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The Saarc Disconnect

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Trying to cash in on the telecom boom, telecom equipment companies are stepping up their presence in the Saarc region, which is currently witnessing the highest growth in the telecom sector.

Companies view Saarc countries as a key catalyst for the proliferation of wireless broadband networks and mobile WiMax in the Asia Pacific region. In fact, India has already become a benchmark for several developed and developing countries.

However, the lack of seamless trade policies and regulations are likely to throw a spanner in the path of telecom equipment companies. The prominent challenges faced by operators include development of broadband connectivity, rural teledensity, and lack of basic infrastructure like road connectivity, mass transportation, and energy.

The region is yet to experience the true convergence of voice, video, and data. With true convergence, the benefits of a single infrastructure would greatly benefit several sectors, especially the IT/ITeS industry.

Notwithstanding the challenges, top telecom companies like Huawei, ZTE, Nokia Siemens Networks, Ericsson, Alcatel-Lucent, Alvarion, and Cisco feel that the phenomenal growth recorded in the Saarc region, in the recent past, can be sustained for some more time.

The thrust is backed by reasons. The subscriber growth registered by Saarc countries in the recent years has been phenomenal; some Saarc countries have witnessed a doubling of subscriber base. With approximately 400 mn subscribers, Saarc countries are strengthening their footprints in the world telecom scenario. A booming telecom sector has brought many positive changes in the economy and socio-economic sectors of Saarc countries.

The telecom equipment companies believe that the return on investment (RoI) is good, and can be sustained in the years to come. Moreover, the launch of new services and applications will only add to higher returns and better investment avenues.

The telecom revolution is in part, thanks to the innovative strategies framed by service providers and telecom equipment companies. Here is a look at the strategies telecom equipment companies will follow to garner the maximum share of the burgeoning telecom market.

Demanding Operators

Poor infrastructure. miserable road connectivity, mass transportation, and energy are the key challenges being faced by the operators in the Saarc region. Poor broadband connectivity and low rural teledensity further increase the problems faced by operators.

Operators believe that reduction of the total cost of ownership (TCO) is imperative to the growth of telecom in the region. “Operators talk about TCO from two perspective: the operator and the consumer, where the operator TCO has a direct impact on the consumer TCO,” Michael Kuehner, head, sub-region at Nokia Siemens Networks, says.

The TCO of the consumer includes the service fee, taxes, and the mobile handset price. Many potential subscribers have a communications budget of just $3 per month or less. To serve these customers and achieve healthy profitability, it is crucial to reduce the TCO of communications services.

“By offering end-to-end solutions that focus on extending coverage and capacity, lowering network capex and opex and enabling low-cost services for end users on low budgets, we have the know-how and solutions to help service providers build a robust business case in a low-ARPU environment,” Kuehner says.

The operator TCO needs to take into account not only innovative technologies but also innovative business models to drive economic growth. It is about understanding the position in an environment with many new players, defining this position and the value chains, and securing this position through a viable business model.

As the number of service providers increases in the market, their challenge is to understand the IP technology and operationalize it to run their networks.

In addition, given the growth that telecom service providers are witnessing in the region, Cisco plans to focus on helping service providers manage this rapid growth. In more mature markets like India, Cisco believes in helping service providers monetize their infrastructure by providing new services to customers and by creating new revenue streams.

The demand from service providers are coming from three perspectives. “Service providers are not only expanding their own enterprise networks but also bundling network and communication products with their bandwidth. Apart from that, they are also creating managed services offering around enterprise products,” Shekhar Agarwal, VP, South Asia, Enterprise Business Group, Alcatel-Lucent, says.

Service providers believe that rapid deployment of cycles is essential to meet the growing demand in the region. “The demands of service providers in Saarc countries are predominantly multi-phased: in the short term, service providers are looking for extremely rapid deployment cycles of fixed and portable wireless broadband networks and services, coupled with a strict demand for optimization of the business case challenge, in the region. This challenge on the service provider's side is supported by product and solution customization to fit the exact needs and requirements of customers,” Rajesh Kapoor, director, Sales, Alvarion, says.

In the long term, service providers are preparing for the addition of mobile applications and services to their mobile WiMax networks, and this must be done with standard-based technologies to provide investment protection and leverage on price reduction that comes with volume manufacturing.

Challenging Conditions

Universal access to information services can enhance the lives of millions of people in the Saarc region. Following the success of affordable cellular voice services, information services can bring benefits in sectors such as healthcare and education.

Successful information services require the cooperation of different stakeholders in order to ensure affordable access to technology, relevant and immediately beneficial services, and the required skills. The used technologies can vary, for example, from low-cost PCs to SMS-based services. For the companies involved, this will also mean profitable business.

Naresh Wadhwa, president and country manager, India and Saarc, Cisco, says, “Over the last decade, the domestic market in the region has really evolved and grown in sophistication. In the initial years, our focus was on educating customers about networking and its impact. Customers now view networking as a strategic asset, and, as a result, one can no longer offer point products. Today, our customers view us as business advisors and want us to offer solutions that can improve business performance.”

