A Lukewarm Year   

ISPs disappoint; banks save the year.

The year 2000-01 was not a good year for the networking industry as networking deployments slowed down considerably. The market grew only 53.7 percent in the last fiscal as opposed to 88 percent in the previous fiscal. The main reason for the slowdown was the lull in activity in the service provider segment. ISPs and new communications service providers, which were expected to sink in large investments into laying major networks and expanding their current backbone, did not generate enough business during the year to meet the lofty projections made by companies from this segment. If there was anything that brought the much-needed succor to the industry, it was banks. Both multinational and Indian banks left a fine imprint connecting their branches and setting up ATMs all over the place. The other financial institutions, among them the regulator and the stock exchanges too, contributed to the impressive networking drive in the financial sector.

LAN Trends

The LAN market has matured in the past five years growing at a CAGR of 32 percent. The LAN segment, which includes NICs, hubs, LAN switches and structured cabling, registered a turnover of Rs 931 crore during 2000-01. LANs are clearly abandoning shared architecture, with switches replacing hubs. In the switch segment, one can see Ethernet consolidating its position as the most-preferred technology. ATM, which used to be an occasional choice for campus LANs, seemed to have lost its attractiveness in the face of the popularity of Gigabit Ethernet. There was a lot of action in the high-end switching arena, with the entry of intelligent switching.

Almost all the major Layer 3 and Layer 4-7 switching majors made their presence felt, directly or indirectly. To name the prominent ones, Alteon came into focus with its acquisition by Nortel Networks, Cisco Systems began talking of Arrowpoint, f5 opened office, Extreme was getting to be known through MRO-Tek, and Foundry Networks was just round the corner through Magnum Connect. A market for such products developed among the nascent market of IDCs and the traditionally strong deployer of networks—the financial institutions. These two user segments along with call centers dominated the LAN implementations during FY 2000-01.

When it came to cabling, enhanced CAT5 solutions was the choice of the middle and the upper segments of the market while intensive users in sectors like software took to Proposed CAT6 solutions more favorably. Clearly, Gigabit speeds were becoming the norm of the day in LANs, with most companies at least having an upgrade to 1,000 Mbps, as part of their middle to long-term strategy.

WAN Trends

Two distinct markets have developed for WAN solutions—the service provider market and the enterprises. The service provider market comprised of large telecom service operators—wireline and wireless. In India, the customers that can be categorized into this segment are BSNL, MTNL, VSNL, private basic operators, cellular operators, and large ISPs, to some extent. However, this sector is to open up even further with the entry of newer players in the form of additional licensees for existing services and new licensees for new telecom services, such as DLD services, IPI and IPII.

The other market for WAN solutions is enterprises. In India, this includes mainly large financial institutions, multi-plant/office manufacturing corporations, multinationals and software exporters. These enterprises set up their Closed User Group networks based either on dedicated leased lines or VSATs. They also got connected through the Internet.

Actually, the two segments do not have an exactly drawn line. Solutions for the two segments are loosely defined as carrier-class products and enterprise products. But, carrier class products can be used by enterprises while the reverse is also true.

While packet-based solutions are established in the enterprise segment, the last few years, including the last fiscal, have been a debuting phase for packet-based technologies in the Indian communications service provider segment. The segment has been traditionally dominated by circuit switch-based exchanges and transmission equipment. In the service provider scenario, it has been the core of the network—the transmission layer—that has driven communications service providers to look at packetization. The promise was that of a network that will use new packet technologies to create a converged network that could provide multiple multimedia services.

This new network, however, remained more of a hype than reality during the last fiscal. Of all the service providers in India, it was just VSNL, which invested, in a true ‘carrier-class’ router. The deployments that were to ensue from the new long-distance players and companies laying optical fiber, did not materialize beyond ducting and the initial blowing of fiber.

On the access side, it was mainly for the Internet access provisioning and leased line services that packet-based products such as IP routers, ATM switches, Frame Relay access devices, and Remote Access Servers (RAS)...? The last was the most deployed among. Due to an explosion in the ISP market during the previous fiscal, there has been extensive implementation of RAS for Internet access. This trend continued despite a poor climate for service providers, especially ISPs.

On the enterprise side, however, wide area networking looked up mainly due to a decrease in leased line tariffs. There were massive WAN implementations by the financial sector while the ISP industry (which was a major user of ‘enterprise-class’ routers and leased line modems) disappointed. The drop in leased line prices also meant that the wireless segment felt a pinch in its prospects. The VSAT equipment industry especially suffered on account of this.

Networking Products Distribution

The distribution market for networking products, which was mainly worth Rs 687 crore during 2000-01, mainly comprised switches, structured cabling, modems, routers, NICs and hubs. Falling margins in computer hardware and peripheral business pushed many companies to look at distributing networking products apart from their traditional IT business. The competition among these companies was on two parameters—size and quality of channel network, and competencies like niche expertise and local manufacturing set-up.

Major Areas of Opportunity

• The financial sector is surely where one’s money ought to be firmly put. This conclusion is based on the previous year’s trend and some clear signs for the future. It was this sector that contributed more than a third of the networking industry’s sales during the last fiscal. And it is a fact that a large number of the projects that were implemented during the previous year are of an ongoing nature—many of which are to be extended this year. Also, this year’s budget has set the tone for this sector. It clearly spells out a decree to Indian banks to get their networking agendas and infrastructure in place.

• The government-owned BSNL is likely to spend huge amounts of money to expand its telecom network for more subscribers. In addition to this, it has been mandated to usher in a new set of services in both cities and towns. These services include wireless services like VPTs, WiLL, cellular and Internet. BSNL is also likely to upgrade the existing transmission links using new transmission technologies like DWDM and SDH. All this calls for huge investments.

• Private telecom companies are slowly rearing their heads. The year 2000-01 was the year of cabling. This year, one of lighting-up the fiber—the new network implementations are all set to happen this year. Though one cannot exactly predict the extent of deployment, the potential players are at least a handful. If this happens, there would certainly be a windfall in the service provider equipment segment.

• Government spending is another opportunity that companies need to watch out for. In light of the major slowdown in the overall economy, the government is under major pressure to spell out major infrastructure initiatives to reinvigorate the economy. Communications is likely to be a major thrust for the government.