India's quest to become self-reliant in telecom equipment began as early as 2012 when the Department of Telecommunications (DoT) came out with a notification to promote domestically manufactured telecom products due to security issues with foreign equipment.
Over the years, successive notifications were issued by DoT, Ministry of Electronics and IT and Department for Promotion of Industry and Internal Trade but government enterprises - on which these rules applied - found a way out to avoid giving contracts to domestic vendors in favour of foreign players such as Huawei, ZTE, Ericsson and Nokia.
But things have changed now. The cross-border tension with China has led to a series of important developments over the past few months. To begin with, the government's policy think-tank, NITI Aayog, conducted a meeting in early June with nearly three dozen domestic original equipment makers (OEMs), BSNL and DoT to discuss the possibility of rolling out a 4G network with indigenous capabilities. Then, in July, BSNL scrapped its 4G upgrade tender to support the consortium-based model discussed in the NITI Aayog meeting. This was followed by an order from the finance ministry on July 23 under which bidders from neighbouring countries must register with Department for Promotion of Industry and Internal Trade which, in turn, will have to take security clearances from home ministry and external affairs ministry.
So, while the conditions don't name any country or company, industry watchers say this will effectively ban Chinese vendors Huawei, ZTE and Fiberhome from government tenders in future. It also sends a clear signal to private operators to stay away from Chinese OEMs.
But banning Chinese OEMs is the easy part. The bigger challenge is to find their replacements, which are few and far between at the moment. Nevertheless, the domestic industry is making an effort to collaborate with the government, and it's still as unclear as it has always been to tell that if the two can pull it off.
Us Vs Them
Indian vendors think unless the government creates a vacuum by showing the door to Chinese companies, they will not be able to prove their mettle. Chinese companies, on the other hand, think that finding their replacement won't be easy. For instance, Huawei has been investing about $20 billion annually in 5G; it had started working on 5G way back in 2009. Indian vendors have been complaining for long that despite having capabilities (hardware and software) to develop 3G/4G products, they are facing huge challenges from their foreign counterparts in largely five areas: pricing, perception, experience, scale and support. Let's look at pricing. Though it's not proven, some experts suggest that Chinese government is backing Huawei to ensure its global lead in 5G. "Chinese banks give Huawei low-cost funds so that it can provide attractive and long-term financing to operators," says an industry consultant.
Also, the telecom equipment market is a game of scale. Early large investment in a technology gets spread out if the vendor is able to sell solutions in different geographies. Indian players are at a disadvantage here. Look at Reliance Jio. The Mukesh Ambani-led telco recently announced that it has developed complete 5G solutions in-house that it will not only use for its own network but also sell to telecom operators globally. At the announcement of its "complete 5G solution from scratch" in the July annual general meeting of Reliance Industries, Ambani said that once Jio's 5G solutions are proven in India, Jio Platforms will be well-positioned to be an exporter of 5G solutions to other telecom operators globally as a complete managed service. "We are ready for field deployment next year," Ambani said. While Jio didn't participate in the story, a company source said that the telco alone cannot do everything. Even if Jio launches 5G systems next year, it will not be able to commercially deploy them on its network until 5G networks are running in the country. That might take one-two years depending on 5G spectrum auction (when it happens and the response). Unless Jio deploys its own systems and shows promising results, it will not be able to sell them to operators globally. Also, the fact that Jio's 5G system will make the telco stronger means there's a strong likelihood that rivals Airtel and Vodafone Idea will ignore it. Besides, using untested 5G systems from Jio will not make sense for rivals who already have long-term contracts with existing global vendors. So, for Jio, it's going to be a long road before it can prove its might in the 5G network space.
Jio is following the Open RAN (radio access network) model, pioneered by Japanese telco Rakuten Mobile. To put it simply, O-RAN model is a consortium-led approach where software comes from one vendor, hardware from another, and systems integrator puts everything together to build the network.
The initiative is led by a global alliance (O-RAN Alliance), which is defining specifications for building open networks and encouraging innovation. Jio is part of this alliance. Its prowess in 5G tech comes primarily from acquisition of US-based Radisys, which is focussed on system integration and software development under open telecom solutions. The O-RAN style is exactly opposite to the model followed by Huawei and Ericsson where everything is done by one vendor using its proprietary technology and single-sourced components.
