China scales India's great wall of perception

RED STAR OVER INDIA - I

Huawei, ZTE in talks for contracts worth a third of the Indian telecom equipment market.

After struggling for years with image problems over "security threats", Chinese companies are making a great leap forward in the Indian telecom equipment sweepstakes.

Led by Huawei Technologies and ZTE, Chinese manufacturers are challenging the domination of European equipment-makers by grabbing contracts (some of which are in advanced stages of negotiations) worth over $2 billion in 2008 "" nearly one thirds of the Indian market of around $6 billion.

Last year, according to industry estimates, Ericsson, Alcatel and Nokia-Siemens (formed after the merger of the equipment businesses of the two companies) controlled over 80 per cent of the telecom equipment market in India with Nortel and Motorola and the Chinese players accounting for the rest of the market.

Now Huawei Telecommunication, number five in last year's pecking order, and ZTE, which was nowhere, are setting themselves ambitious targets by exploiting a 10 to 20 per cent price advantage over European and American competitors and growing engineering capabilities.

Huawei, for instance, aims to become number two by 2009, according to its India Managing Director Yang Kai Jung. "We have already established ourselves as a reputed supplier," he said.

Huawei sold equipment worth $700 million last year and expects to more than double the turnover from India to $1.5 billion this year.

The company has bagged a $500-million order for GSM mobile equipment from Reliance Communications (RCom), the country's largest CDMA player that is shortly rolling out GSM services.

The company is also in talks with Aircel (owned by Telekom Malaysia), Vodafone, the Aditya Birla group's Idea Cellular and Tata Teleservices for contracts.

ZTE's target this year is to sell equipment worth over $750 million. "We were not even in the top ten list two years ago, but we should hit either number three or number four this year," said Managing Director D K Ghosh.

Sources say ZTE is close to signing a deal with Shyam-Sistema, the Russian joint venture with Rajasthan's Shyam Telelink, for several circles for which it has received licences to operate.

The company is also in talks with Datacom, promoted by the Videocon group, RCom and Spice Telecom. ZTE will also bid for BSNL's southern Indian contract for GSM services, having won the state-owned service provider's contract for equipment for under 3 million lines.

It is also scouting for a manufacturing plant in Chennai to service the Indian market.

Apart from price, the Chinese equipment-makers have been able to make sufficient inroads into the market by scaling up their after-sales service network, earlier a key weakness, said the CEO of one of the new telecom players.

Huawei, for instance, is adding 500 service engineers to take its total strength to 1,500 and ZTE is increasing service staff by over 50 per cent.

The impending launch of third generation or 3G services is another reason Indian telecom companies are drawn to the Chinese.

Huawei, for instance, is one of the world's largest players in 3G equipment. Bharti Airtel has already given Huawei a $300 million contract to roll out its 3G network in Sri Lanka.

European companies, however, say they are not perturbed by competition from the Middle Kingdom.

"They have serious issues on servicing their network, plus as they increase their service support staff, their costs will go up. You can't continue to dump prices and sell for long," said a senior executive of one of the largest European telecom equipment-makers.