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For all practical purposes, 2003–04 was a good year for network integrators, especially the market leaders. Not only did they register decent growth in their top lines and bottom lines, they also moved quite a bit away from pure product sales and built a strong offering of professional and managed services. In many ways, for the top rung of the network integrators in India, financial year 2003–04 was a year of services. Almost all the big names in the business built a strong services portfolio. And with margins on products abysmally low, it was only services that in effect contributed to their profits. At the lower rung of the market, however, product sales were what mattered. So in other words, while selling products or building networks was the end for most of the small and also for a couple of names in the VOICE&DATA top ten network integrators ranking, for many of the large integrators network was just a means that allowed them to up sell their services. In fact a network integrator's ability to offer services emerged as a key differentiator in the market place.

On the other hand, not everything was rosy in the network integration business. The market was overwhelmed by abysmally low margin in products largely because that is a global trend and also because there was an indiscriminate competition among companies for top line growth. Even though professional services commanded a premium, many network integrators were accused of messing up the market by offering services as freebies. For small integrators, timely payment from customers was a major issue. In fact, even for large integrators it was a problem, as they had to forgo many big deals because of longer payment cycle.

Market Moves On
As per VOICE&DATA estimates, the network integration business had a turnover of Rs 3,372 crore in FY 2003–04 (as against Rs 2,871 crore in FY 2002–03) registering a 17 percent growth. Of the Rs 3,372 crore, the top ten integrators accounted for around 70 percent of the market at Rs 2,372 crore. As for the network integrators' shares, Datacraft again emerged as the number one with around 10 percent of the market. Wipro ranked second with around 9.5 percent of the market and a turnover of Rs 323 crore. Tulip IT services with its focus mostly on wireless remained at the number three spot. HCL Comnet, GTL, CMC, HECL, Network Solutions, HCL Infosystems and 3D Networks were the other names in the top ten club. As for growth, 3D Networks registered the fastest growth in the FY 2003–04 at 120 percent among all the integrators. The company ascribes its growth to the strong relationships that it has forged with both vendors and customers and the overall positive market conditions. About 42 percent of 3D Network's revenues came from the BPO-ITES segment. With a 43 percent growth, Network Solutions was the second fastest growing network integration company. While for 3D Networks, growth primarily came from product sales (92 percent), a good 25 percent of Network Solutions' revenue came from services. The growth was largely the result of its focus in the BPO-ITES space. Network solutions also attributes its growth to the investments it made in building a strong sales and support team.

Services: The New Ace
The vanishing margin on product sales was perhaps the biggest factor that encouraged the large network integrators towards building a strong services portfolio. However, a few other factors were also instrumental in the network integrators' tilt towards services. For example, customers looking for large implementations preferred integrators who provided them with end-to-end kind of expertise or what many prefer terming as total outsourcing. When it came to large networking projects, integrators offering the complete value chain (consulting, project management, integration, and implementation etc.) have a distinct advantage.

While the market was still immature when it came to paying for services like consulting or project management, these skills were surely recognized by customers as premium services. This resulted in a growing willingness among customers to pay for services. However, the margin on services was not as per vendors' expectations.

Moreover, there was a growing tendency among network integrators to look for incremental revenue from the networks they had built. Network management (both onsite and from a remote network operating center) was one such service that helped integrators like Datacraft, HCL Comnet, Wipro, GTL, and Network Solutions gain an extra edge in the market. Network security service was another area of focus.

Within services, managed service was certainly a favourite with integrators like Datacraft (which offers managed network management and security services from its network operations centre in Bangalore), HCL Comnet (which provided a complex variety of network management services to its domestic and international clients from its NOCs in Noida (near Delhi) and Chennai), Wipro (which offers managed network and managed security services from its NOC in Bangalore), Tulip IT services (which has NOCs in Delhi and Mumbai), GTL (NOC in Mumbai) and Network Solutions (NOC in Bangalore). All these vendors have positioned their ability to offer managed services as a key differentiator in the market. In fact these companies are betting heavily on managed services for future growth.

