The network integration market maintained its steady growth in FY 2004–05. The market jumped 24 percent to Rs 4,164 crore as against Rs 3,372 crore in FY 2003–04. Last year saw a major shift towards services and many integrators added or expanded their services portfolio. This year also saw many small players making it big in the integration market. The larger integrators differentiated themselves with end-to-end offerings with more managed service kind of solutions.

The market also shed its burden of low margins and offering freebies, as the companies realized that free offerings would not bring them business in the long run. Consequently the equipment margins have stabilized and the ever-expanding networks are making the deal sizes larger. Last year also saw emphasis on applications- and solutions-based integration. This increased the solution vs hardware ratio. While larger integrators, with revenues of over Rs 200 crore reinvented themselves with managed services, the equipment vendors were seen promoting smaller players because of their cash-and-carry business.

Good news is that enterprises have started investmenting in building new or ramping up their network infrastructure. The legacy circuit switch networks were being replaced by packet switched networks. Not only the large corporate houses but the SMB market also contributed to the growth of network integration market in India. This year integrators would be increase focus on this segment with dedicated teams.

With most of the networks migrating to IP, technologies like VoIP are making inroads. There was also an increased awareness about security services, and security policies and solutions were being implemented during the network rollout itself.

Complex Technologies, More Services
In the networking business not only are the networks are becoming bigger but the technology is also getting complex. Typical services include: equipment installation, network integration, and maintenance services. While installation services provide for realization of revenue as soon as the equipment is installed, maintenance services bring in steady income over a period of time.

Earlier, the revenue realization from consultancy and designing of networks was very less and was part of the overall deal. However, last year these two components were accepted as separate businesses by the customers and they were willing to pay extra for the services.

There was a growing realization in the market that enterprises should focus on their core business and leave the networks to those who understand them better. On an average, services (as part of a network integrator's revenue) have gone up from 12 percent to around 25 percent and managed network operating center (NOC) services are now being taken up rapidly by customers.

The complexity of technologies has increased enterprises' dependency on integrators. Enterprises require more hand holding now than ever before and all this has moved the market more towards managed services. Managed services are a huge opportunity because the network integrator assumes full responsibility for operating the network of the customer on an on-going basis.

Last year, remote monitoring of networks was accepted by the customers and with comfort level on offsite management was seen to be rising. For the integrators also the remote management deals proved beneficial and as they could manage more than one customer from the same premises. It led to overall lowering of costs for the customers and the operating costs for the integrators also came down.

Banking Led the Pack
The banking, financial services and the insurance (BFSI) sector were the drivers for growth in FY 2004–05 for network integrators. BFSI companies did good business and did not shy from diverting investments into the expansion and upgradation of their network. From core banking applications, these institutions adopted other applications to streamline services like the real-time gross settlements. Almost every integrator had majority of their revenues flowing from the BFSI sector. Some like HCL Comnet had almost 17 banking clients with deal sizes ranged from Rs 15 crore (Indian Bank) to smaller ones in the seven to eight crore range. Datacraft closed a $1 million 50-office deal with SBI for its international operations.

Similarly, Wipro Infotech had Indian Overseas Bank and Union Bank of India as its clients. The Rs 35-crore PNB deal concluded by Tulip was among the largest contracts in the banking sector.

The stock broking and the money market also brought in good business. In fact, BFSI and the stock market segment adopted real-time settlements and online money transactions. These applications are heavily dependent on networks. As the criticality of networks came to the forefront, these companies outsourced not only the implementation of networks but also the running and management part. Lot of service level agreements with emphasis on network uptime and quality happened last year. Like HECL witnessed almost three-fold increase in SLA signing than the previous year.

ITeS, BPO, and manufacturing companies were also expanding and a lot of business flowed from these segments. HECL closed the Galileo India project for leased line connectivity in five metros. This Rs 4 crore deal was one of the big projects in the travel industry vertical and almost 85 percent of the deal size is for the management part of the network.

