|Topic:||The ‘light’ side of telecom development|
|Title:||Co-founder and CEO|
Mr Sanjay Nayak is Co-founder and CEO of Tejas Networks, a telecom product company from India. He has 20 years of experience working in global technology companies, both in India as well as the USA. Mr Nayak has a strong technology and management background in Telecom, Networking, Electronic Design Automation and VLSI Design. Prior to starting Tejas, he was the Managing Director of Synopsys (India), a wholly-owned subsidiary of Synopsys (USA). Mr Nayak holds a M.S. Degree (Electrical and Computer Engineering) from North Carolina State University, Raleigh, USA and B.E (Electronics and Communication Engineering) from Birla Institute of Technology, Mesra, India.
The growth of Indian telecommunications has driven the need for a wide variety of equipment. Wireless has seen the greatest growth, but optical fibre provides much of the backbone that ties Indian telecommunications together. Seven years ago, India had very little fibre, today it has more than two million km of fibre cabling in place. This has stimulated the growth of Indian telecom product suppliers who, given markets, skilled talent and capital, have conquered local markets and are expanding globally.
Indian telecoms The Indian market is one of the fastest growing telecom markets in the world, with about six million new cellular subscribers added every month. Given the low tele-density, India has only 160 million phones for its one billion people, a lot of growth is still expected over the next five years. In the past 12 months, the Indian telecom industry witnessed investments of about US$9.5 billion, with over 90 per cent utilized in procuring equipment. There have been several factors fuelling growth in this sector. After releasing the National Telecom Policy 1999, the government has played a key role in facilitating de-regulation and stimulating an exponential growth in tele-density. India will continue to see heavy investment in the telecom sector over the next few years – both from the PTTs (BSNL & MTNL – Bharat Sanchar Nigam Ltd & Mahanagar Telephone Nigam Ltd.) and the major private operators. The telecom sector in India benefited from the entry of financially strong business houses such as Tata, Reliance and Bharti, which have ensured continued investments and long-term commitments. Rules regarding foreign ownership of local carriers have also been liberalized so, now, foreign firms can own up to 74 per cent of the shares; this has resulted in many international operators buying stakes in Indian telcos. Except for the PTTs, which had existing networks – although with little capacity and limited geographical coverage – most of the new networks are ‘greenfield’ ventures and have come up during the past six years. While building these networks, the operators adopted a build-as-you-grow approach and leapfrogged legacy technologies. For wireless, GSM and CDMA became standards of choice, while SDH, Synchronous Digital Hierarchy, became the de-facto standard for optical transport. The timing of network build out in India coincided with the downturn in the global telecom industry, and the service providers in India took advantage of this to strike attractive equipment deal, that significantly drove down capital expenditure. The service providers also responded positively to the market needs of affordable telecom services and slashed prices, resulting in ARPUs, average revenue per user, of less than US$7 per month. This has stimulated demand and resulted in tremendous growth in the customer base. Despite the low ARPUs, the service providers have been able to build profitable businesses since they could leverage the low capital expense costs, high user base and operational efficiencies, necessitated by a very competitive environment. The main contributor to the revenue growth has been the wireless segment of the industry. Though not proportionate to the revenues, the volume of data traffic has also grown significantly. The growth in data traffic has been primarily driven by corporate customers using services such as the Internet, leased lines and VPNs, virtual private networks, and, to a lesser extent, due to residential broadband customers, who have the potential to drive the next wave of data growth. The ‘light’ side of development – the optical scene Given the above trends, the initial focus for all major operators was to build efficient backhaul networks to carry voice traffic for which SDH was the technology of choice. To make their networks ‘data-ready’, they chose to use new standards such as Ethernet-over-SDH to cost-effectively build converged networks using next-generation SDH equipment. While these networks were optimized to support voice, with marginal incremental costs they were also capable of providing their data customers with Ethernet services. Although in year 2000, India had low optical fibre penetration – mainly BSNL/MTNL, but a few utility companies had fibre assets as well, the relatively easy rules regarding right-of-way allowed other operators to lay a lot of fibre quickly. Today India has more than two million km of fibre, a majority (60%) of which is owned by BSNL/MTNL and government-owned utility companies such as railways, powergrid and that gas authority. The rest is owned by private operators, mainly Reliance, Bharti and Tata/VSNL. The trunk routes typically have 2.5/10G DWDM, dense wavelength division multiplexing, backbone with access networks of next-generation SDH. The voice-customer base will continue to grow to about 300 million users and will also expand in terms of richer 3G-enabled services. The residential broadband customer base, driven by the need for triple-play services (high-speed Internet, IPTV and VOIP), is expected to grow to 20-30 million within three years. With these requirements, operators are evaluating newer technologies that can optimally offer such services to build their metro networks. With the low penetration of copper in the last mile, access technologies such as PON and WiMAX are being evaluated to see if they can provide the desired capabilities at the required cost. Current metro networks are also being upgraded to STM-64 capacities and metro WDM, wave division multiplexing, is starting to be deployed in major cities. The enterprise data segment has also seen significant growth. This is being driven by IT and ITES, information technology enabled services, companies, that who demand highly reliable and scalable bandwidth for international connectivity with their global customers, and by large Indian corporate customers for connectivity within the country. They have been quick to embrace new data services such as Ethernet Leased lines (with speeds of 2 to 100 Mbps) in lieu of traditional TDM based services (e.g. E1, DS3 leased lines). This has paved the way for newer metro Ethernet services, for which operators are planning to upgrade their network infrastructure with Carrier Ethernet equipment. Indian telecom product companies The emergence of India as a large telecom market with significant growth potential has opened a new set of opportunities for local Indian telecom product companies. During the past 20 years, India has earned a reputation for building world-class IT services companies, but the coming years will see the emergence of global telecom product companies from India. The following factors are providing telecom product companies with sustainable competitive advantages. • Proximity to a vibrant local telecom market – Indian service providers expect the latest technology, with the highest quality at the lowest prices. Given the importance of price elasticity in stimulating demand, there is a unique opportunity for operators and product companies in India to work closely to innovate and build solutions that can address the local customers’ needs. Success in a competitive market, like India, will certainly lead to success internationally, especially in other emerging markets, the market dynamics of which are similar to those of India. • Talent pool – India has an abundant, highly talented, technical and managerial pool that has experience working in the telecom sector – as well as many highly skilled expatriate Indians who are returning to India – who are creating intellectual, property-driven product companies. • Innovation leverage – due to the cost structure in India, companies based in India can invest aggressively and get up to four times more technological innovation through R&D than companies in US/Europe for the same cost. • Availability of venture capital – all the major US Venture capital firms have been active in India – both for companies headquartered in India and those which have a US front-end, but do all their R&D in India. and, • Local manufacturing – in the past 18 months, all major global EMS, electronic manufacturing services, companies (such as Flextronics, Jabil, Celestica, etc.) have manufacturing operations in India both to service the strong local market demand and to serve as an alternative to China as a manufacturing hub. We are starting to see successful Indian product companies (such as Tejas Networks, Subex Technologies, OnMobile etc.), which have established a strong base in India, expand their reach globally. This trend is expected to gain momentum in the coming years. India is now one of the fastest-growing, most exciting, telecom markets in the world. Indian operators have shown that it is possible to build profitable business by offering affordable services. The emergence of strong India-based telecom product companies provides an opportunity for Indian companies to become a source for competitive products for the global telecom industry.