Over the years, India has proved to be a very lucrative market for telecom equipment manufacturers globally. While initially the growing subscriber base was a key factor driving international vendor interest in the market, more recently, the focus has shifted towards 3G/4G deployments as well as information and communications technology (ICT) solutions, beyond the conventional telecom channels.

Finnish telecom equipment giant Nokia Networks is one such vendor that is betting big on its Indian business, foreseeing significant activity in the 4G space. The company recorded a strong performance in the Indian market during 2014, ending the year with 35 deals for services such as modernisation of 2G and 3G networks, 4G deployment, Wi-Fi solutions, security solutions and device management. Moreover, it was able to sustain the momentum during the first half of 2015, signing around 30 deals, and expects to deliver a strong performance in the second half as well.

The company’s latest deals include a $200 million 4G deal and a four-year 3G contract from Bharti Airtel, a five-year radio access network equipment modernisation deal with Vodafone India, and a three-year network upgradation contract from Idea Cellular. At present, Nokia is working with Vodafone in 19 of the 22 telecom circles, and has also become the biggest equipment provider to Idea Cellular in the country. In addition, it has recently signed a $100 million IP multimedia system deployment deal with Reliance Jio Infocomm Limited (RJIL).

Several factors such as a surge in data demand, increase in data monetisation by operators and increased availability of liberalised spectrum with operators have worked in favour of Nokia Networks. With the clearing up of the regulatory and policy overhang in the sector, operator confidence is returning. As a result, they are willing to invest substantial funds in future projects.

The capex guidance of operators has shown a significant upward movement in recent quarters. For instance, Idea Cellular had earmarked a capex (excluding spectrum-related payments) of Rs 35 billion during 2014-15. However, in the wake of improved market dynamics as well as the operator’s long term evolution (LTE) aspirations, its capex guidance for 2016 stands at Rs 60 billion-Rs 65 billion. Similarly, Bharti Airtel has earmarked a substantial $2.2 billion capex for Asian markets (the majority of which will be dedicated to India) for 2015-16.

A large portion of the operators’ capital expenditure is expected to go towards 4G deployments as well as the upgradation and modernisation of existing 2G/3G networks, for which turning to international vendors such as Nokia Networks will be inevitable.

Betting big on 4G

The auction of liberalised spectrum in various bands during February 2014 and March 2015 has paved the way for investments in the mobile broadband space. Operators have revised their capex estimates as they gear up to play bigger roles in the 3G/4G space. The market opportunity for telecom equipment companies is estimated at over $1 billion (hardware and software) in the near term, and is expected to go up as 4G deployments across the country accelerate.

According to analysts, around 73 new 4G networks are likely to be launched in India during the next year. Bharti Airtel, the first company to enter the 4G domain, has been on a service roll-out drive of late and has made 4G available in over 296 cities and towns. In addition, RJIL’s LTE services are likely to go live in December 2015. Meanwhile, other operators such as Vodafone India, Idea Cellular and Reliance Communications have announced their plans to enter the market by offering services based on frequency division duplexing technology. This bodes well for Nokia, which has expertise in assisting operators in the smooth transitioning of their networks to make them future-ready.

Manufacturing and localisation

Nokia’s manufacturing facility in Chennai recently marked a major milestone by reaching 2 billion production units. About a quarter of the products manufactured in the factory were meant for 4G deployments, while other equipment included Flexi Multiradio 10 Base Stations, system modules and filters, as well as core and transport network elements.

Over the years, the Chennai factory has become a strategic hub for Nokia’s global operations as well. About one-third of the total production caters to the export market and is used by operators around the world, including in the US and Europe. The company has invested around Rs 5 billion in the factory since it was set up in 2008.

The Chennai factory is set to play a big role going forward as Nokia is keen on leveraging the opportunities created by the government’s Make in India programme. The company plans to bring its global vendors to India and set up manufacturing bases locally. The company is looking to double its product localisation in India from the existing 20 per cent to 40-45 per cent over the next three years. It is also considering adding India to the list of destinations for manufacturing its 5G systems and solutions starting 2018.

New focus areas

Recently, the Indian subscriber base hit the 1 billion mark, indicating that the market is nearing saturation, particularly in urban areas, where mobile penetration is well above 100 per cent in various circles, thereby limiting the prospects of future growth in these areas. On the other hand, network roll-out in rural areas, which promise significant growth activity going forward, has been extremely sluggish due to a host of operational challenges.

In such a scenario, it becomes imperative for vendors to diversify from their core equipment supply business. In fact, in recent years, they have started exploring business potential across other sectors. For instance, they are focusing on industry verticals that are likely to adopt ICT solutions in a big way in the future. The government has announced a slew of projects that will have digital connectivity at their core. Under initiatives such as Digital India and Smart Cities, vendors like Nokia Networks can play a crucial role in helping the government empower citizens through the provision of digital services in areas such as health care, banking and transportation.

Nokia Networks is also looking to leverage opportunities created by software- and automation-driven connected services. It is also focusing on the internet of things (IoT). To this end, the company has introduced predictive solutions that could help it connect people and things together for a bigger play in the fast-growing connected services segment. Sandeep Girotra, vice-president and head of market, India, Nokia Networks, in a recent interview with tele.net, stated: “Nokia is currently focusing on the opportunities of the programmable world – a world in which nearly all people and billions of devices are connected; where software holds all those connections together; and where analytics and automation bring simplicity and efficiency. By 2025, we would have 50 billion connected things in the form of devices, modules and sensors.”

The recent conclusion of Nokia Networks’ definitive agreement to acquire Alcatel-Lucent will further help the merged entity in effectively capitalising on the opportunities created through its IoT platform as well as in enhancing its triple-play voice, video and data solution offerings.

Going forward

The first half of 2015 has been exceptionally good for Nokia Networks. According to the company, its revenue growth during the first half of 2015 has been the highest since 2008. It expects revenues to continue on an upward trajectory in the second half of the year as well, on the back of several more deals that it plans to close over the next few months. The momentum will build up following increased activity by operators in the 4G space. However, it would be crucial for Nokia to stay ahead of its competitors such as Ericsson, and Chinese vendors ZTE and Huawei, who are also vying for a major share in the growing 4G equipment market in India.

A sustained focus on 3G/4G, exploring new avenues such as IoT and a strong commitment to the government’s digital programmes will drive growth for Nokia Networks going forward while tackling competition from other major telecom equipment vendors.