The worst phase of privatisation is nearly over, says a US-based consultancy firm which foresees an impending boom in the telecom industry in view of the colossal demand waiting to be met
The Indian telecom industry is on the verge of a take-off with the worst phase of privatisation nearing an end, declares a US-based management consultancy firm which specialises in emerging high technology markets.
In a competitive benchmarking study, the Silicon Valley-based company Frost and Sullivan said that although the Indian telecom industry grew by 17 to 18 per cent in 1996, the fastest in all the infrastructure sectors, there is a tremendous demand waiting to be met.
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(The) worst phase of the painful privatisation process involving regulations and the government (is) ending, notes the study.
Frost and Sullivan estimated that the Indian basic telecom equipment industry excluding cables was worth more than one billion dollars in 1996.
The private sector is likely to commence services in mid-1997. So the basic telephone network should show strong growth in the number of lines, it said.
India follows the pattern of other developing countries where the demand for telephones and more advanced services far exceeds supply, it said.
It predicted that line growth could surge to 20 per cent or even higher in the next five years. By the year 2000, more than 24 million lines would be in service, the study said. But Indias basic telephone penetration in that year is estimated at only 2.4 per 100 persons.
Calling the Indian telecom market one of the biggest in the world, the study noted there was enough scope for joint alliances for technology transfer and capital investment.
Many new international firms were likely to enter India in the near future in the terminal end equipment sector.
But it said that till new circuits start operating and millions of new lines are added, the equipment industry would suffer from excess production capacity.
Most Indian companies can see the future potential but are starved for funds. In the existing circumstances, late entry or solo entry by a foreign firm is a risky step, the report said.
A successful alliance would bring together the global experience of a foreign partner with the indigenous market knowledge coupled with the reduced cost and local manufacturing as provided by Indian firms, said Frost and Sullivan analyst Manish Gupta.
The switching industry in India is underutilised by 20 to 30 per cent. Both the work force and the production facilities are under utilised. The situation is likely to improve when the new private companies commence operations, it said. The study found that multinationals operating in the big switches category had all incurred losses because of heavy price cutting and these losses were debited overseas.
The cost of the lines, the study found, is significantly higher in India than in China. In the last round of bids, prices quoted were an average of $185 per line in comparison to the average cost per line of between $70 and $80 in China. According to the study, the increase in cost was because the Department of Telecommunications (DoT) has been insistent on some of the latest features in the switches. The DoT upgraded the switch specifications in March, 1996, to include services such as integrated services digital network (ISDN), asynchronous transfer mode (ATM) support and common channel signalling system number 7 (CCS7).
In the long run, the switch manufacturers will need to generate high volumes of business to sustain themselves in this business. It is expected that around 3.5 to 4 million lines will be added each year in the next 10 years, the study said.
The report praised the Centre for the Development of Telematics (C-DoT). The C-DoT switches have been described as offering world class quality in rural telephones, it noted, adding, these have made significant inroads into the Indian telecom scenario.
But the report said C-DoT technology has not been able to keep pace with the various technically superior new options available with the transnational switch manufacturers. The C-DoT switches do not support ISDN and CCS7. Unless C-DoT switches that incorporate these features are developed soon, it could mean disaster for the 36 licensed manufacturers of C-DoT switches.
Frost and Sullivan observed that the entry of private sector firms in the sector in 1992 had drastically slashed equipment prices, especially in the transmission segment.
In the switches category, C-DoT has been able to supply the equipment at $42 per line, one of the lowest prices for switches in the world. Founded in 1961, Frost and Sullivan provides market consulting on emerging high technology and industrial markets. Its 500 consultants provide services to clients in 50 countries.