India's 3G Equipment Market a 'Bloodbath'
Brutal market conditions, coupled with the cautious approach of the mobile operators, are forcing the network equipment vendors in India to slash their prices, and even offer systems for free, in order to retain their customers, according to industry sources.
The Indian government finally auctioned 3G spectrum to India's privately held carriers earlier this year, a move that was expected to generate network upgrade and rollout deals worth billions of dollars. (See India's 3G Auction Ends, Raises $14.6B.)
Some early deals have indeed been awarded, as several 3G license holders have moved quickly to get their services into the market. (See Huawei Bags India 3G Deal and Tata Goes 3G With NSN.)
But the market isn't shaping up to be as lucrative as the vendors had hoped, as an already highly competitive landscape with razor-thin margins appears to have become even tougher for the technology suppliers.
"There is a bloodbath in the industry. The market was always competitive, but now even the premium vendors like Nokia Solutions and Networks and Ericsson AB (Nasdaq: ERIC) are undercutting and offering freebies to retain the operators as customers," an industry source, who requested anonymity, tells Light Reading Asia.
In addition, the operators have adopted a cautious approach to capex after spending billions on securing their 3G spectra. As a result, they are adopting phased 3G network rollout strategies, a move that is spreading their planned 3G capital expenditure over a longer period.
"We feel that the Indian market size for 3G equipment is not more than $2 billion for this [financial] year," says Neeraj Jain, a director at KPMG International. "The operators are going for a restricted rollout of their 3G networks. Secondly, they have spent so much on the spectrum that they are looking for deals that help them to bring down the rollout cost. For this reason, the capex is going to be much lower than anticipated."
India's 3G infrastructure market in the current financial year, ending March 31, 2011, had previously been valued at about $3 billion: Now, almost overnight, it looks to have shrunk by about a third.
Europeans behind the pricing pressures
In the past, pricing pressure has often been caused by the marketing tactics of the Chinese equipment vendors such as Huawei Technologies Co. Ltd. But -- in India, at least -- the dynamics appear to have changed. In the 3G market, it seems the cut-throat infrastructure offers are being made by the European vendors, while the Chinese vendors highlight their professional services offerings in order to retain and attract carrier business.
"The Chinese players are no longer competing on price. They have realized that a price strategy is not sustainable in the long run, and they are pitching on services," states Nokia Siemens Networks spokeswoman Kanika Atri.
Ericsson declined to comment on the matter.
The suggestion that it's now the European vendors that are squeezing the network deal margins is corroborated by another industry source, who also wished to remain anonymous because of the sensitive nature of the subject: "In the last two deals, Nokia Siemens has actually beaten Huawei in price, so there is a new-found aggression in them -- they are going all out to get the maximum share of this market."
Nokia Siemens Networks recently announced a 3G contract with Tata Teleservices Ltd. that covers rollout in four circles (service areas), a deal that is believed to be worth between $200 million and $250 million, says the source. Tata Teleservices, which won 3G spectrum in nine circles, awarded Huawei the deal for the remaining five circles. (See Huawei Bags India 3G Deal.)
NSN, it should be noted, stated late last year that it intended to become more aggressive in the global market in order to win back lost market share. (See NSN Targets Greater Market Share and NSN CEO: Don't Write Our Obituary.)
Adding to the pressure on the vendors is the shortfall in business that most of them suffered during the first half of the year, when most telecom infrastructure orders were delayed while the Indian government dealt with various security concerns. (See India Clears Way for Chinese Imports, Ericsson CFO: India Bottleneck Easing, and India Holdups Smack NSN's Q2.)
"There is a climate of uncertainty in the market. There have been security concerns, and everybody [is] under pressure to meet their targets. [The vendors will] be offering a lot of freebies or bringing down the prices to capture the maximum share of the market," says Shiv Putcha, a principal analyst at Ovum Ltd.
With the 3G spectrum having been allocated earlier this month, and the purchase order bottleneck cleared, the market is expecting many initial 3G network deals to be announced in the coming few weeks, as most of the operators are looking to launch their initial 3G services by the end of this year or early next year, even if those launches are limited to just a few circles. (See India Gets Its 3G On and India's 3G Players Ready for Swift Launch.)
Market reports suggest that Vodafone India , Bharti Airtel Ltd. (Mumbai: BHARTIARTL), Reliance Communications Ltd. , Idea Cellular Ltd. , and Aircel Ltd. are set to announce 3G equipment contracts by the end of September. (See Reliance Sets Out Its 3G Stall.)
— Gagandeep Kaur, India Editor, Light Reading