The most common challenge these markets face is the shortage of networking talent. With the region becoming an IT/ITeS hub, there are strong industry concerns about a demand-supply gap on one hand, and employability of graduates on the other. Students need to be equipped with skills that are aligned with today's global workforce.

According to Kapoor, service providers, together with their local partners in different countries in the region, face some challenges typically found in the markets with high-growth potential. Perhaps the key challenge is the need to rapidly provide the demand for a stellar rise in the broadband demand in the region as more people and governments realize that a key catalyst to bridging the digital divide is the existence of readily available primary broadband connectivity. This is done by very quick deployment cycles with super fast response to the needs of operators in different countries.

A different type of challenge they are facing is in the business model where a growing economy demands broadband connectivity to support and enhance growth but at the same time can provide, at least initially, moderate to low ARPU.

Shekhar Aggarwal of Alcatel-Lucent sees a lot more opportunity than challenges since the market is growing at a fast pace.

Movement from pure voice to the Internet is another challenge faced by operators, believes Kuehner of Nokia Siemens. Some of the changes are: the voice service is easy to understand; it covers local and relevant content. Making a phone call is easy and doesn't need much intelligence. This is not true of the content currently available on the Internet.

The improved coverage penetration and affordable phones lead to over 3 bn connected mobile voice consumers globally. Information services in developing markets, however, don't cover consumer education, motivation, and access to respective technologies easily. Many consumers don't know what Internet or mobile Internet is and the value they can derive from it.

Consumers require local and relevant content with a strong need to understand the immediate value. access alone won't help; they need to cover consumer education and motivation, all under the umbrella of affordability. This shows that they need to change their approach and look much more into consumer capability and motivation on the journey to 5 bn connections by 2015.

Kuehner says, “We believe that only if we understand consumer needs, especially in the new growth markets, can we prove the value of information services to these consumers. Without this, services would not be consumed.”

Recent Achievements

Huawei is the only company that has offices in all Saarc countries-Afghanistan, Bhutan, Bangladesh, India, Maldives, Nepal, Pakistan, and Sri Lanka.

Huawei India clocked revenues of around $650-700 mn last year. The company also announced the setting up of Nepal's first full service multi-protocol label switching (MPLS) network.

Bharti Airtel Lanka, a subsidiary of Bharti Airtel, has signed a managed networks deal with Huawei for its Sri Lanka operations.

Suntel Sri Lanka has chosen Huawei to carry out the overall network migration operation, to replace all equipment in the network, and to provide more reliable service for its customers.

Huawei provides a new CDMA HLR system with full redundancy within a month after the test, without any interruption for Suntel Sri Lanka. It also implements the first CDMA softswitch-based and dual-homed system in the world in Suntel Sri Lanka.

For Nokia Siemens Networks, only India, Bangladesh, Sri Lanka, and Nepal fall under its Asia Pacific regional carve out. As part of its expansion strategy and its commitment to develop a strong telecommunications environment in India, the company is committed to invest $100 mn in India over the next three years.

In March 2008, Nokia Siemens Networks announced a partnership with ACME Tele Power, an India-based company, to provide energy-efficient radio cell site solutions to operators. With the help of this, they will jointly innovate to offer efficient operation, maintenance, and energy management solutions to telecom operators.

The company will also establish a joint development lab in India to examine future opportunities, specifically around remote energy monitoring solutions. This is the first tangible example of Nokia Siemens's proximity to innovation in India.

Besides its focus on India, Alcatel-Lucent is also focusing on Sri Lanka and Bangladesh. In India, the company has around 500 people focused entirely on enterprise businesses including sales, pre-sales, post-sales, engineering, and R&D. While India remains the main focus, significant expansion and growth is coming from Bangladesh and Sri Lanka.

Alvarion has also marked its significant presence in the Saarc region. In India, Alvarion is involved for the last four years and currently, it has three customers implementing WiMax networks in the 3.3 Ghz range.

In addition to WiMax deployment, Alvarion is implementing LMDS projects in the spectrum of 10.5 Ghz mainly for cellular backhauling. It is also involved in the region through local partners and distribution channels providing local presence and support to customers.

The company is also promoting key government-endorsed projects in the region such as the state wide area network or SWAN projects in India. Alvarion offers wireless broadband infrastructure and an all-IP best-of-breed ecosystem in cooperation with its global and local strategic partners; examples of this would include Alvarion's substantial deployment with Aircel and other operators in the country.

Alvarion views Saarc countries as a key catalyst for the proliferation of wireless broadband networks and mobile WiMax in the Apac region to meet the rising demand for primary broadband services and the governmental requirements to bridge the digital divide and offer primary broadband service to rural and remote regions as well as urban centers.

