Networking–The sky's the limit

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

(SIL)

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

ITI-led

consortium to install the NIB.

Segments




LAN




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.

WAN



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.

VSAT



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
commoditized,

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.

Outlook



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.

DATAQUEST