Over the past few months, a controversy arose after security agencies raised concern over equipment supplied by Chinese vendors, saying that snooping technology may be embedded in the equipment.
This is affecting the rollout obligations and expansion plans of telecom players, and this is not good news for India, which is the fast growing telecom market.
As of March 2010, India had more than 600 million mobile subscribers and it is estimated that by 2015 there will be over 1.1 billion mobile subscribers and over 125 million mobile broadband connections in the country.
This phenomenal growth is expected to fuel the demand for telecom equipment worth $70 to $100 billion (between approximately Rs 320,000 crore and Rs 470,000 crore) till 2015, according to Varun Chandra of InCights Mobile Solution.
Indian telecom operators primarily import most of the equipment required for setting up a network. In 2008 to 2009, equipment worth Rs 46,158 crore was imported by operators.
Despite the huge requirement for hardware, there are few Indian manufacturers since there is no incentive to innovate and manufacture products in India.
Sandeep Mushran, director, Fastrack Communications, said, “We will shortly start our handset manufacturing unit in India, but India has still to develop a good equipment manufacturing ecosystem if it wants to make any headway.”
He added that if India wants to overtake China in equipment manufacturing, it needs to develop a complete telecom ecosystem to address all the needs of telecom players, as China is doing at present.
Seeking a solution:Long back, National Telecom Policy (NTP) 1999 was formulated to strengthen research and development efforts in the country and provide an impetus to the building of world-class manufacturing capabilities in India.
The policy also intended to promote indigenous telecom equipment manufacturing for both domestic use and export, and it stated that the Government would provide the necessary support and encouragement to the sector, including suitable incentives to service providers utilising indigenous equipment.
While the services sector has shown tremendous growth since then, the domestic equipment manufacturing sector has not shown any significant growth.
The telecom industry is the fastest growing sector of the Indian economy and it contributes significantly to GDP.
TRAI’s initiative:To gauge the view of associations, service providers, manufactures and stake holders in the telecom space regarding telecom equipment manufacturing in India, TRAI invited comments from them to suggest policy measures that will encourage telecom equipment manufacturing in the country.
TRAI did this exercise to identify the impediments in the growth of Indian telecom equipment manufacturing and to explore various measures to encourage the industry.
TRAI had asked the stakeholders to give inputs on various aspects including barriers in the growth of telecom equipment manufacturing in India; incentive schemes which can enhance design and development of telecom products; factors affecting the competitiveness of Indian manufacturers; and methods to boost research and development to increase telecom related intellectual property from India.
Through this fruitful exercise, TRAI has been able to churn out a lot of interesting points which, if utilised, can provide impetus to the growth of telecom equipment manufacturing in the country.
Growth barricades:All the telecom associations, service providers and equipment vendors who participated in the TRAI consultation process were of the view that capital requirements and economies of scale to achieve a competitive cost structure and increased investment in R&D were the main requirements of the equipment industry.
On technological constraints, Bharti Airtel was of the views that Department of Telecom (DoT) and other R&D institutions have not developed new technologies, which has resulted in greater dependency on foreign vendors to keep pace with providing customers the latest technology.
Factors affecting the competitiveness of Indian manufacturers:Even though the telecom sector was opened up early, equipment manufacturing in telecommunications never really took off.
On this, service providers and equipment manufactures pointed out that since Indian R&D institutions have been unable to keep pace with changing technology; many manufacturing units have had to close down. Hence, it is important to give technological support to Indian manufacturers so as to enable them to keep pace with the industry.
COAI and the Telecom Equipment Manufacturers Association (TEMA) were of the view that a lack of general infrastructure such as power, roads and land has also been a cause of concern, which MNCs take into consideration while making decisions to set up their plants in India.
Motivation for the industry:COAI believes that the government can leverage upon the existing Telecom Centers of Excellence (TCOE) initiative to promote R&D; create a dedicated R&D fund; put a conducive tax structure in place; and exempt companies from the minimum alternative tax (MAT) for a specified period to encourage equipment manufacturing in India.
Every one who participated in the consultation process believes that the use of renewable energy systems to power relay towers in remote areas should be encouraged.
Recently, some telecom service providers have started operating mobile repeater and relay stations, which harness solar and wind energy by using wind turbines hoisted on telecom towers. This too needs to be incentivised.
Bharti Airtel, in its recommendations, felt a need for a telecom manufacturing hub and Special Economic Zone.
Ericsson, which has been quite active in promoting green telecom the world over, asked for special incentives, or cash rewards for those telecom equipment manufacturers that hold the quality environmental certification ISO 14000.
Indian Telephone Industries (ITI), state-owned telecom equipment manufacturer, had an interesting view point that, foreign technology providers, while providing technology for the manufacture of telecom equipment, should also include a transfer of technology for the manufacture of proprietary hardware, including application specific integrated circuits (ASICs) to Indian companies.
Need for research and development:Almost all stake holders were of the view that instead of focusing in all areas, India should focus on R&D and create telecom products in the core areas of technology that are important from a strategic as well as long-term commercial perspective.
They were also of the view that since a lot of R&D and product talent is available in the private sector, entrepreneurs who are involved in R&D and are creating intellectual property for telecom products must be actively encouraged.
COAI was of the view that by learning from the success of many other countries (eg, China and Israel), the Indian government should provide up to 50 per cent of R&D costs in the form of grants or soft loans.
Ericcson’s observation was that initiatives on investment towards R&D companies in close cooperation with universities will boost research and development in telecom, resulting in more intellectual property.
Mahendra Nahata, managing director of Himachal Futuristic Communications said, “Incentive is required to be given to telecom operators for using locally designed and manufactured equipment.”
He further explained that foreign equipment can be purchased with vendor credit facility. Moreover, operators feel more comfortable using equipment designed and manufactured by foreign companies.
It is, therefore, necessary that certain incentives be given to telecom operators to use equipment that has not only been manufactured in India, but has also been designed by Indian companies.
Such incentives will not only increase the R&D base in the country, but will also lead to the creation of an export base.
Need of the hour:Given that India already has the key ingredients for building telecom products: a large and highly technical workforce, as well as a large home market, our primary focus should be to create Indian products in which the R&D, intellectual property creation and product design are done in India, and thus benefit the Indian economy.
And most importantly, similar to many other countries, the Government of India should also support Indian manufactures in their endeavor to create an ecosystem which can make India a force to reckon with in the telecom equipment manufacturing domain.
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