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India is the second largest telecom player in the world, as far as subscribers are concerned. But, its contribution in terms of technology, R&D and manufacturing has been negligible. This is despite the fact that the first manufacturing facility in India was started just one year after the independence when ITI was established in 1948.

Due to the government's continuous ignorance of the sector, manufacturing of telecom equipments never took off. Only handsets are manufactured in India, mostly by the MNCs. ITI started manufacturing of mobile equipments at its Mankapur and Rae Bareli plants in the year 2005-06.

The country has a telecom equipment market of over Rs 50,000 crore. However, the share of 'lndian products' in this market is a paltry Rs 800 crore-less than 2% of the total imported or assembled in India products.

China, on the other hand, not only focused on increasing the subscriber base, but also manufacturing of the equipments to cater to its domestic and global needs. Chinese equipment manufacturers compete with global MNCs, including Alcatel-Lucent, Cisco, Ericsson, Nortel and Siemens. China's Datang is the main TD-SCDMA manufacturer; while UTStarcom is the main PAS/PHS manufacturer. Similarly, Huawei and ZTE have their presence globally. Other recognized Chinese equipment suppliers are Shanghai Bell, Amoi, Konka, Ningbo Bird and Kejan.

The government's lack luster policy resulted in a lack of interest among the players for manufacturing of telecom products in India. Trai has sought suggestions and comments from telcos regarding promoting telecom manufacturing in India. Most of the comments and feedbacks received by Trai highlight the lack of incentive, tax concessions, funding by the government in the sector so far.

Interestingly except the two key operators-Mumbai based Tata Teleservices and Bharti Airtel-rest of the players did not bother to give suggestions to the regulator. Major players like Vodafone, Reliance Communications, Aircel, Loop, Idea Cellular, etc, did not give any response. These players maybe are not interested in the manufacturing of equipments in India.

Even the major telecom vendors showed no interest. These players already have manufacturing in other parts of the world, especially in China and Taiwan with cheaper labor and good regulatory support by the government. Luring them into India would be a herculean task for the regulator and the department. Government owned ITI was the only body representing the big manufacturers.

Balaji Srinivasan, professor IIT Chennai, pointed out that for the past several years, telecom company's primary focus has been shifted from expanding their network to providing value added services. Presently, the major demand is for software applications which can offer such services and robust data centers to support these applications. “ Recently few services such as mobile broadband, 3G introduced a good demand for network expansion, the existing international vendors cater to these needs and there is very little opportunity for Indian manufactures. Only the network installation, maintenance and support services are being provided by Indian companies,” he added.

Lack of Proper Environment
The state of the Indian telecom manufacturing can be summed up by the fact that in 1995 there were more than twenty-five Indian companies, but today this has come down to less than five. The situation is alarming; especially because telecom is not only a high growth sector, but also a highly sensitive one too. A vibrant manufacturing sector is a must for the continuous growth of the sector and the strategic interest of the country.

Today, it is very important for the country to have a good value-creation in the telecom equipment manufacturing. Value would be created only if proper investments are made in R&D by a company which designs the products, and owns the IPR and brand. R&D is said to be creating 85% of the value additions, while assembly of telecom equipments contributes to less than 15% of the total value. Most global telecom equipment vendors outsource this activity to specialized EMS (electronic manufacturing services) companies, or in some cases use captive EMS units for certain products.

Bharti Airtel in its response to the regulator also highlighted the need of proper investment and support in telecom R&D. “Some of the key barriers in the growth of telecom equipment manufacturing in India include low investment on R&D and limited support provided by the Government of India for telecom R&D,” says the operator.

The government's Department of Science and Technology (DST), in FY 2009-10, approved 141 R&D funding projects. Of the total number of projects approved by the DST, only five were related to telecom. The total R&D expenditure of the DST on various science and technology related projects in the last FY was Rs 1,600 crore. Not even 1% of the money was spent on telecom related R&D. The DST expenditure of telecom R&D was as low as Rs 12 crore or to say 0.75% of the total budget.

The biggest telecom service provider as per customers also pointed out that due to technological constraints, C-DoT and other R&D institutions could not develop new technologies. This resulted in more dependency on foreign vendors to keep pace with the latest technological products.

Even the government did not invest in its own facility. ITI's R&D expenditure was reimbursed till 1993-94 only, which was withdrawn subsequently. “This forced R&D to abdicate knowledge ingress, denied infusion of new infrastructure and talents. Above all, it stemmed value additions,” highlights the ITI response to the Trai. The telcos demanded the creation of a proper ecosystem for the manufacturing of equipments.

“Development of the domestic market and integrating the telecom hardware sector with the global stream has become internationally competitive (especially in China, Taiwan and Korea). With the elimination of duties in this segment as per the commitment to WTO, this sector needs a special sectoral treatment rather than being governed by the general policy framework,” says Anand Dalai, vice president, corporate regulator affairs, TTSL in its comment.