Networking–The sky’s the limit

By : |July 31, 1999 0

ERP, datawarehousing, email and ecommerce connect people
and places. This is the new paradigm in developed countries and it’s now hitting our
shores. Industry captains are fast realizing that they can’t ignore this new paradigm
would find their organizations left behind. A deregulated Internet service market can be a
potent combination for the growth of the networking industry. This is exactly what has
happened in the last one year with the market size of the networking industry during
1998-99, including the VSAT segment, touching Rs 952 crore. This is 50% more than last
year’s Rs 641 crore.

The market
While most industrial sectors have shown single-digit growth, the networking
industry has zoomed by at 50%. Connectivity and communication have become the two most
important issues for Indian corporates implementing applications such as email, intranets
and Web hosting as well as complex applications like ERP, EDI, datawarehousing and
E-commerce. The government is also taking care of the communication factor by cutting
prices of datacom services like leased lines and privatizing the Internet by providing
license for a period of 15 years. The first five years will have no license fee and the
subsequent years will have a license fee of Re1. In stark contrast to heavy license fees
imposed by previous governments, this move has been a big boost for the industry. Already
more than a 100 licenses have been given for prospective ISPs who are now busy setting up
their networks and helping the industry growth figures.

The industry received a shot-in-the-arm with the
announcement of the national IT Task Force. This was followed by the government’s
statements reinforcing its commitment to the Task Force report. Other measures included
its initiative to set up the National Information Infrastructure (NII), abolishing of
surcharge on leased circuits and allowing cable operators to provide internet.

However, captains in the VSAT segment were not quite
satisfied with the government’s initiatives. Bandwidth has been a major problem since the
premature retirement of INSAT 2D in October 1997 and no alternative being provided. The
industry’s demand to be allowed the use of C and Ku bands or be uplinked to foreign
satellites fell on deaf ears.

Likewise, in the datacom industry too, a few government
decisions acted as dampener. A major scare shook the industry with a sudden customs
notification shifting various networking products into a special import license
category increasing the CVD on these items. A bigger blow was the lack of headway made in
the proposed National Internet Backbone (NIB) and the recent walking away of the
consortium to install the NIB.



The LAN market, including structured cabling, cruised along comfortably with a growth of
35%, up from Rs 475 crore during 1997-98 to Rs 639 during 1998-99.

Here top honors went to switches with the switches market
touching Rs 200 crore in the last fiscal compared to Rs 80 crore in 1997-98, a whopping
156% growth. Switches are fast replacing high-end hubs. Most of the enterprise deployments
have been switches. This fiscal we expect switches to be playing in the router market due
to competition from layer 3 and layer 4 switches. Cisco and Cabletron were the major
players in this market with sales of around Rs 59.2 crore and Rs 48.5 crore respectively.
In the router market, Cisco was the only major player to reckon with. Its sales revenue of
Rs 74.67 crore outpacing the rest of the industry.

The other major market segments, NICs and hubs, have been
losing their importance in terms of marketshare. According to our estimates, the
marketshare of NICs and hubs have fallen from 22% to 16% during 1997-98. Moreover, the
market has been stagnant at Rs 140-160 crore range during the past three years. The modem
market also registered a flat growth as the market had too many players competitng on the
price front.

This segment was a big winner due to leased line prices being cut and the ISP market being
thrown open. Major gains were made by RAS and WAN switches with the former leapfrogging by
more than 1000% and the latter by a factor of 100. Of course, the low base in the RAS
market during 1997-98 helped the industry to achieve this huge growth rate. The major
player has been Cisco with about 40% marketshare and sales of Rs 15 crore.

The VSAT market was another surprise considering the shortage of bandwidth faced by these
players. The market notched up 100% growth. The industry began to choose the kind of
applications to deliver. Bandwidth-hungry applications like videoconferencing were avoided
and applications requiring low bandwidth were preferred. TDMA-based VSATs became more
popular due to their low-bandwidth requirement as compared to PAMA or DAMA.

The channels
As products at the low-end, like NICs and hubs, are increasingly being
channel partners are becoming increasingly important for companies. No wonder players like
D-Link and Apcom, which market Compex products, with a strong distributor and reseller
focus were the major contenders in this segment. However, for high-end products like
routers, switches, carrier datacom switch equipment and others it has been companies with
strong SI/NI partners which raked in the big bucks. Companies with strong
SI/NI partners
and carrier focus have grown rapidly as compared to others. Major players like Cisco, 3Com
and Nortel have all tied up with major SIs like Compaq, Datacraft RPG, HCL Insys and Wipro
to have their products pushed.

On the price front across-the-board price cuts of about
15-20% were implemented. Switches saw the biggest price cuts to the tune of 22-27%. For
example, the cost of a 24-port Ethernet switch cost plummeted from Rs 70,000 to Rs 48,000.

There is no doubt that the networking segment will repeat its performance this year.
Corporates, including PSUs, are stepping up efforts to get networked. Even governments,
state and central, are showing keen initiative to get connected. After Andhra
Pradesh, it
is state governments in Maharashtra, Karnataka, Tamil Nadu and others who have joined the
networking bandwagon. The Indian financial network (INFINET) project launched by the RBI
to connect the entire banking industry in the country is already underway. In the satcom
market, the latter half of the year is expected to bring relief to the bandwidth-starved
VSAT providers with the launch of INSAT-3B in October this year. The satellite will carry
12 transponders in extended C band and three in Ku band. This will give a boost to the
segment along with other networking components like WAN switches.

In the ISP market, the real buying is expected to take
place in 1999-2000. During the previous year, the few companies who ventured in the market
were cautious about infrastructure spending and more involved in bandwidth buying. A
majority of the companies, which had adopted the wait-and-watch approach, will start
setting up their infrastructure in full swing. Moreover, as private players in the
Internet and basic telephone segments improve communication networks at affordable prices,
WAN and bandwidth-intensive application deployment will accelerate further. Another
important trend in the market is network management which is all set to bring in the big
moolah for the industry. What has been happening in the PC and  PC Server industry
will be replicated in the network industry.

The market will spurt with organizations getting into the
networked world and networked organizations focusing on value-added services like virtual
private networks.


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