Apart from cost advantage, they also enjoy the benefit of large capacities.
India will soon overtake China as the world’s largest mobile telecom equipment market with service providers planning to place orders worth $15-20 billion over the next 24 months. And, ironically, it is the Chinese equipment suppliers that are emerging as front-runners in this market
“We are growing faster than China,” says TV Ramachandran, director general of the Cellular Operators Association of India, which represents GSM operators.
On a base of 580 million mobile customers, China is adding five-six million subscribers every month. In contrast, India, which is close to hitting the 300-million mark, is expected to add 9-10 million new subscribers every month for the next two to three years. Also, China has still not opened up to 3G services.
“Given the 2010 target of over 500-550 million mobile customers, the industry will buy nearly $16-20 billion worth of equipment. By 2012, the market will be $30 billion,” Ramachandran added.
The country is also likely to see a significant change in the configuration of the market as new players set up their networks in an ultra-competitive environment.
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With price being a key factor for many of the new entrants, the traditional European domination of this market is likely to be replaced by that of the Chinese companies, which can supply equipment 10-15 per cent cheaper.
According to industry estimates, European companies — Ericsson, Alcatel and Nokia-Siemens — control over 75 per cent of the Indian market. But estimates suggest that Chinese majors like Huawei and ZTE are expected to bag nearly half the new orders.
For instance, Huawei has bagged a $1.3-billion order from Reliance Communications for its pan-India GSM network and a $500-million order from Aircel for a similar rollout.
Huawei executives expect an overall order book of $5 billion by the end of 2010, a third to a fourth of the new mobile orders.
Sistema-Shyam, for instance, is close to negotiating its pan-Indian CDMA equipment requirement with Huawei and ZTE, which are likely to divide the order among themselves.
Industry estimates that equipment orders for 3G, or third-generation, mobile services — which will allow faster downloads of movies and music on mobile phones — alone will be over $5 billion.
For the services, the government has mandated five telecom companies who win the auction for 3G spectrum — radio frequencies that enable wireless communications — at the end of this year.
“We expect to get at least 20 per cent of what will be the largest market in the world. Chinese products have high quality and they are big in 3G equipment across the globe,” said ZTE India Managing Director DK Ghosh.
Chinese companies privately admit that apart from price — which is competitive despite the 34-38 per cent Customs duties — they enjoy the advantage of large capacities that can deliver equipment quickly.
In this they are helped by the little-noticed removal of a government stipulation that global companies have to manufacture a part of the equipment within India to qualify for orders from state-owned Bharat Sanchar Nigam Ltd (BSNL).
BSNL, in fact, has just opened a tender for 93 million GSM lines, possibly the world’s single-largest order. Says a BSNL senior official: “The bids for the contract, which combines both 2G and 3G, will close on the 10th of this month. We expect to put the contract through as early as possible.”
Says a senior executive of one of the new players which has placed an order on a Chinese company: “The reasons are simple. Top European equipment vendors are closely associated with big incumbent mobile players in the country with whom they have long-term contracts. They have assured them that they will not work with others, especially the new players. The Chinese are ready to supply us at cheaper cost, so we will go with them.”
However, European companies say the Chinese aggression might not last too long. “They might play on price, but telcos are looking for quality and service, which are their weak points. We will never sell our products below cost as we have an established market already and long-term relationships,” said a senior executive of a leading European equipment company.