"O-RAN has advantages and disadvantages. One of the biggest downsides is security threat to the network because of many interfaces. It's like having one entrance to a house as against three-four entrances. A consortium approach will lead to more work, lower efficiencies. O-RAN is not fully matured yet," says a senior executive with a large OEM.
The executive explains the flaws by drawing an analogy with a water RO system in households. "Assume that this RO system has been bought from a consortium. If it conks off, what will a consumer do? He will identify the problem (whether it's electrical or filter-related). If he cannot do that, he will randomly call one of the vendors. They will pass on the problem to another vendor. I have intelligent systems that constantly monitor the network, find the precise problem and get it sorted within four hours - which is the standard SLA (service-level agreement) right now. In O-RAN network, there are chances that vendors will drift away from this SLA," he says. An SLA is an agreement between a service provider (OEM) and a customer (telcos).
"Technology is one part of the product lifecycle. Who will take care of after-sales support and marketing?," asks a telecom executive. That is why a large chunk of the global telecom equipment market is divided among three OEMs. Past attempts by giants like Samsung to capture this market, especially in 4G, have not gone anywhere. Others like Japan's NEC, which has been aggressively pushing its 5G radios, seem to be falling short in areas like marketing and sales support. "The lifecycle of these equipment is long. The vendors have to make telcos believe that they are in for a long haul," says a telco executive.
The biggest pull for O-RAN networks is that they cost 15-20 per cent less than the proprietary ones. Plus, the telcos can have the best of all worlds. How? "Open RAN is a combination of core, RAN, billing and support system. While Huawei, Ericsson, Samsung and other have patents in 5G, none of them have all the patents. So, when standalone 5G standards will be defined in December 2022, all their patents are likely to be pooled and made available to all vendors across the globe," says N.K. Goyal, Chairman of Telecom Equipment Manufacturers Association of India (TEMA).
Not just Jio, companies like Tech Mahindra and STL have also taken the 'open architecture' route. For instance, Tech Mahindra has tied up with state-run ITI to participate in BSNL's 4G tender and collaborate on 5G. Manish Vyas, President (Communications, Media & Entertainment Business) and CEO (Network Services) at Tech Mahindra, says his company is leveraging new-age technologies to power Make in India initiative. "We are designing network assets keeping the massive demand for 4G expansion and 5G roll-outs in mind and have collaborated with ITI to enable manufacturing of 4G equipment and work on building capabilities for 5G equipment for India," he says.
In January, STL invested in ASOCS, a developer of open and virtualised RAN solutions, delivering 4G and 5G technologies. The deal will enable STL to create solutions for 5G network rollouts. STL, which collaborated with O-RAN Alliance last year, is investing heavily in building end-to-end digital network ecosystem, including optical and wireless (5G) portfolio for all markets.
Parag Naik, CEO at homegrown Saankhya Labs, says the industry is heading towards a phase where vertical integration is over. "Operators don't want a single vendor. Can it be deployed tomorrow? The answer is no. It has to be a two-year plan, and that's where the government has to step in and promote more indigenous companies," he says.
Exuberance Vs Reality
One problem with the local equipment industry is that its plans are based on the government's will. They will flourish, and local ecosystem developed, when the big players are either banned or have their wings clipped. The recent withdrawal of the BSNL tender and the finance ministry order are steps in that direction. But most vendors that Business Today spoke with are reading too much into these developments. For instance, one vendor says it's immaterial whether Jio has capability or not; what matters is their presence. "If anybody can do Make in India, it's them. They have the financial power," says a domestic vendor.
"This is the beginning of the end of Chinese dominance in the telecom space. When the 4G tender of BSNL was floated, there was no Indian player in the race. Now that the government has modified the rules, at least six companies have surfaced. Indian companies can do a better job than the foreign giants," says promoter of another equipment vendor.
"Private investors, particularly international ones, believe building a telecom play (hardware) in India is next to impossible. The government has to make them understand, and walk the talk," says Naik of Saankhya Labs, adding that his semiconductor solutions company is tapping the anti-China sentiment in Europe and the US where firms are looking for non-Chinese vendors.
