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Contents

I. Introduction..........................................................................................................3

1. Market Segments..............................................................................................4

2. Major Players in the Telecom Equipment Industry............................................5

II. Market Structure..................................................................................................6

1. Sellers...............................................................................................................6

a. Consumers:....................................................................................................7

b. Product Differentiation...................................................................................7

c. Entry / Exit Barriers........................................................................................8

III. Factors influencing Demand.............................................................................8

1. Increase in Mobile Subscriber Base..................................................................8

2. Foreign Direct Investment (FDI)......................................................................10

3. Replacement of Mobiles..................................................................................10

IV. Demand Forecasting.......................................................................................10

V. Nokia India.........................................................................................................13

1. Some firsts for Nokia in India..........................................................................13

2. Achievements for Nokia..................................................................................13

3. Market Position...............................................................................................13

4. Strategic Initiatives.........................................................................................15

5. Challenges......................................................................................................15

VI.
References………………………………………………………………………………………………
……………………………………..16

Challenges
I. Introduction
With an average annual growth rate of more than 8.5% in the last five years, the
Indian economy is among the fastest growing in the world. In 2007-08, the gross
domestic product (GDP) grew by 8.7%, backed by an 11% growth in the services
sector and 8.7% in the manufacturing sector. The information technology (IT) and
telecom sectors made substantial contributions to the growth of the economy.

The communication services sector is the fastest growing sector in India’s economy.
Since 2003, it has been growing at an average rate of 16.0% per annum (Source:
Annual Report 2008, RBI). It accounts for about 4% of GDP and the recent high rate
of growth has contributed to about 11% of the growth in overall GDP of the country.
Telecommunications is one of the sectors attracting a major chunk of the foreign
direct investment to India. This also highlights the importance of this sector in the
economy. The demand for telecom equipment in India and the portion of it met by
domestic production is very less which proves that India lags far behind in
equipment manufacturing.

As a result of Government policies, some progress has been achieved in the
manufacturing of telecom equipment in the country. There is a significant telecom
equipment-manufacturing base in the country and there has been steady growth of
the manufacturing sector during the past few years. The figures for production and
export of telecom equipment are shown in table given below:

Year Production* Export*
2002-03 14400 402
2003-04 14000 250
2004-05 16090 400
2005-06 17833 1500
2006-07 23656 1898
2007-08 41270 8131
*(Rs. in crore)
Table 1: Production and Export of Telecom Equipment

Rising demand for a wide range of telecom equipment, particularly in the area of
mobile telecommunication, has provided excellent opportunities to domestic and
foreign investors in the manufacturing sector. The last two years saw many
renowned telecom companies setting up their manufacturing base in India. Ericsson
set up GSM Radio Base Station Manufacturing facility in Jaipur. Elcoteq set up
handset manufacturing facilities in Bangalore. Nokia and Nokia Siemens Networks
have set up their manufacturing plant in Chennai. LG Electronics set up plant of
manufacturing GSM mobile phones near Pune. Ericsson launched their R&D Centre
in Chennai.

The Government has already set up Telecom Equipment and Services Export
Promotion Council and Telecom Testing and Security Certification Centre (TETC). A
large number of companies like Alcatel, Cisco have also shown interest in setting up
their R&D centers in India. With above initiatives India is expected to be a
manufacturing hub for the telecom equipment.

The Indian telecom equipment industry reported a 20 per cent growth in revenues
to Rs. 1, 14,527 crores during FY 2008-09 compared to a 24 per cent growth
recorded in the previous financial year (2007-08). India's telecom equipment sector
grew 43.5% in 2006-07 posting revenue of Rs. 77,170 crores.

