Market Snapshot: PBX and KTS equipments

The Current Scenario

The installation of a telephone exchange to handle voice traffic has become a necessity in the changing Indian market. This is because businesses have become larger and volumes of internal calls in business organizations have increased. The department of Telecommunications (DoT) took the initiative to supply small exchanges locally manufactured by companies like Indian Telephone Industries (ITI). Later, mini exchanges or electronic private automatic branch exchanges (EPABX) were introduced. The prices of PBXs contracted significantly, when the Center for Development of Telematics (C-DoT) introduced indigenously designed switch technology.

In the mid-80’s, multinational technology providers, essentially the switch manufacturers such as Alcatel and Oki, collaborated with Indian players like Meltron, Larsen & Toubro, BPL and Tata Telecom. However, liberalization and rapid technological advancement in the early 90s have resulted in a larger product line. Many brands were introduced into the market through a large number of foreign players. This change in market scenario has also led to a clear demarcation in the PBX market.

The PBX and KTS market in India has become highly competitive with the introduction of several new products in the Indian market. Companies like Nortel introduced 11 new products in 1998 in order to have a presence in all of the market segments. Multinationals have also focused their efforts in the Indian market and have facilities for quasi-manufacturing of products. For example, Lucent-Definity range is manufactured at the Gandhinagar unit of Tata Telecom. Harris is working on alliances with BPL for manufacturing in its Coimbatore unit.

The PBX and KTS markets are directly influenced by the growth of direct exchange lines. With the active participation of basic telecom operators, a quicker deployment of new telephone connections is expected. The installed base of the fixed lines provided by the DoT in the financial year 1998-99 was around 21.59 million. The DoT has outlined plans to add another 3.6 million lines in the current fiscal. Integrated services digital network (ISDN) facilities are available in 54 cities of the country. Private basic providers such as Bharati Telenet, Tata Teleservices, and Hughes Ispat have already commenced their services. Bharati Telenet has an installed capacity of 57,000 lines, and has plans to add 100,000 lines in 1999. The operator offers services in seven cities of Madhya Pradesh. Hughes Ispat has focused on providing services in Mumbai, and currently has two exchanges in the city. The company has plans to cover the whole of Mumbai with six exchanges. The company proposes to invest over $2,048 million over the next five years. Telelink Networks intends to invest over $243.9 million in the first five years. The company proposes to install 30,000 telephone lines covering 15 towns and 6,000 villages of Rajasthan. The company has finalized its equipment orders and the initiation of services by the service providers will enhance the rate of addition of lines in the country.

The PBX and KTS markets are also largely affected by the increase in demand for voice processing and computer telephony integration (CTI) applications. The CTI applications are estimated to grow at a rate of 14 percent. Growth in call center applications is also expected to affect the PBX markets. Currently, there are no outsourcing call centers in India. India is expected to emerge as the venue for large, offshore call centers by MNCs, especially in banking, infotech and finance sectors. Call centers are also expected to witness high growth because of the large IT-enhancing projects marked by the government.

The total Indian PBX and key telephone systems market generated revenues of $49.5 million in the year 1998. In the period from 1995 to 1998, the market witnessed a growth rate of close to 30 per cent, and a revenue growth rate of over 13 per cent. Centrex services are likely to influence the growth rates of the PBX and KTS markets. At present, they have almost negligible effect with MTNL being the only service provider offering this service. The new basic service providers are expected to aggressively promote such services in 1999. This will affect the market for PBX and KTS systems. The impact is expected to be very low in the period from 1999 to 2005. The total PBX and KTS market shipments in 1998 were 0.68 million. Of this, the PBX market is expected to have contributed around 85 percent of total shipments. The KTS segment contributed 15.1 per cent of the total PBX and KTS shipments in 1998.

In the period from 1999 to 2005, the PBX system is likely to have the highest line unit share. In 2005, PBX systems are expected to contribute 66.6 percent to total market shipments. The KTS segment is likely to gain market share on a continuous basis. Its contribution is expected to increase from 15.1 percent in 1999 to 32.4 percent in 2005. The line unit market share of PBX systems will simultaneously be on the decline. The wireless PBX systems are likely to have a small market share in terms of units at one per cent.

In PBX and KTS markets, the inclination will be to increase use of digital systems. Apart from digital core systems, the adoption of digital phones and feature phones at desktops may be enhanced. This is only 10 per cent of the total desktop phones employed at present. It is expected to increase to at least 40 per cent in the period from 1999 to 2005 with reduction in prices. This will be due to the expected increase in the usage of ISDN connectivity for videoconferencing.

Applications such as voice mail and caller line identification are likely to become the norm in PBX and KTS systems. CTI, call centers and interactive voice response (IVR) applications will be primarily responsible for technological evolution of the total market.

End users are likely to demand systems that can blend voice and data. Vendors are still testing the concept in Indian market. Chances of seeing the application of a few converged solutions by leading multinational companies in 2001 are high. The pricing strategy and trend analyses are still discussed. In the total PBX and KTS market, the average price per line is reducing. In 1998, the average price per line was $73. In the period from 1995 to 1998, the average price per line in the PBX and KTS markets experienced a negative growth rate. Despite a decline in the average price per line, the rate of decline is likely to be slower than it was from 1995 to 1998. The average price per line is expected to stabilize at around $60 in the period from 1999 to 2005. The main reason for decline in prices is the lowering of import duties on PBX, KTS, and Wireless PBX systems. The import duties experienced a steady decline in the period from 1994 to 1998. The import duties are expected to be further reduced over the next two years, in order to meet WTO guidelines for zero import duties in 2003.

The prices of PBX and KTS equipment are likely to experience a negative CAGR of 3.9 per cent in the period from 1999 to 2005. The high-end products in the PBX and KTS markets are expected to experience an upward price trend over the same period. This is expected since the systems are likely to be supplied with more features and high-end capabilities such as ISDN connectivity. Such systems are generally integrated with other applications such as voicemail, CTI, call centers, IVR and network support features. These add-on features and capabilities are expected to arrest the decline in the average price per line.