Indian telecom equipment industry registers a revenue dip

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By Richa Chakravarty

The Indian telecom equipment industry registered a 2.52 per cent dip in revenue in the year 2010-2011.

Recent reports depict that revenues of India’s fastest growing industry dwindled to Rs 117.039 billion (Rs 1,17,039 crore) in 2010-11 from Rs 120.069 billion (Rs 1,20,069 crore) in the previous fiscal year. Among the various telecom equipment sub-categories including the enterprise equipment segment, user device manufacturers and carrier equipment, all registered a dip of 12.12 per cent to touch Rs 58.294 billion (Rs 58,294 crore) during the year.

Why the decline?

One of the major reasons for this slowdown is the security policy formulated by the government. While the industry was gearing up for the rollout of 3G and BWA networks after the successful bidding for the spectrum, the government announced strict security norms for the operators to follow when procuring equipment. This prohibited many telecom operators from releasing network expansion orders. This not only impacted the service providers but severely hit the equipment manufacturers, resulting in revenue dip. Under the said security directive, all the operators are required to sign a stringent agreement with equipment suppliers, imposing a number of conditions, including making it mandatory for the vendors to submit source codes. This discouraged the telecom operators and delayed procurement of equipment.

“After a phase of robust growth, the revenue growth from the telecom sector has witnessed a decline. A drop in tariffs and MOUs have led to a slowdown in revenue growth. As a result there has been a slowdown in investments by the telecom service providers as they are left with inadequate funds to expand the service,” explains Rajan S Mathews, director general, Cellular Operators Association of India (COAI).

Another reason that cannot be ruled out is the reduction in product prices due to competition in the market.

What will be the repercussions?

Even after acquiring a significant number of 3G/BWA licences, the capital expenditure by leading operators has not increased significantly. Evidence indicates that mobile operators have begun to go slow over the past three years with regard to making fresh investments in the sector, as a result there has been a slowdown in the procurement of equipment. This could hit continuing investments in research and development (R&D). “Dip in revenue, will lead to a decline in expenditure on R&D, which may not be a healthy trend for the overall growth of the equipment manufacturing market. This will also have repercussions on domestic manufacturing. While we are encouraging Indian and foreign players to set up their manufacturing and R&D units in India, decreased demand, low investments, strict regulatory and security norms and falling equipment prices will surely dampen their plans,” opines Rajan Mathews . However, he feels that in order to cope with the situation, manufacturers will have to increase efficiency so as to reduce costs and introduce innovative products which will enhance revenue growth .

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