Overall, even though product sales still led the topline growth, services had a clear edge as far as the network integrators' priorities were concerned. As much as 27 percent of the total revenues of nine of the top 10 integrators came from services this year. Integrators like HCL Comnet and HECL had services revenues amounting as high as 48 percent and 41 percent respectively of their total turnover in 2003–04. Also for a company like HCL Comnet, domestic and global customers equally drove the high growth in services revenue. Integrators have not only acquired new customers, but also offer new services for existing ones.

Market Segments
Like in the previous year, the growth in the network integration business came primarily from four segments, viz., banking and finance, telecom service providers, BPO and government. There were a few interesting deals in the e-business and logistics sector also.

With networking of branches becoming imperative for all banks, the banking sector continued to be lucrative for network integrators. There were two kinds of deals in the banking sector-one kind included implementation of network plus core banking solutions, the second type included enabling of multiple other services on the network besides the implementation of network and core banking solution.

One of the most talked about and also one of the largest deals in the banking sector last year was the contract awarded by the State Bank of India (SBI) and its seven associate banks, have awarded a $29 million phase 2 contract to Datacraft to implement its nation-wide corporate network. The first phase of the project was also implemented by Datacraft India, commenced in June 2000 and was over in May 2003. Under the phase 2 of the project, Datacraft India is doing turnkey implementation of SBI's corporate backbone-known as SBI Connect-from design, provision, supply and project management. In this second phase, SBI along with the seven associate banks propose to connect 2929 branches, ATMs and other electronic delivery channels. The project will span over to FY 2004–05. Another major project in the banking sector was Punjab National Bank's 500-branch networking done by Tulip IT Services. The deal was worth Rs 36 crore.

The BPO-ITES market was of a different kind. Here network integrators did not have much to gain from pure network deployments. The cream of business in this sector came from deployment of technologies and solutions that enabled BPO/ITES operations like integration of ACDs, CRM, security, disaster recovery and workforce management solutions among others. In this sector, both international service providers as well domestic call centres provided good opportunity.

IP Telephony and Wireless
On the technology front, IP Telephony and wireless (both WAN and WLAN) gained traction among network integrators. Datacraft alone is estimated to have installed 40,000 IP phones in 2003–04. Here again integrators like Datacraft and HCL Comnet among others also focused on helping their customers manage their IP networks. In the wireless space, integrators did good amount of business in both wireless WANs and WLANs. There was not much money to be made on WLAN, as it was a low value business. There was a fair amount of business in the wireless WAN (based on spread spectrum radios). Tulip IT Services remained the undisputed king of wireless among integrators with almost 55 percent of its revenues coming from wireless. There was also a growing interest in network security technologies.

Integration to Management
The future growth of Indian network integrators is most likely to come from outsourced network management and maintenance services. In the recent past companies like SBI, Bank of India, Thomas Cook, Exide, Hero Honda, Shoppers Stop, and more recently Dabur have taken a decision to outsource the management of their networks. One of the largest services deals in the networking space in 2003 was the award of $11.4 million contract by SBI to Datacraft for outsourced management and support of SBI Connect. The service elements include in-site managed network services delivered from Datacraft's STARtrac centre in Bangalore, uptime maintenance services and subsequent management of bandwidth. The list of such deals is likely to grow in the coming months. And with an increasing trend towards end-to-end outsourcing, while it would be difficult for network integrators to win end-to-end IT outsourcing deals on their own, they can surely be valuable partners to large IT outsourcing firms.

Remote network management is another key trend that has emerged recently and is likely to get stronger in the coming years. Many of the network management processes can now be automated over the Web. HCL Comnet and Wipro, Datacraft and Network Solutions clearly have an edge in remote management. The international market will be the key to growth for network integrators especially those having the capability to take care of end-to-end requirements. As of now, HCL Comnet (with around eight Fortune 500 companies as its clients for remote infrastructure management) and Wipro have first mover advantage. CMC also has a few wins in the international market.

Ravi Shekhar Pandey