The e-governance initiatives and statewide WANs (SWANs) coupled with work like the regular updation of the government IT networks was also instrumental in the market's growth. Together the SWAN market is expected to be around Rs 3,334 crore with tenders coming out at regular intervals. The successful implementation of wireless networks, such as at Mallapuram by Tulip, are expected to be replicated elsewhere too. However, Tulip moved more towards selling bandwidth in the last year. Companies like Gemini did good business in wireless integration space with projects from private telecom companies for pre-WiMax broadband rollouts and a Rs 8-crore MTNL deal for its SDH Garuda network in Delhi.

Even the airline sector provided good projects, especially the budget airlines. Kingfisher, Spice, or Deccan Airways: all needed good network connectivity but looked at lowering their capex. The best way to achieve this is to outsource the network implementation and management and buy SLAs and services.

Telcos as Customers and Integrators
Telecom emerged as another strong vertical. Telecom operators and service providers not only gave good orders to the network integrators but they also came up strongly as network integrators for their customers. HCL Comnet, Wipro Infotech, Tata Infotech, HECL, and GTL executed integration projects from Bharti, Reliance, Tata Indicom, BSNL, and MTNL. And, they also partnered with some service providers to execute projects for third parties, e.g., Bharti, BSNL, VSNL, MTNL: all offer MPLS connectivity and other enterprise solutions. These solutions require good amounts of data network integration for the customers, which the telcos bundle in their end-to-end offerings. GTLs reveunes have dipped due to inclusion of some part of their integration business in their turnkey revenues.

Integration market saw the emergence of partnerships between telecom service providers and companies like IBM and HP. IN such partnerships, while telcos brought in the know how in telecom networks and connectivity services, integrators contributed with their expertise in WANs and LANs. Together, their value proposition was better than any other pure-play network integrator. In the days to come such joint bids would be helpful in expanding the market and bringing more value to the customers. The Bank of India deal completed by Bharti along with Hewlett Packard India was one such joint deal.

However, it is too early to call this as a trend or say that telcos are becoming a threat to pure-play network integrators. For telcos, providing connectivity will be core and they would have to partner with or depend on others with domain knowledge for integration services. The best way to go about is through partnership deals.

Moving Ahead
The network integration market is expected to gather steam in the current financial year with more organizations going in for networking their businesses. All verticals are expected to maintain their contribution to the integration business.

Telecom service providers would continue to give MPLS and other data network implementation to the integrators. They would be incorporating IP on their networks in a big way and the ISPs would be implementing IP-VPN for their clients. On the other hand, service provider-network integrator partnerships would also flourish and they would bid for larger projects together.

On the technology side, IP networks are already being rolled out and after years of hype we might finally see convergence of voice, data, and video happening on a single network. Bandwidth prices have crashed and they are expected to go down further. So, bandwidth intensive applications would be implemented and for this networks would have to be made more resilient and secure. VoIP is also expected to make inroads and conferencing equipments would be included in the networking deals. High-speed networks, with multimedia applications running over them, would be deployed.

On the last-mile side, wireless networks and access points have proved their usefulness. Deployment and implementation of Wi-Fi on the last mile and WiMax as the backhaul is expected to take place. However, Wi-Fi deployment on the existing networks would have an incremental effect on the revenue side. With the government taking up rural connectivity in a big way and wireless networks having proved their efficiency in places like Mallapuram, more such networks are expected to come up. Educational institutions with large campuses are also opportunity areas.

Services go beyond just maintenance of network. Consultancy and design of the networks would gain traction. Remote management will remain the mantra for the years to come. However, it would be wrong to derive from all this that equipment or hardware sales would come down drastically. For services to exist, equipment has to be there. A build- operate-manage-transfer (BOMT) model is expected to evolve.

Enterprises are expected to look at outsourcing the network management completely. But whether the management would be onsite or offsite would be a management decision.

The onsite revenue for network integrators is expected to stagnate as more and more enterprises would opt for off-site management services. Today integrators have the option of deploying, managing, and controlling the networks througsh a centralized NOC and this is going to be the future of network integration.

Anurag Prasad