The telecom equipment manufacturing industry is set to grow threefold to $100 billion in the next three years, from $26 billion at present, according to P S Ramesh, president, Telecom Equipment Manufacturers' Association of India (TEMA).

The sector has become one of the most attractive for both domestic and foreign investors. According to the annual review by the telecom ministry, the telecom equipment manufacturing sector has received a commitment of more than $1.5 billion in investment.

The industry is expecting fresh investment of about $2 billion in the next one year. Products thus manufactured will not only be used for domestic consumption but for exports as well, Ramesh said.

Industry experts hope the growth will continue for the next three years. TEMA chairman emeritus N K Goyal said: "The industry has grown beyond imagination. It has already received investment of $6 billion; although some of the investment is yet to be approved by the government. In the next three years, the figure will grow to $18 billion."

The telecom industry is likely to pump in about $6 billion in infrastructure for 3G mobile services that are expected to roll by 2007. Much of the 3G network equipment is likely to be produced at the domestic manufacturing centres.

US major Cisco will manufacture IP-based telephones in India. In addition to over $1 billion investment, Cisco has decided to shift 20 per cent of its top executives to India to make the country its global centre, while its counterpart Alcatel will invest $200 million every year for the next few years.

Telecom equipment worth Rs 16,090 crore (Rs 160.90 billion) was produced in 2004-05. The figure grew to Rs 17,833 crore (Rs 178.33 billion) in 2005-06.

Currently, import of telecom equipment is over Rs 25,000 crore (Rs 250 billion) a year. However, India exports telecom equipment worth about Rs 2,000 crore (Rs 20 billion). The exports will pick up in the next three years, once domestic production facilities go on stream.

As 100 per cent FDI is allowed in the telecom equipment manufacturing sector, more investment is likely to enter India. Major domestic players like Bharti Teletech and Tech Mahindra [Get Quote] are upbeat about the industry's growth. However, government-owned ITI has been running into losses.

The other major PSUs in the telecom equipment sector are Hindustan Telecommunications Ltd and C-DoT. To give a boost to the industry, the government has proposed the setting up of Telecom Equipment and Services Export Promotion Council and Telecom Testing and Security Certification Centre (TETC).

The low-cost handset

With major telecom companies setting up their manufacturing facilities in the country, the cost of a mobile handset with basic features may drop to as low as Rs 450 by 2010, according to research firm Ernst & Young.

However, the massive drop in cost will be covered by the huge volume sales, it said. Motorola recently launched Motofone, which costs about Rs 1,600. However, the Union telecom minister Dayanidhi Maran would like to see the cost of an entry-level mobile handset in the country fall below Rs 1,000.

Telecom giants like Nokia, Motorola and LG have set up their manufacturing plants in India to reduce their cost of production and cater to the huge domestic demand. However, many companies are also planning to import low-cost handsets from countries like China and Taiwan.

Texas Instruments, which is setting up a facility in India, will produce a chip that can replace the dual chip in mobile phones. This would also lead to a reduction in the cost of mobile handsets.

Future technology

Telecom equipment manufacturers are now looking at manufacturing high-end technology equipment, which are WiMAX compatible. US based Alcatel and C-Dot have announced plans to manufacture WiMAX equipment in India.

Aperto Networks, which is laying the WiMAX network for Bharat Sanchar Nigam Ltd in 10 cities, is also planning to shift its manufacturing base to India. Other network equipment manufacturers like Nokia, Siemens, Motorola and Ericsson are also expected to make WiMAX technology-based equipment in the country.

Generally, when there is growth in demand and products are made locally, the prices fall by about 50-60 per cent. As soon as the specifications and standards of WiMAX are finalised, large scale production of equipment will begin in India and lead to a drastic fall in price, president, Indian Manufacturers' Foundation and chairman emeritus, Telecom Equipment Manufacturers' Association of India, N K Goyal said.

WiMAX is likely to play an important role in broadband expansion, specially in rural areas. WiMAX is seen as the future technology for the Internet. The ministry of telecommunications has announced the year 2007 as the 'Year of Broadband' and has set a target of having 2 crore (20 million) broadband subscribers by 2010, from 30 lakh at present.