India's changing market dynamics have forced equipment vendors Huawei and ZTE to cut jobs at their Indian offices, Light Reading can reveal.

Chinese bellwether Huawei, which is fighting to be included in India's 5G market, is known to have laid off between 500 and 700 of its employees over the last six to seven months. "These layoffs are in the network management and business development segment. However, this is not unusual, and the company has the policy to ask employees to leave once the project comes to an end," said a mid-level management employee who did not wish to be named.

ZTE has also taken steps to reduce staff numbers. "Nearly 150 to 200 field staff across the country have been let go in the January to March 2020 time frame. It is mainly because the business has come down," said a well-placed employee at ZTE.

Huawei and ZTE declined to provide a comment, but the news of layoffs is unsurprising given the situation in the Indian telecom market, with service providers under serious financial pressure that is bound to affect their suppliers.

With the number of operators falling from an average of 12 to just three in every service area, vendors have been left in a difficult position. Vodafone India and Idea Cellular have merged their network infrastructure, while Bharti Airtel has acquired Videocon and Tata Teleservices, resulting in less work for suppliers. Job losses in the service provider segment have run into the tens of thousands. A recent court judgement about fees owed to the government – the so-called adjusted gross revenue (AGR) judgment – has piled on the pressure.

Capital expenditure now looks set to fall. According to ratings agency ICRA, spending will drop by 30% to 35%, to about 650 billion Indian rupees ($8.5 billion), this fiscal year. That is largely because most operators now have extensive 4G coverage. ICRA also says the capex-to-sales ratio of the Indian telcos, at more than 50%, has been much higher than that of international telcos – which typically have capital intensity of just 17% to 18% – and is unsustainable in the long run.

From the vendors' perspective, the future does not look bright. The market will shrink even more if Vodafone Idea is forced to quit by adverse regulation. Managers have said they will have no option but to close down the business unless the government provides some relief.

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In the meantime, India's 5G auctions, initially due to take place last year, are now likely to be held in August or September this year. But the outbreak of COVID-19 has completely changed the picture and could result in further delays. The service providers have been complaining about high reserve prices. It does not bode well for the vendors.

"The sector was already under stress, and COVID-19 has further worsened the situation," says Deepak Kumar, the founder analyst at B&M Nxt. "The market may turn into a duopoly in an even more accelerated manner. As a result, there is no denying the fact that India's telecom sector will see further workforce reduction."

"However, COVID-19 also presents a silver lining for players like Reliance Jio and Airtel, who have the staying power to reap benefits emanating in the post-pandemic scenario," he adds. "Further, there has been a significant surge in the provisioning of services like e-education and e-healthcare. An accelerated maturing and mainstreaming of these services are likely to add to the top as well as bottom lines of telecom players."

Indeed, there may be some opportunity for both operators and suppliers in the coronavirus pandemic. Bharti Airtel CEO Gopal Vittal said in a recent note to customers that his company would add capacity to meet a surge in data demand. Any new investment will benefit the vendors. And 5G, whenever it happens, offers a ray of hope to the suppliers.

— Gagandeep Kaur, contributing editor, special to Light Reading