Abstract

Outlook forf the Indian Mobile Communications Market

Following the series of new national telecom policies introduced by the Indian government in 1994, 1999, and 2004, a large number of private-sector Indian companies and overseas communications companies have moved into the Indian telecom market. The opening up of the Indian telecom market and the introduction of new regulations governing charge rate tariffs have pushed telecom charge rates down. In addition, WTO (World Trade Organization) requirements have led to a gradual reduction in import duty on communications equipment beginning in 2004. By 2006, the total number of mobile phone subscribers in India had broken through the 100 million mark, compared to just 50 million fixed line telephony subscribers. By way of comparison, India has only around seven million Internet subscribers, of which only 1.34 million are using broadband access. The growth of the Indian mobile communications market has thus been truly dramatic.

The leading players in the Indian mobile communications market are private-sector operators Bharti Airtel, Reliance, and Hutchison Essar, and state-owned BSNL. Since 2004, when the government lifted the restrictions that had previously prevented CDMA operators from providing a full range of mobile communications services, Reliance and Tata Teleservices have experienced rapid subscriber growth. Bharti and BSNL have responded by taking over smaller operators and by expanding their networks into rural areas.

India has a huge land area, with 25 states and 15 official languages. The language problem is the major issue facing any company that moves into the Indian telecommunications market. The need to support multiple different languages makes the development of user interfaces and user manuals a very expensive business. Specialist mobile phone distribution networks have not really developed in India; the distribution of mobile phones, home appliances, consumer electronics. and PCs is handled by the same retail stores. Foreign companies moving into the Indian market for the first time have to rely on national or regional distributors to implement logistics management and retailer management on their behalf. Recently, several of India's larger business groups have started to develop their own specialist IT and communications product distribution networks.

For most Indian consumers, brand recognition and price are the most important considerations when purchasing a mobile phone. Nokia, LG, and Intel have been in India for many years, and hold significant "mind share" among Indian consumers. Indians tend to be very status-conscious, giving these foreign brands high "snob appeal". Vendors seeking to develop the Indian market need to develop innovative business models to target those consumers who cannot afford to purchase ICT products on their own. The Community PC concept that Intel has been promoting and VIA's similar Rural PC concept aim to give ordinary citizens more opportunity to make use of ICT, while Microsoft's Flex Go pay-as-you-go scheme makes it easier for ordinary consumers to pay for ICT products. Initiatives like these constitute an important trend that companies moving into the Indian market cannot afford to ignore.

Outlook forf the Indian Mobile Communications Industry

The general trend in the Indian telecom equipment manufacturing industry is an expansion from software into hardware, and a shift from BPO (Business Process Outsourcing) towards R&D and design services. The Indian government is making a serious effort to promote hardware manufacturing in India, including the SemIndia program, which aims to make Hyderabad a major center of semiconductor production. The government's efforts have attracted leading international vendors such as Nokia, Motorola, Samsung, and LG, along with EMS providers such as Elcoteq, Jabil, Foxconn, Flextronics, Samina SCI and Solectron, to develop the Indian communications equipment and consumer electronics market. The development of the off-shore design services model has led to companies such as Nokia, TI, STMicro, Cisco, and Intel setting up R&D centers in India. Overall, the government is hoping that the development of the software industry will help to drive the growth of hardware manufacturing too. India has been very successful in leveraging its huge market and abundant R&D talent to encourage foreign companies to establish R&D centers and production facilities in India. However, Indian still lacks hardware manufacturing clusters and support from the semiconductor industry. it remains to be seen how the Indian mobile communications market will develop in the future. It is anticipated that the development path India follows will be significantly different from that seen in China, where the emphasis has been very much on hardware manufacturing.

Indian software firms have already upgraded their capabilities from basic outsourcing to include VLSI design, embedded system design, board-level design, and even reference design. By establishing R&D centers to undertake software development projects for international vendors, Indian software companies have been able to build up experience and strengthen their capabilities. However, a growing number of foreign companies are entering the Indian market and are establishing their own R&D facilities in India, making it more difficult for Indian firms to recruit the talent they need, and reducing their competitive advantage. The amount of extra value that Indian software companies can create for international brands is gradually decreasing. Indian firms are responding to this situation by moving away from "competence offerings" towards solution/product offerings, and by expanding their customer portfolio to include other types of ODM/OEM customer. Recently, Indian embedded system and R&D and design service providers have been developing and securing orders from the market in China, Taiwan, Japan, and Korea. It is projected that R&D and design services providers will be laying the foundations for the further development of the Indian mobile communications industry in the next few years.

Appendix

List of Companies