NETWORKING : Home...by a Whisker

Segment-wise Analysis LAN Switches: Close Race Network Integration: Booming Business Routers: Monopoly Layer 5 Switches Gain Popularity
	For the second year running, BPO and telecom spending came to the rescue in H2–helping the industry grow marginally, from Rs 2,235 cr to Rs 2,257 cr
	The relaxation in WiFi norms was a good sign–and bodes well for the future
	Next-gen services like IP telephony, network storage and broadband emerged as the demand drivers in an otherwise bleak and flat year
	As expected, hubs were driven out of the market, replaced by 10/100 switches

From neck-deep to chest-deep–that sums up the networking industry’s
journey in fiscal 2002-03, a year that was all but flat, and one that showed a
meager growth rate of 1%. Emerging from the shadows of one bleak year in
2001-02, the networking industry started 2002-03 on a modest note, learning to
live with the harsh lessons of the previous two years. This time around, the
industry found new focus again–there was a perceptible change in strategy,
with top players exploring newer markets in smaller cities. The objective: to
bolster the bottomline.

While the first half remained anything but encouraging, the skies did clear
up in the second, with the BPO and telecom spaces ringing in largish orders and
saving the day. The die was cast–a revival looked set and just around the
corner... but it was still much too early to break open the bubbly.

The Fab 4–Driving growth

So what finally went right? For starters, the networking industry once again
had four verticals to thank–BFSI (banking, financial services and insurance),
telecom, business process outsourcing (BPO), and the government–for driving
demand, much as they did in 2001-02. Several banks opted for automation,
imparting a healthy ring to the equipment vendors’ cash registers. The Punjab
National Bank and State Bank of India led the charge for the banking industry
with huge equipment orders for 1,000 and 3,000 branches, respectively.

On the telecom front, massive expansion drives by Bharat Sanchar Nigam Ltd,
Bharti Group and Reliance Infocomm showered vendors with huge requisitions for
routers, switches and other equipment. BSNL placed a large order with Juniper
Networks for high-end routers for the rollout of its MPLS VPN network, which is
India’s first IP infrastructure network to be run on an optical backbone.

Projects like Andhra Pradesh WAN, Gujarat WAN as well as one under the aegis
of the National Highway Authority of India stood out, and signalled the
government’s contribution to the networking industry’s resurrection. Life
Insurance Corporation also accounted for large router and switch sales, which
the insurance major required for wiring up its 1,600 branches.

A rapidly-expanding BPO industry gave networking vendors several reasons to
rejoice, as large orders poured in with the entry of global players, along with
the continuing push provided by domestic BPO players. The proliferation of call
centers, literally by the dozens–Prudential and Airtel centers in Mumbai, and
an HCL center in Noida–propped up demand for networking equipment. However,
the manufacturing sector remained dormant in 2002-03, with a few isolated
LAN/WAN deployments at companies like Asian Paints, Telco and Imperial Tobacco
Company (ITC).

Integrators bloomed

Not only equipment vendors, even network integrators (NI) got more orders in
fiscal 2002-03. Large projects from the banking and telecom sectors provided a
fillip to the NI segment. For instance, State Bank of India and Punjab National
Bank placed orders worth Rs 88 crore and Rs 75 crore, respectively, while
Reliance spent another Rs 90 crore on network integration. Year 2002-03 also saw
the emergence of an interesting trend–that of total outsourcing of network
infrastructure management. Big contracts from the likes of Asea Brown Boveri,
Tata Iron & Steel Company and Whirlpool spelt big bucks for top network
integrators like Wipro, IBM and Hewlett-Packard India.

Increasing competition kept up the pressure on network integrators’ product
margins, while services including network design, implementation and management
ensured good revenues for them. Many NIs focused on value-adds like security,
network audits and storage consultancy. In terms of marketshare, Datacraft raced
to the top, leaving last year’s winner Wipro well behind, as Tulip sprinted to
third position on the back of its booming wireless integration business.

The big networking bazaar

Thanks to the buoyant activity in the BFSI and telecom sectors, the router
market found the going good and finished the year with a growth number of 8.5%–for
revenue of Rs 459 crore. Substantial orders from the Gujarat, Andhra Pradesh and
Madhya Pradesh state governments also stood the router market in good stead.
Market leader Cisco Systems made further inroads, garnering a whopping 87%
marketshare.