1. Market Segments
The Telecommunications Equipment Industry can be categorized into three
segments:

1. Enterprise Equipment: This category consists of Voice Solutions, Routers,
Switches, Modem, Audio Video Conferencing, Network Storage, Structured
cabling etc.
2. Carrier Equipment: This category consists of Broadband infrastructure,
Wireless infrastructure, telecom software, transmission, cables, WiMAX and
others.
3. Phones: This category includes Mobile Handsets and Fixed Phones.
1. Major Players in the Telecom Equipment Industry
The major players in the telecom equipment industry are:

Manufacturer* Telecom Equipments Manufactured
Mobile handsets, wireless infrastructure, solution provider and
Nokia
others
Wireless infrastructure, solutions provider, Transmission,
Ericsson
Voice solutions and others
Nokia Siemens Wireless infrastructure, solutions provider, Transmission,
Networks Voice solutions and others
Wireless infrastructure, solutions provider, Transmission,
Alcatel-Lucent
Voice solutions and others
Wireless infrastructure, solutions provider, Transmission,
Huawei and ZTE
Voice solutions and others
*This report focuses on the handset manufacturing industry in India.

Table 2: Major Players in the Telecom Equipment Industry – India

I. Market Structure
India has become one of the fastest-growing mobile markets in the world. The
mobile services were commercially launched in August 1995 in India. In the initial 5–
6 years the average monthly subscribers additions were around 0.05 to 0.1 million
only and the total mobile subscribers base in December 2002 stood at 10.5 millions.
However, after the number of proactive initiatives taken by regulator and licensor,
the monthly mobile subscriber additions increased and now it stands at 441.66
million as of July 2009.

The handset manufacturing industry is characterized by many small handset
manufacturers like Maxx, Intex, Micromax etc. and huge corporates like Nokia,
Samsung, LG, Motorola, Sony Ericsson etc. Therefore the industry can be
categorized as a Monopolistic Competition, where the handsets being
manufactured are highly substitutable for each other but not perfect substitutes.

Parameter Telecom Equipment Industry
Sellers Several small and big corporate
Buyers Telecom service providers, corporate, urban and rural
population
Product Features, cost, user-friendliness
Differentiation
Entry / Exit No entry and exit barriers
Table 3: Market Structure of the Handset Manufacturing Industry – India

1. Sellers
Out of the more than 50 brands available in India, Nokia and Samsung are the
current leaders in the industry with an approximately three-quarters market share,
while Sony Ericsson has lost some ground.

Rank Manufacture FY 07- FY 08- Market
Growth (%)
* r 08 09 share
1 Nokia 15000 16567 10% 64
2 Samsung 1500 2590 73% 10
3 Sony Ericsson 3083 1555 -50% 6
4 ZTE 850 1440 69% 5.6
5 LG 1500 1165 -22% 4.5
6 Motorola 1200 906 -25% 3.5
7 Huawei 320 360 13% 1.3
8 Haier 300 388 29% 1.5
9 Others 250 939 275% 3.6
Total 24003 25909 8% 100
*As per market structure in India

Table 4: Current Leaders in Telecom Equipment (Handset) Industry – India

a. Consumers:
The entire urban and rural population of India covering all age groups. Huge
Corporates buy mobile handsets for their employees. Telecom service providers buy
mobile handset to bundle it with attractive tariffs to offer to the customer.
All Urban Rural
India* * *
Total Mobile Connections 343 235 108
Total Mobile Users 250 155 95
House Holds with Mobile
117 55 62
Users
Average User Per
2.1 2.8 1.5
Household
Average Connection Per
1.3 1.5 1.1
User
Mobile Penetration (%) 22 45 12
Tele-density (%) 30 69 13
*All figures in millions, for July end 2009

Table 5: Urban-Rural disparity – India

b. Product Differentiation
The handset manufacturers compete with each other on the basis of features, cost,
user friendliness (like QWERTY keypad, voice dial, Hindi language keypad etc.)

c. Entry / Exit Barriers
There are no barriers for entry and exit of the handset manufacturing industry.