The company also has formidable relationships with strong local partners promoting the adoption and use of wireless broadband solutions in the region. Alvarion is working closely with its partners in the Saarc region to provide wireless broadband infrastructure to operators and help improve the availability of means of communication for the social benefit and enhancements of the quality of life of the people in the region.

Cisco operates in India and other Saarc nations including Bangladesh, Sri Lanka, Nepal, Bhutan, and Maldives. Of these, India, Sri Lanka, and Bangladesh are important markets.

Cisco set up operations in India in 1995, and, over the years, strengthened its presence in the Saarc region with presence in Sri Lanka and Bangladesh.

In October 2007, the company strengthened its commitment to India by opening the Cisco globalization center in Bangalore. Cisco's strategy is to build India as its globalization center (east) which includes basing 20% of its senior leadership out of Bangalore over the next few years and the focus would be on the emerging markets.

Cisco addresses the networking needs of enterprises and SMBs across all verticals in these markets. However, the growth in telecom, government and defense spending on networking infrastructure is a primary growth driver in most Saarc countries.

In the last five years, the company has seen tremendous growth in Sri Lanka. With all of Cisco's business being done through partners, the company has strengthened its channel support with thirty-five resellers and one gold partner.

Some of Cisco's customers in Sri Lanka include Dialog Telekom, Sri Lanka Telecom and HNB. Cisco has also been engaged with service providers in Maldives and has established a presence in Nepal, through its partners.

Expansion Strategy

Several telecom equipment companies are increasing their presence by targeting telecom service providers and enterprises.

According to Wadhwa, India is a strategic market for Cisco's globalization strategy, and it continues to expand its operations in India. The company recently announced a strategic realignment to enable a new trajectory of growth in India.

Cisco is moving away from the current “vertical-centered” structure toward a new structure with a strong regional focus complemented strongly with a solution focus through business councils. The business will now be structured geographically-North, South, East, and West regions.

Cisco has also announced an additional $100 mn fund toward venture capital investment in high-growth, early stage companies based in India.

Expansion plans of Alcatel-Lucent are around expanding its own team and channel bases in India. “From the enterprise perspective, while ABS India, Orange Business Services, and HCL are investing more resources in our business, we are starting to work with major global system integrators such as BT and IBM,” says Agarwal.

On top of this, the company has signed up neoteric as master distributor for the SMB business, and it hopes to have over 75 resellers by 2008-end. The company has also established partners in Bangladesh and Sri Lanka.

Alvarion, on the other hand, offers local presence in the Saarc region through its regional HQ in the Philippines, and local offices in India, Singapore, and Thailand. The company is closely monitoring the growth of the markets in the Saarc region.

Similarly, Huawei has also established itself as a reliable partner in the telecom market of the Saarc region. The company's India marketing offices have over 800 employees in marketing, sales, engineering and technical support, three branch offices, and eight regional technical support centers.

Huawei India's R&D center currently employs 1,400 Indian software engineers, and plans to invest $100 mn in the coming years.

Market Outlook

The telecom market in the region is set for promising time ahead. “By 2015, we will live in a world in which 5 bn people will be connected, 4 bn via broadband. It will be a world in which people will use the services they want, anytime, anywhere, with the devices they prefer, with users seeing the Internet as their main source of information. The mobile phone will be the dominant force in voice services,” Kuehner says.

“We assume that broadband will become a legacy in developed markets, however, more than 50% of consumers in emerging/new growth markets will have access to broadband technology,” Kuehner adds.

On their journey toward the 4 bn broadband connected individuals, the main growth will come from the emerging markets. Nokia Siemens Networks believes that wireless broadband access in these markets will be dominant.

According to global research firm IDC, IT spending in India is set to grow the fastest in the world in 2008. Over the next three years, the Indian market will nearly triple in size-it will become a $71 bn market by 2012.

In this scenario, Cisco expects rapid transformation across all key sectors of the Indian economy with greater grip coming from the increased adoption of unified communications, data centers, and security solutions. The industry in Sri Lanka is growing at 10% or so, and Cisco expects its business to grow faster than the market.

Cisco foresees a strong economic and it growth potential in Bangladesh in the coming years. Until now, telecom and BFSI were the leading adopters followed by the manufacturing sector. With a steady economy, telecom, IT, public sector, and textiles also hold promise as a market.

Kapoor says that in India operators are currently focused on acquiring the enterprise market, which can generate higher ARPUs. On the other hand, all operators are looking for new spectrum in 2.5 Ghz so that the retail market can be addressed in an effective manner.

In Pakistan, there are substantial WiMax deployments in the 3.5 Ghz range while in Bangladesh, the Bangladesh Telecommunication Regulatory Commission (BRTC) is currently preparing a guideline for WiMax use. Therefore, although the variance in WiMax adoption is fairly large, Alvarion believes that the Saarc region will provide many examples of successful deployments of WiMax 16e for fixed and portable applications.

While the companies are strategizing and planning to garner the maximum market share in the Saarc region, it remains to be seen whether they actually succeed in their endeavor.

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