Hubs finally made an exit from the main stage, giving way to low-end 10/100
switches during the year, although miniscule sales still continue. As was the
case with the router market, the market for LAN switches also benefited from the
increase in activity in the BFSI and telecom sectors, apart from significant
orders for government projects, to reach a figure of Rs 500 crore, showing a
healthy growth rate. It was D-Link and Dax which ruled the low-end workgroup
switches market, while Cisco Systems, Enterasys and Nortel Networks were leaders
in Layer 2, Layer 3 and high-performance switches, respectively.

Unexpected windfalls from the lottery industry provided some relief to VSAT
vendors, though the segment clocked a negative revenue growth of 7% in 2002-03,
despite growing at a healthy 17% in volume terms. Playwin placed a whopping
order of 5,000 VSATs with Hughes Network Systems, which helped the latter emerge
as the market leader, capturing 52% of the overall marketshare. Gilat and Viasat
rounded off the top three slots, with 34% and 13% share, respectively.

The IP telephony market also saw hectic activity, with Cisco Systems crossing
the 20,000-mark in IP phone shipments to Indian customers. Besides, Tata Avaya
launched its range of IP telephony and voice over Internet protocol (VoIP)
products in first month of the fiscal. In structured cabling, though huge orders
from Reliance and several BPO units propped up vendor bottomlines to some
extent, they still had to grapple with a negative growth of 1.8% during the
fiscal. Broadband rollouts by many big telecom companies also helped stabilize
the market somewhat. Avaya led in this space with 33.5% marketshare, while Tyco
and D-link followed with shares of 26% and 11.7%, respectively.

Market trends

Clearly then, it was large and medium enterprises that led the sector’s
growth and kept it afloat, as they did in year 2001-02, while small and medium
enterprises still grappled with elementary network connectivity. Hubs and
low-end switches were still the main attraction for SMEs, especially in ‘B’
and ‘C’ class cities. Though 10/100 unmanaged switches gradually found favor
over hubs, the latter continued to be active in the marketplace throughout the
year. It’s an interesting phenomenon as there’s not much of a difference
between the price of an eight-port hub and a low-end eight-port switch, while a
switch offers obvious operational advantages.

In the LME segment, growth was driven by initiatives aimed at building more
intelligence into networks. Next-gen services like IP telephony, security and
network storage found increasing acceptance with large enterprises. Applications
like VoIP and enterprise resource planning drove them to upgrade networks and
small switches were promptly replaced with large enterprise-class options.

The upgrading of networks by telecom companies had a twin impact on the
networking industry–first, the introduction of next generation networking
services by telcos, like broadband and video-conferencing, spelt large orders
for the vendors of high-end networking equipment. Second, since telcos will now
start offering new services, there will be additional demand generated by
end-users for low-end networking equipment–in order to use these services. The
effect may be most visible in ‘B’ and ‘C’ class cities, which have not
had access to such services so far.

In a welcome development and what should trigger a good trend for the
wireless networking industry, the government relaxed few policy guidelines,
easing the license fee structure for broadband radio equipment. The development
is already creating impact as Bharat Sanchar Nigam is expected to go in for a
wireless deployment using LMDS technology in a major way. The government has
also allowed the use of WiFi indoors (See ‘The Age of WiFi’).

The general trend of customers shifting to higher bandwidth networks
continued during the fiscal, even as CAT6 found far more acceptability as a
default standard for cabling. As gigabit Ethernet made its presence felt during
the year, a new technology–optical Ethernet–made an appearance during the
year, with companies like Reliance and Bharti opting for optical Ethernet in a
big way.

Vendor push

Owing to a sluggish economy, distribution channels found a shrunk market as
few vendors came forward to work directly with the decision-makers in
enterprises. This was particularly the case with large projects involving
multi-location deployments.