I. Factors influencing Demand

1. Increase in the mobile subscriber base:
With more and more telecom service providers starting their operations, the
number of people using mobiles is increasing at a rapid pace. On an average 8
million users are added per month, making India the fastest growing wireless
market. The large potential in India’s rural markets revealed by 13% tele-density
compared to the national average of 30%.
Mobile Subs.Base (millions)

2008

2007

2006

2005

2004

0 50 100 150 200 250 300 350 400

Mobile Subs.Base (millions)

Figure 1: Mobile Subscriber Base in India

Figure 2: Teledensity in India
Figure 3: Urban Rural Disparity in India

2. Foreign Direct Investment (FDI)
India is undoubtedly one of the most preferred destinations for FDI. India has always
held promise for global investors, but its rigid FDI policies were a significant
hindrance in this regard. However, as a result of a series of ambitious and positive
economic reforms aimed at deregulating the economy and stimulating foreign
investment, India has positioned itself as one of the front-runners of the rapidly
growing Asia Pacific Region. India’s liberalized FDI policy allows up to a 74% FDI in
Telecom Industry with up to 100% FDI in the manufacturing of telecom equipments.
Because of the money flowing in Indian Economy, capacity of handset
manufacturers for taking risks will increase significantly. But due to lack of
availability of data of FDI in handset manufacturing industry, this factor has been
excluded from demand forecasting.

3. Replacement of Mobiles
In India, handset usage is primarily a voice-centric affair. Therefore, the
replacement cycle is longer. However, as handset features gain prominence, the
replacement rate is expected to grow further. The sales of middle and high-end
phones have increased significantly. A few years ago, it was merely 8-10% of the
total sales of mobile handsets and the industry experts estimated that at present
the figure has risen to approximately 20-25%. The share of replacement market is
set to grow in the coming years, giving rise to more innovations and better models.
With the impending launch of 3G in India, the replacement mobile market is
expected to grow at a faster rate. Due to lack of availability of data, this factor has
been excluded from demand forecasting.

I. Demand Forecasting
Demand Forecasting has been done for the number of Mobile handsets
manufactured and the number of Mobile subscribers in India. For demand
forecasting these, trend-analysis of the time-series data has been used.

Inputs for the Trend Analysis:

Total handsets
Ye manufactured Mobile Subscriber
ar (millions) Base (millions)

200
4 15.40 48.01
200
5 44.00 75.92
200
6 72.30 149.50
200
7 95.60 233.63
200
8 101.00 346.89
800.00
y =75.547x - 151376
700.00 2
R =0.9594
600.00
500.00
400.00
300.00
y =22.28x - 44628
200.00 2
R =0.9574
100.00
0.00
2002 2004 2006 2008 2010 2012 2014

Total handsets manufactured (millions)
Mobile Subs.Base (millions)
Linear (Mobile Subs.Base (millions))
Linear (Total handsets manufactured (millions))
Equation for the Mobile Handset Manufactured=[22.28*year]-44628

Equation for the Mobile Subscriber Base=[75.547*year]-151376

Forecasted values based on the above equations for the next 5 years is as follows:

Total handsets
Ye manufactured Mobile Subscriber Base
ar (millions) (millions)
200
9 132.52 397.92
201
0 154.8 473.47
201
1 177.08 549.02
201
2 199.36 624.56
201
3 221.64 700.11

Based on the above forecasted values, it can be concluded that the number of
handsets manufactured will grow at a CAGR of 11% and the growth of mobile
subscriber base in India will be at 12%.

II.Nokia India
Nokia has played a pioneering role in the growth of cellular technology in India,
starting with the first-ever cellular call a decade ago, made on a Nokia mobile phone
over a Nokia-deployed network.

Nokia started its India operations in 1995, and presently operates out of offices in
New Delhi, Mumbai, Kolkata, Jaipur, Lucknow, Chennai, Bangalore, Hyderabad, Pune
and Ahmedabad. The Indian operations comprise of the handsets business; R&D
facilities in Bangalore, Hyderabad and Mumbai; a manufacturing plant in Chennai
and a Design Studio in Bangalore.

