stream of evidence to support the shift this summer, but it's been overshadowed by accounting woes and disappointing earnings forecasts.

For example, Nortel promised a new emphasis on India and will provide Bharat Sanchar Nigam Limited (BSNL) with equipment for a GSM network.

Alcatel , Nokia and others are in line for other parts of the BSNL project, which will tally hundreds of millions of dollars.

Meanwhile Cisco reported fourth-quarter revenues from India jumped 40 percent over the same period last year, and Lucent and Motorola and others are ramping up operations on the subcontinent.

Telecom Reforms Provided Groundwork

Unsurprisingly, it took decades after India achieved independence from the British in 1947 for the country to gain its political and economic footing.

Early leaders ran a closed society and enacted tight government restrictions on the ownership of foreign investments -- an understandable impulse given the country's history. But the current telecom boom has its roots in regulatory reform.

Before 1984, telecom service and manufacturing were government-controlled. To meet rising demand, political leaders allowed Ericsson, Siemens and others to license phone and network infrastructure technology to local firms.

"As procurement was to be made from the indigenous companies ... all these companies had set up their manufacturing bases in India either directly or through technology tie-up with Indian companies," a recent report from India's Department of Telecommunications said.

Deregulation was expanded in 1994 to include cellular gear, and restrictions against buying directly from foreign companies were beginning to be phased out.

Foreign companies, flush with cash from a booming stock market in the late 1990s, had plenty of capital to produce new fiber-optics and wireless technologies -- keys to modernizing India's networks.

India also joined the World Trade Organization at this time. To meet WTO requirements the average tariff was cut from nearly 130 percent to less than 30 percent. This is high to most emerging markets, but a significant improvement, said researchers at the financial services firm UBS in a report on India's emerging economy. This made advanced gear more affordable for Indian carriers and corporations.

Government leaders show no signs of backsliding and appear to recognize the importance of telecom advancement.

"The telecom services have been recognized the world over as an important tool for socio-economic development for a nation, and hence telecom infrastructure is treated as a crucial factor to realize the socio-economic objectives in India," Nripendra Misra, chairman of India's Department of Telecommunications, recently wrote.

However, some say the reforms haven't gone far enough. There are calls for raising the allowable foreign ownership percentage in carriers as well as lobbying to streamline the spectrum licensing process.

Telecom Market Present, Future

The results of reform have been encouraging. The Indian market for equipment and services is expected to jump to $24.3 billion by 2006, up from $13.7 billion in 2001, according to telecom research firm Frost & Sullivan.

The offshoring movement has created demand for networking equipment. Those facilities need the fast, secure phone and Internet connections.

"In offshoring hubs, high-quality, private-sector infrastructure is increasingly provided, giving foreign corporations better infrastructure in some areas, such as communications and health services," UBS said.

In Cisco's most recent conference call, CEO John Chambers called India "a great success story."

"We put a lot of investments over the last several years, and it's growing approximately 100 percent year-over-year," he said. Cisco does not disclose revenue or investments on a country basis.

But it's mobile that holds the most promise, with subscribers signing up at a rapid pace.

"It's a combination of a huge population, the economy getting better and equipment and handsets are now getting more affordable," Greg Collins, senior director of research at Dell'Oro Group, said.

But what most excites vendors isn't the number of people that have signed up -- it's how many have yet to. Where mobile phone penetration is 70 percent to 80 percent in Western Europe and 50 percent to 60 percent in North America, it's nowhere near that in emerging countries. China has something around 20 percent penetration, and India even less than that, Collins said.

Kurt Steinert, a Lucent spokesman, agrees. The company is currently working with Indian telecoms Reliance and Tata, providing base stations and other gear for CDMA networks. The mobile infrastructure market in India hit $1.17 billion last year, Gartner said, and is forecast to grow to $1.885 billion by 2008.

"There is a lot of room for growth in India," Steinert said. "Mobile is very popular in areas that haven't even had phone service."

There are still challenges however to sustaining mobile subscriber growth rates. India has more than 1 billion residents, but 700 million of those live in the countryside and are at or below the poverty line.

"A lot of potential customers can't afford to pay the $50 a year we pay here, or the $30 they pay in Europe," Dell'Oro Group's Collins said. "[Carriers and handset makers] have to respond to that."

Among the efforts is to offer basic handsets that stress coverage over the latest bells and whistles, as well as selling refurbished handsets at a lower cost than new ones. Cisco has about 600 employees in India and Motorola has about 1,500.

"We consider India a pretty important market," Lucent's Steinert said, noting that the company has about 1,000 employees in India focused on R&D, sales and service for both wireless and wireline networks.

If business and economic trends hold, expect Lucent and its sector mates to boost their presence in India even further.

Then, Bangalore, Mumbai and New Delhi will not only be historical sites, and places to farm out work, but also 21st-century centers of telecom business and investment.