Brief

Adoption of VoIP, IP-based PBX and Centrex systems on the anvil

In 2004, medium businesses (MBs) in India invested almost US $596 million in various telecommunication-related technologies. This overall spending is dominated by local, long distance and cellular services that comprise a mammoth 73 percent. However, the overall telecom expenditure is likely to drop marginally in 2005 due to a rapid price decrease in various fixed-line telecom services such as local and long-distance telephony, as well as reducing cellular tariffs. Overall spending on IP-based technologies such as IP phones, IP PBX and IP Centrex displays a high-anticipated rate of escalation within the next few years.

Strengthening basic telephony infrastructure

Having achieved complete saturation in terms of basic telephone connectivity, India MBs are trying to strengthen the existing infrastructure. About a quarter of businesses plan to add 2.5 telephone lines per enterprise next year. An interesting observation is that mid-sized manufacturing businesses are keener to install additional lines to boost their existing communication infrastructure. BSNL is the market leader in the local and long-distance services, occupying more than half of the MB market. It gets a head start mainly due to its widespread presence and reach throughout the country, in metros as well as tier-2 cities. Its partner, MTNL, has a marketshare of about 20-25 percent, controlling the telecom market in Delhi and Mumbai. Bharti and Tata Teleservices are coming up fast, while Reliance is gradually gaining a foothold, mainly in the long-distance sector.

Each telecom provider tries to woo the consumer by offering a range of services, including Internet access, broadband service and leased lines, fixed wireless, Internet telephony, conference services and VPN. AMI’s survey shows that more than 40 percent of India MBs prefer a bundled offering of local and long-distance services along with high-speed Internet services from a single provider. Close to a quarter of businesses need additional services such as VoIP, hosted applications and so on. Businesses are generally not prone to switching service providers frequently. “Desire to remain with a single service provider is possibly prompted by the lure of anticipated cost savings due to volume discounts and also the wish to avoid hassles in switching operators,” said Dev Chakravarty, analyst at AMI India (Kolkata branch).

Rapid growth in cellular usage by India MBs

Importance of cell phones has increased significantly in recent times among India MBs, as mobile technology enables companies to keep in touch with business partners as and when required. This is especially relevant in the current business scenario when enterprises need to be accessible by customers on a 24x7 basis. Consequently, about 69 percent of India MBs use cell phones at present; this proportion will escalate rapidly next year as India MBs approach complete saturation. Today’s technically advanced cell phones are capable of not only receiving and making calls, but also of storing data; taking pictures; receiving and sending e-mails and voice/text messages; Web browsing; accessing WAP services and being used as walkie-talkies, to name a few options. With the confluence of technology trends such as better hardware, faster networks and more sophisticated software, India MBs can utilise cell phones to perform essential business applications.

“The escalation of price wars has been a major factor in the telecom market where tariffs of local and long-distance calls have been rapidly falling as telecom operators rush to replicate each others’ marketing strategies. Needless to say, the major beneficiaries in this war have been the India SMB sectors,” comments Chakravarty. A few recent events have caused a major shake-up of the telecom market. These include a rapid gain in the marketshare of CDMA providers such as Reliance Infocomm at the expense of existing GSM cellular vendors and landline telephone service providers. Another significant development is the advent of state-of-the-art global technologies such as BlackBerry messaging service, push-to-talk capability and others.

High growth likely in IP-based technologies

A high-growth area among India MBs is the IP PBX system. Currently, it has low usage, but is likely to be adopted by an additional 18 percent of MBs next year. IP-based technologies and voice solutions for the enterprise space are anticipated to make slow yet steady inroads at the expense of traditional PBX systems. Some of the advantages of the IP PBX are its ability to handle voice and data, flexibility and scalability, reduction in equipment costs, as well as long-distance charges for inter-branch calls. Consequently, IP PBX spending (approximately US $1.23 million at present) shows a high future growth rate—about 129 percent CAGR for the next five years. Some prominent vendors in this space are Nortel, Cisco, Avaya and Tata Telecom.

Currently, VoIP has a marginal usage of 6% within India MBs—yet it is expected to display a high growth rate in the future. MBs are gradually waking up to the fact that IP telephony can enable substantial telecom cost savings and offer various converged services using voice and data network services such as collaboration with business partners across the globe and shared applications. Moreover, voice and data integration has been mentioned by a considerable proportion of India MBs as a primary area of strategic focus for the future.

Growth-enhancing factors behind telecom usage

Some of the factors driving telecom growth are the proposed government plans for the privatisation of the International Long Distance segment, legalisation of Internet telephony and increasing the proportion of foreign direct investment. These are likely to result in increased telecom investment, along with enhanced implementation of various communication-related technologies. India MBs are also rapidly embracing high-speed Internet with the gradual decrease in related access prices. Thus, increase in broadband usage is expected to be another important factor enhancing the usage of IP-based technologies such as IP PBX, IP Centrex, VoIP and even Internet access through cellular phones and handhelds.

New York-based Access Markets International (AMI) Partners Inc. is a consulting firm that specialises in IT, Internet, telecommunications and business services market intelligence, with a strong focus on global SMBs. In India, the company has recently conducted an extensive survey of MBs across Delhi, Mumbai, Chennai, Kolkata, Bangalore, Hyderabad, Kanpur and Ahmedabad.