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TRAI Wants Telecom Service Providers To Use Locally Manufactured Products

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This must come as a positive news for Indian telecom product manufacturers and well a cause of worry for manufacturers like Huawei, Ericsson etc. TRAI wants the Indian Telecom operators to give priority to locally made networks and products for their infrastructure. So much so, that TRAI is hoping that by 2020 the use of locally made products will go as high as 80% as against the miniscule 3% usage currently.

TRAI wants to reach the target in a sequential manner with projected estimates for subsequent years till 2020,

Trai has recommended that the share of IMPs (Indian Manufactured Products) should gradually go up by 15, 20, 25 and 30 per cent in the financial years 2012-13, 2014-15, 2016-17 and 2019-20 respectively.For IP (Indian Products) , it has given slabs of 15, 25, 35 and 50 per cent

TRAI wants the operators to use products for which the Intellectual Property Rights (IPR) reside in India as against foreign based products or even local products made with assistance from foreign vendors. This seems like a step in positive direction to facilitate more focus and investment in innovation on the product side. I may not have the complete grasp on the telecom OEM ecosystem in India but I would not be surprised if there are currently too few competent vendors to take advantage of the opportunity.

It will be interesting to see how global vendors like Ericsson, Alcatel-Lucent make of this TRAI announcement. It is evident that the emerging countries and especially the Indian telecom sector is fast developing and a growing source of revenue for these vendors. Even in the current scenario, majority of these vendors have long term contracts with major operators like Airtel, Vodafone etc. With TRAI suggesting preferential treatment for local vendors, it might become a tough ask for these foreign vendors to further penetrate the Indian markets. However, given the high stakes it is possible that these vendors look for acquiring local vendors and setting up innovation labs in India in a bid to develop and market products specifically for the Indian markets.

Operators are definitely not taking the announcement well. For one they would not want the authorities to dictate the procurement terms and a move to switch vendors might come in the way of their long standing agreements. Not to say that I don’t believe in the competencies of local vendors but operators may not want to prefer local products which may not meet the superior technical standards offered by foreign vendors. TRAI however seems to be working towards a plan here. To ensure that operators play their end of the bargain, TRAI is looking to incentivize the operators to opt for locally manufactured products. Discounts on licensing fee are expected to be offered to operators who procure from local vendors. The exact details are not available but the authority has given a basic estimation of what kind of incentives can the operators look for. The service provider procuring more than 20 per cent of its telecom equipment requirement in the form of Indian Manufactured Products should get a rebate equivalent to 20 per cent of its licence fee for that year

The incentives look significant enough to entice operators to opt for locally manufactured products but the devil is in the details. A lot will depend on the pricing by local vendors vis-à-vis their foreign counterparts and the procurement agreements between the operators and vendors. The product quality is another aspect that I think will play a critical role in determinig if TRAI meets its projections.

What are your thoughts on this announcement by TRAI? Do you think local manufacturers would be able to meet the operator demands as well as foreign vendors? Which manufacturer do you think could be in a prime position to make a killing from this oppurtunity (SASKEN is a company that comes to my mind but I am not sure how much of product/manufacturing that they do)

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