Over the years, the company has grown manifold with its manpower strength
increasing from 450 people in the year 2004 to over 15000 employees in March
2008

1. Some firsts for Nokia in India
 1995 – First mobile phone call made in India on a Nokia phone on a Nokia
network
 1998 - Saare Jahaan Se Acchha, first Indian ringtone in a Nokia 5110
 2000 - First phone with Hindi menu (Nokia 3210)
 2002 - First Camera phone (Nokia 7650)
 2004 - Saral Mobile Sandesh, Hindi SMS on a wide range of Nokia phones

1. Achievements for Nokia
Ranked as the No. 1 telecommunications equipment vendor in the country by Voice
& Data for five consecutive years –2008, 2007, 2006, 2005 and 2004.
2. Market Position
Nokia India shared the findings of a study that highlights the increasingly significant
role of the Communication* sector in driving growth across rural and urban India.
The study - "Economic Impact of the Communication Sector in India" - has been
carried out by Dr Rajesh Shukla (Senior Fellow) and Mr K.A. Siddiqui (Associate
Fellow) of the National Council of Applied Economic Research (NCAER).

Communication sector 15.4% share (equivalent to Rs.865,031 crore) of GDP by
2014-15 the fastest growing sector, growing by 25.7% during 2001-08.

Average
Average Share in
Sector Contribution to
GDP (2001-08)
Growth (2001-08)

Communication 12.24 3.6

Banking & Insurance 8.11 6.12

Table 6: Contribution of Communication Sector to India’s GDP.

Of the estimated 79,000 retail outlets in India selling mobile phones, Nokia had a
presence in 72,000 of them. At the same time, Nokia’s market share has gone down
in the past few months, as the other handset vendors (Sony and Samsung) are
building up a strong retail presence across the country.
Nokia Global Revenue by Major Markets

Growth 2007
Country 2008 2007 2006
- 08

China 5916 5898 4913 0.31%

India 3719 3684 2713 0.95%

Great Britain 2382 2574 2425 -7.46%

Russia 2083 2012 1518 3.53%

Indonesia 2046 1754 1069 16.65%

USA 1907 2124 2815 -10.22%

Others 30363 51058 41121 -0.03%

Total 50710 51058 41121 -0.68%

Source:
Nokia

Table 7: Nokia Global Revenue by Major Markets

Nokia's India revenue grew by less than 1% in 2008 even as the country remained
the cell phone vendor's second biggest market after China.

3. Strategic Initiatives
Nokia’s ‘Take-Back’ Initiative Launched:

The program is aimed at creating consumer awareness on the benefits of recycling
old phones, chargers and accessories. As India has the world’s fastest growing
mobile subscriber base, this initiative aims at inducing behavioral change amongst
Indian mobile users to recycle their used handsets.

Nokia's Indian unit started selling handsets in two rural states under a micro
financing plan that allowed buyers to pay weekly installments -- 100 rupees ($2)
over 25 weeks.

Affordable Handsets-Consistently provided feature rich handsets at affordable price
points to various consumer segments
4. Challenges
New Technology emergence: India is gearing up for 3G services and market
leader Nokia has put some innovative strategies in place to cope with the upcoming
challenges.

Reduced Margins: Indian Telecom Market is characterized by huge volume and
low margins.

Competition from Chinese players: There is a serious threat from rising Chinese
companies like Huawei and ZTE. These companies are not just competing on cost
but are also innovating technologies.

I. References:
TEMA (Telecom Equipment Manufacturer Association) www.tematelecom.net

CIOL www.ciol.com

IBEF www.ibef.in

www.nkgoyals.com

www.idate.org

www.voicendata.ciol.com
www.trai.gov.in

www.nokia.co.in