As network security emerged as a hot topic, Enterasys focused its energies on
tapping the market with its intrusion detection system. Cisco Systems, on the
other hand, kept its focus strongly on training resellers and partners to
increase end-customer satisfaction. By the end of the fiscal, the company had
trained about 1,500 sales and technical personnel through its training program–called
Cisco University–in aeras like LAN, switching and routing, VPN and other
security products, IP telephony and wireless.

Large orders from call centers enabled Tata Avaya to end the year on a high
note, with a growth rate of close to 24%. The company continued to bet big on
convergence and most of its products launched in the year supported tightly
integrated VoIP functionality.

Way to go

The way to go is forward if indications from the second half of the 2002-03
fiscal are anything to go by. Though the year ended with almost stagnant growth,
the sudden influx of orders in the latter period has the network industry hoping
that good times could be back again. Looking ahead, it seems that the onus of
driving demand and in turn growth, will once again fall on the Fab Four
verticals.

As the country is still going through the elementary computerization phase
with low levels of networking in place, there is tremendous scope for industry
to grow as more and more organizations wake up to the benefits of being wired.

RISHI SETH

Why NMS is Hot...

	Layer 5 Switches Gain Popularity

As networks kept getting increasingly complex, a shortage of qualified IT
staff prompted Indian businesses to actively outsource their network upkeep
needs to network management service providers. For most Indian businesses,
almost 40% of the overall networking costs go into administering and maintaining
the network.

Coming at a time when the industry was reeling under the effects of the
slowdown, the demand for NMS provided a much-needed market opportunity for a
number of Indian network integrators who branched out into this lucrative
business space. The total network management services market last year was
pegged at Rs 171 crore.

Visible trends

The NMS market in year 2002—03 was dominated by the likes of Datacraft and
HCL Comnet. Other leading market players were Wipro Infotech, Satyam Infoway,
GTL, Microland, Comsat Max, CMS, and Bangalore Labs. In addition, NCR and Euro
Networks built their reputation by managing hosts of ATM networks of different
banks.

While cost was definitely a strong motivation for Indian businesses to
outsource their network management needs, organizations without qualified staff
and resources to manage their networks increasingly found outsourcing an
attractive option. Also, outsourcing provided a significant competitive
advantage for most companies who looked at rapidly expanding their networks
across the country.

There was an exponential demand for managing enterprise network services such
as LAN, WAN, VPNs, VoIP, intranets and extranets for deploying various
applications. Some NMS vendors like HCL Comnet and GTL even offered value-added
services like disaster management as part of their service bouquets.

The promise of the sector was such that even traditional VSAT players like
Comsat Max and Gujarat Narmada Fertilizer Corporation (GNFC) joined the NMS
bandwagon. With years of experience in the VSAT space, Comsat Max was in a
position to provide customers a complete end managed digital network for data,
voice and video transmission.

The Indian corporates increasingly took to wiring up their branch offices,
mostly due to the growing dependence of businesses on networks. Banking was a
major sector pushing for networking its branches. While SBI increased its
branches by 900, Punjab National Bank and Syndicate Bank ramped up their
networked branches by 400 and 85 respectively. More significantly, their
purchase orders mentioned that the networks would have to be managed end-to-end
by the service providers.

The lack of will on the part of corporates to continuously upgrade their
technology infrastructure was another key factor driving the NMS space last
year. In direct contrast, most of the serious NMS vendors kept on investing
substantially in technology and in constantly upgrading their skill sets to
address emerging issues in network management. This made them an ideal choice
when it came to outsourcing network management needs.

The NMS space in India is expected to accelerate faster than other markets in
Asia-Pacific. Pure-play players like Microland and Bangalore Labs are looking
aggressively at tapping new emerging verticals. The Indian market potential is
considered quite high in the BFSI, call center, and service provider segments,
as also in the courier services and FMCG companies.

Vendor infrastructure & clients

It is difficult to make a clear estimate of the market share of various NMS
players since many of them are still clubbing their revenues with their
integration business. However, among companies who are already providing NMS
revenues under a separate head, Datacraft emerged on top with nearly Rs 56 crore
worth of business followed by HCL Comnet, which did business worth Rs 32 crore.

