5G, made in India: What key domestic telecom equipment makers are doing

A clutch of domestic companies is developing equipment and software solutions for this upcoming next-gen telecom technology

A new opportunity is knocking on the doors for domestic telecom equipment companies in the upcoming entry of 5G services — and they are grabbing it with both hands.

On Thursday, the Department of Telecommunications (DoT) announ­ced the final guidelines for a production-linked incentive (PLI) scheme for telecom and network manufacturing, inviting domestic players to participate within a one-month window. Both they and global players are being offered a 4-6 per cent incentive for five years totalling over Rs 12,195 crore. DoT has also reserved three out of the 10 slots among the large players to domestic players, provided 50 per cent of the equity comes from Indians.

The action is already palpable. Sunil Vachani, managing director of Dixon Technologies, the world’s 20th largest electronics manufacturing ser­vices (EMS) player, said the company is getting ready to apply for the scheme. “The Rs 100 crore minimum threshold in five years that we have to invest to be eligible is very reasonable. So is the scope of the sales value on which we will get the incentive,” he said (the latter is capped at 20 times that of the investment).

“It will be a big booster for local telecom equipment production. We will concentrate on telecom customer premises equipment,” he added.

The company will make routers, WiFi and IoT devices, which is a Rs 7,000-crore market and of which im­ports account for half. A joint venture with telecom major Airtel is expected to provide Dixon with a ready market.

Three other home-grown players — Saankhya Labs, HFCL and Sterlite Technologies — are already working with partners to design and manufacture “make in India” 5G radios for both domestic and export markets.

Armed with over 70-odd patents, Bengaluru-based Saankhya has desig­ned 5G radios and base stations and a range of chipsets to support them. As Parag Naik, co-founder and CEO, said, “With Open Radio Access Network (O-RAN) technology, there is a change in perception that Indians can also design high-tech products of world class.” The company has won a telco customer, against tough competit­ion, in the US and is in talks with In­dian operators and tech firms.

Naik said Saankhya designs the products and outsources manufacturing to smaller companies in and around Bengaluru. “Just like in Apple phones, the margins are in design and IPs,” he added.

Pune-based Sterlite Techno­lo­gi­es has tied up with Gurugram-based company VVDN Techno­lo­gies, which will manufacture the ra­dios for them, and is reportedly planning to make a bid for the PLI scheme. Sterlite is designing the radio and a systems integration software.

That is not the only 5G product on which domestic players are working. Telecom equipment maker HFCL’s Chairman Mahendra Nah­ata confirmed that his company will apply for the PLI scheme.  It is desi­gning and manufacturing macro and small cells to improve 5G coverage. For every tower standing (there are 600,000 of them), telcos would require about 25 small cells so that customers can be delivered high-speed 5G with low latency. HFCL has applied for a patent for the technology. 

The market that domestic players are looking at accounts for over half the capital investment in a 5G network (radios alone account for about 30 per cent). They are banking on offering 5G service providers lower forex costs. India spends about $10 billion in telecom equipment annually, just $3 billion of which is made in India.

But domestic players have failed to make a dent against the big boys of mobile network equipment — Nokia, Ericsson, Huawei, ZTE — for decades. So why are they so bullish on their 5G equipment offerings? “One big change has been the Narendra Modi government’s policy that focuses on ‘make in India’ and is supporting it with the PLI scheme as well as through preference to products (including price) manufactured in India in government projects,” said HFCL’s Nahata.

The second big change has been that O-RAN, an open platform technology, came into vogue for 5G a few years ago. This has meant that the handful of global telecom gear players can no longer bundle software and hardware and lock in an operator through proprietary technology. “The O-RAN evolution has been like the Y2K movement in India for the telecom equipment ecosystem. With network software becoming free from vendor lock-in because of the virtual open 5G network, India has a huge competitive edge with its IT prowess,” Ankit Agarwal, whole-time director of Sterlite Technologies, explained.

Third, Indian players will get some protection from cut-throat Chinese competition because the government is unlikely to give Huawei and ZTE permission to enter the 5G play. “Our biggest problem was we could not match the long-term credit lines they offered at low interest as incentives to buy equipment. European players don’t provide such sops and their costs are higher in any case,” a senior executive of a domestic equipment maker pointed out.

HFCL’s Nahata said he expects localisation in 5G telecom opportunity to hit over 50 per cent. Sterlite’s Agarwal said his company is working on an expected 25 per cent reduction in overall 5G network costs, which is what operators are looking for. Saankhya’s Naik points out that since the patents for the designs reside in India, the indigenisation of their products is over 80 per cent.

Service providers, too, see value in buying from domestic companies, not least because of the large sums they expect to pay out for 5G spectrum in the upcoming auction. Reliance Jio has gone a step further by developing its own 5G technology, which will soon be tested in India. Analysts said Jio would look at domestic players to manufacture the hardware, too.

All the same, it’ll be a tough game for domestic 5G gear manufacturers. All Indian operators are conducting their upcoming 5G trials with equipment in collaboration with Nokia, Ericsson or Samsung. Other big players, such as Nokia, have endorsed O-RAN and are part of that alliance. The mood is summed up by a senior Airtel executive in a recent interview: “We will work with everyone, including incumbent telecom gear makers. Our aim is simple, we want to get the best quality and at the lowest cost.” Domestic players clearly have to meet this key criterion.