But there's a catch! The government is reportedly asking local vendors to build the system and show its efficacy in short-distance area before expanding at the state level. This will delay 4G plans of BSNL, which is already a late entrant in the space. Telecom body TEMA has suggested that the government allow purchase of 70-80 per cent systems from established players like Nokia, Ericsson and others through open tender while the balance 20-30 per cent can be for local vendors.
Some suggest that no matter how hard India tries, it cannot contribute more than 10-15 per cent to the global supply chain in the next five years. Even in the domestic market, the dependence on foreign vendors is not going to go away immediately. Even if Chinese companies are excluded, the telcos will need Ericsson, Nokia and others. Also, India has already lost the 5G game. That's because the global 5G ecosystem is two-three years ahead of us. This is even more true vis a vis China, which has nearly 70 per cent of global 5G subscriptions. "If India wants to be a force to reckon with, it should have already started investing billions of dollars in 6G. In 5G, we can surely become an equipment vendor, but will get low-margin business. If we want to play in the top league, investment in 6G is crucial," says a telecom analyst.
Despite getting an unusual advantage, it's not going to be easy for domestic operators to build networks. Building a nationwide 4G network (in case of BSNL) from scratch can be challenging. Take a look at the US, which has put all its might behind 5G but has not been able to create a single home champion.
In fact, technology trends are beyond government control. That's why the recent localisation push from the government seems shaky. How? Localisation has two parts: foreign companies making products in India and Indian companies making products (for Indian and global telcos). The first is already happening since Huawei has a manufacturing plant in Chennai while Ericsson has a plant in Pune.
In an email response, Ericsson India MD Nitin Bansal said the Pune facility not only delivers more than 90 per cent of radios that Ericsson supplies to Indian service providers but also exports 5G radios to other markets.
The capabilities of domestic players look good on paper but they haven't worked on a large scale to prove their point. A recent example is the June meeting at NITI Aayog where loopholes in claims of local players emerged. At one point during the meeting, P.K. Purwar, the CMD of BSNL, told the members that their products need further development. "BSNL does not have money for experimentation. In view of this, before finalising tenders, capabilities have to be demonstrated and the product should be ready," he said.
Of late, the global telecom equipment market has become a battleground with Chinese versus everyone else. This was started by the US early last year. Others such as Japan, Australia, New Zealand and Taiwan joined the bandwagon. The UK also recently decided to gradually phase out Huawei's equipment from its 5G network.
In India, even as the anti-China sentiment continues to gather steam due to the border dispute, the Chinese OEMs are bearing the brunt. Their attempts over the past two years to allay fears of government agencies have failed. Though Indian telcos have not openly spoken against or in favour of Huawei or ZTE in recent months, their actions speak volumes. In April, for instance, Airtel gave a $1-billion contract to enhance its 4G network and prepare a base for 5G to Nokia. Then, Airtel reportedly replaced Huawei with Erisccon in its 4G network in Rajasthan last year. There are reports that telcos might avoid Huawei and ZTE in 5G trials.
This is contrary to the statement made by Airtel's Chairman Sunil Mittal last October for Huawei by saying that their products are superior to European OEMs Ericsson and Nokia. "Huawei should be in play. They, for the last 10-12 years, have been extremely good with their products to a point where I can safely today say their products, at least in 3G, 4G that we have experienced, are significantly superior to Ericsson and Nokia without a doubt," Mittal had reportedly said.
"Huawei remains compliant with all local laws and regulations in every market it operates to bring secured world-class tech for all. We are the most scrutinised company in the world and we have proven (ourselves) with a solid 30-year track record. In India, too, we ensure necessary compliance based on audits by external agencies which we have been conducting proactively for three years now, the results of which are shared with key officials and stakeholders," Huawei spokesperson said in a response to BT queries.
An industry insider says Huawei is now planning to tap the enterprise segment. But then, if its future in India hangs in balance, it's unclear if the strategy will work.
As per Research and Markets report, the global telecom infrastructure equipment market stood at $383.86 billion last year. It is expected to grow at over 7 per cent a year to touch $504.56 billion in 2023. For India, there's nothing to lose, and a lot to gain if the current momentum can help it capture such a large opportunity in the years to come.