Others like Wipro Infotech, Bangalore Labs, Ramco, Comsat Max, and Sify were
in the Rs 12—14-crore bracket. In terms of infrastructure, all major players
invested substantially in establishing their NOCs. For example, the NOC at HCL
Comnet provides end-to-end WAN management services. One of HCL Comnet’s
largest projects worth Rs 3.14 crore in 2002-03 was for Punjab National Bank. It
also had Fabmart, TVS—Suzuki and Indiatimes among its customers.

Datacraft also set up its NOC in Bangalore through which it offered its
STARtrac management services. A large chunk of its Rs 88 crore integration
project for SBI was contributed by the NMS sector. Datacraft even launched its
own iBOSS integrated network management system (iNMS) tool. Sify came up with
‘Beacon’, a product for network management. "The Hindu" newspaper
group became the first buyer of Beacon, while other clients included British
Council India Library, New India Assurance, ABN Amro Bank, Amul, and ISRO.

Wipro Infotech’s NMS service also offers special emphasis on security, as
its NOC in Bangalore has the capacity to continuously manage and monitor 1,000
firewalls. Some of Wipro’s clients include Apnaloan.com, Essar Group, Indal,
Kotak Securities, ICICI, LG Soft, i-Flex, HDFC, KPMG, Canara Bank, Haldia
Petrochem-icals and Seagram Manufacturing. Microland used Wipro’s NOC to
service clients like Blue Dart, IDBI Bank, and Procter & Gamble.

GTL’s NOC in its Mahape facility is used for remotely managing the networks
of about 10 of its blue chip clients. These include centre operations and
network security on a 24x7 basis that involves trouble ticketing for leased
lines.

Bangalore Labs too invested substantially in setting up its International
Management and Resource Center (IMaRC), a vendor-plural NOC facility. Some of
its primary customers are Pidilite, Shoppers Stop, Hathway, and IIM Lucknow.

Comsat Max, through its 24x7 NOC in Delhi, services clients like Hero Honda,
Thomas Cook and Exide, while Ramco has clients like Bombay Stock Exchange,
Indian Oil, Amara Raja Batteries, Ericsson, Coca-Cola, AirFreight, Hughes
Escort, ONGC and Tata Institute of Fundamental Research. Even banking service
providers like NCR and EuroNetworks have joined the NMS bandwagon. While NCR
manages the entire ATM network for SBI and HDFC among others, EuroNetworks
manages the shared ATM network for IDBI Bank, Standard Chartered, Citibank and
UTI Bank.

TEAM DQ

The Age of WiFi

	Vedor Revenue (Rs crore)
	Price Movements of Key WiFi Equipment over Two Years

An awkward licensing regime was a big roadblock in the largescale adoption of
WiFi–till about a year back. The regime required users to take individual
licenses for each node connected to the wireless network and in case more nodes
were to be added, more licenses had to be procured. The government has now
delicensed the indoor use of WiFi in 2.4GHz (802.11b), setting the market on the
proliferation path.

The earliest adopters of the technology continued to be the biggest markets
for WiFi –hospitality, airports, and educational campuses. The year saw some
WiFi implementations cutting across industries, from manufacturing (Asian
Paints, Imperial Tobacco Company) to banking (HDFC bank, Punjab National Bank)
and even government (INS Valsura). In fact, there were also a few e-governance
projects that involved WiFi implementation.

However, other enterprises by and large continued to shy away from adopting
WiFi – mainly due to the cost differential between wireline and wireless
equipment, and a perception that there is little to gain by going in for WiFi.
The situation could change in the near future as WiFi equipment prices have
tumbled sharply in recent times, bringing them within striking distance of costs
for similar wireline equipment.

On the client side, Intel launched its Centrino platform for notebooks, which
integrates built-in WiFi support on the processor. Big notebook vendors like IBM
and HP started selling notebooks with multimode (802.11 a, b and g) support. In
times to come, WiFi is slated to be the de-facto standard for laptops and
notebooks to get on to the network. The market also saw many new product (access
points, NICs, WiFi routers) launches by vendors including D-Link, Enterasys and
Cisco, with improved security and support for higher traffic and higher
bandwidth standards like 802.11g.

The total market size for primary WiFi products (access points and PCMCIA
cards) was around Rs 12 crore in 2002-03, according to Voice&Data estimates.