Telecom: New callers from the east

In the 16th century the British, French, Portuguese and Spanish came sailing to India in search of spices, textiles and the fabulous wealth of the Indies. Today, there's a new gold rush. This time the new adventurers are Chinese, Koreans, Taiwanese and Singaporean companies coming to stake their claim to the golden opportunities offered by the Indian telecom sector.

At stake are billions of dollars. For a start, there's the 2 million handset per month market currently controlled by deeply entrenched European and American technology companies like Nokia, Motorola and Ericsson. India is also placing mouth-wateringly large orders for telecom equipment and every company in the world is watching the action closely.

Six new handset manufacturers have launched in India in the last six months

BenQ, offers a GPRS phone for Rs 5,000 compared to the cheapest Nokia GPRS which is at Rs 8,000

ZTE and Huawei are bidding for BSNL's giant Rs 6,000 crore tender

Take a look at what's happening. In the last six months at least six new handset manufacturers have launched in India. These include China's largest homegrown handset manufacturer Nungbo Bird, Taiwanese DBTel and the $3.5-billion BenQ.

There are others waiting in the wings. Judging by the upbeat mood and the turnout at the recently held Convergence India 2004, other lesser-known brands like the Korean manufacturer Ezze Mobile and Amoi Electronics from China are planning to take on the Nokias and the Motorolas in the Indian market. These newcomers have already demonstrated their intent by flooding the market with around 30 new handset models in recent months.

A host of names from the east are looking hungrily at India. Companies like Korea Telecom and Singapore Technologies are looking for ways to tap the booming wireless and broadband market in India. Korea Telecom has signed an MOU with BSNL to offer broadband services. Similarly, Singapore Technologies are talking to Indian cellular operators for joint ventures.

On the network equipment side, it's the Chinese who have made elaborate plans to dent the hold of the European and Americans. The $1.4-billion ZTE Corporation and Huawei Technologies have already entered into joint ventures with Indian companies ITI and HFCL, respectively.

But can these new entrants take on the might of the telecom Goliaths? Nokia, the market leader, recently reported a revenue of Euro 1 billion in 2003 from India alone. That means India is Nokia's sixth largest market in the world and the Finnish company isn't about to let others get a foothold without a fight.

But the newcomers are also confident they can push their case in a new market. ZTE's vice president for international markets Fang Rong believes that her company's experience in China will help it in India. Says Rong: "The Indian story is similar to that in China. When we entered the Chinese market, it was dominated by the same European and American manufacturers. But look how we have taken the leadership position in the last few years."

ZTE has earmarked $50 million this year to set up a manufacturing unit in India for network equipment. It is also evaluating whether to manufacture handsets here. Industry watchers point out that the Chinese companies can't be underestimated and that the last three CDMA tenders from MTNL and BSNL have gone to ZTE and Huawei..

While ZTE was the lowest bidder for BSNL's $50 million tender, Huawei got the $70 million project for putting up 750,000 CDMA lines. ZTE also grabbed the tender to supply 50,000 CDMA handsets.

The two have now separately pitched in to take on Motorola, Siemens, Nortel, Alcatel for the world's largest tender "" worth around Rs 6,000 crore "" floated by BSNL to install about 12 million GSM lines. If either of the Chinese companies bag the project, it will catapult them overnight to a 35 per cent market share in the Indian telecom equipment market. The total mobile market is at around 30 million lines.

A look at the estimates for the Indian telecom market explains why all these companies are making a beeline to India. By 2007, the GSM handset market is expected to be worth a staggering Rs 300 billion, from the current Rs 30 billion. By then there should be around 140 million cellular subscribers.

"In this scenario most mobile companies will be forced to invest heavily on their networks to upgrade from the current capacity level of 30 million subscribers," says Pankaj Mahindroo, president, Indian Cellular Association.

Adds Sanjay Mehta, director, Ernst & Young: "India is at the inflection point of a different growth trajectory. It is poised to have the largest telecom network after China in the next five to seven years."

In this situation it's hardly surprising that everyone is rushing to India. The new players in the handset market are starting by offering feature rich phones at cheaper prices. BenQ, the fourth largest mobile handset manufacturer worldwide and the largest in Taiwan, for instance, offers a GPRS enabled phone for Rs 5,000 compared to the cheapest Nokia GPRS phone which is above Rs 8,000.

Says Ashish Bakshi, Country Head, India Operations, BenQ: "Even our entry level phones sport features such as a phone book memory of 500 records, availability of polyphonic tunes, GPRS and WAP."

The company is also making other moves to ensure that it outmanouvres the industry's top dogs. It is going into smaller cities and is launching seven new models this year. It is also bringing in the latest technology. The BenQ S670C has a 3D face morphing technology which allows users to edit pictures on the handset. By end of 2004, the company has set itself the target of grabbing 5 per cent of the handset market in India.

Similarly, Taiwanese company DbTel, which entered the market in November 2003, has launched 12 models in the Indian market and plans have 23 on sale by year-end. Company executives say the company sold 4.5 million units worldwide in 2002 and expects to sell about 6 million this year riding on the boom in Asia. In India, DbTel is ambitiously targeting 25 per cent of the new sales business by year end.

Then, there's Bird, which says it has catapulted past Motorola and Nokia to become China's top vendor of mobile phones in 2003. It is expecting to repeat this performance in India.

However, the market leaders remain unfazed by the ambitious newcomers. "I don't think the new players have made any dent in the Indian telecom market. There's more to gaining market share than just launching new products. You have to provide after sales support, there has to be brand awareness. We have competed with them in their home turf . So there is no threat," says Motorola's Narendra Nayak.

Nokia executives argue that the Chinese won't be as formidable here as they were on home ground. "The Chinese and Taiwanese story is different from that in India. There they had the advantage of being local brands, had the advantage of offering products in the local language and they were also backed by a government which pushed local brands," said a Nokia executive.

Agrees V K Munoth from Munoth Communications which is the distributor for DbTel handsets in India. "In a market like India getting handset sales of 15,000 a month is no big deal. Whether these companies can get sales of over 20,000 is the litmus test. The initial numbers seems to be going slow for these companies as they need to convince the consumers that the product is good."

And that's precisely what some of them are attempting to do. They are spending heavily to build a brand image. BenQ for instance, is pumping in around Rs 15 crore in brand promotions this year. The company has also tied up with VJ Cyrus Broacha who will exclusively promote IT & telecom products from BenQ.

Are the established players taking the challenge lying down? Not likely. One sure sign that these companies are taking the Indian market seriously is that top global executives are flying here regularly. Be it Jorma Ollila, global chief of Nokia, Neil Ramsom, chief technology officer, Alcatel or Mike Zafrovski, COO, Motorola, they have all been here in the last few months. They aren't losing any sleep yet but they also aren't ignoring the new challengers from the east.