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Networking, it seems, is on a warpath. This is one segment which is showing no signs of slowing down in the coming few years. In FY 2004-05, while the big corporates were investing more on the higher-end networking solutions and services, a buoyant economy and more awareness led to further proliferation of networking in the small and medium business (SMB) space.

The year saw the enterprise management looking at networking and communications as a strategic investment. The number, size and complexity of deals throughout the financial year reflected this. Though the adoption of technology was driven by customers, it was propelled specially by the Telecom, BPO, BFSI, manufacturing and education sectors. Though with smaller deals, the SMBs, along with the niche market segments, were gaining more equipment and service vendor focus.

The Money Came From...
Routers: Growing at a steady 36% YoY growth as last year, the router market touched a high of Rs 860.5 crore as against Rs 634 crore in the year before. While the market for high end routers grew on account of major broadband and MPLS network deployments by leading service providers, the market for the mid and low range routers was driven by small, medium and large enterprises across all verticals.

MPLS deployments were enhanced or added. BSNL, which was the first to roll out MPLS in FY 2002-03 further stretched out to cover almost the entire country. Also Bharti, which had earlier deployed MPLS backbone solutions based on Cisco routers, is now deploying new IP/MPLS next generation service networks. Reliance Infocomm launched MPLS global VPN service in association with MCI. Many large companies either migrated to an MPLS VPN or took steps in that direction.

Cisco led the router market with 84% market share. Juniper, D-Link, DAX networks, Nortel, Multitech, Huawei and 3Com followed at a far distance. The growth came from both service providers and enterprises.

One of the major deals was Cisco's Metro Ethernet solution for Tata Indicom Broadband services. Juniper bagged orders from Railtel and BSNL. Railtel's project involved the installation of Juniper's M series platforms in 38 cities. In a major jump, DAX, after its tie up with Maipu Communications, grew its router business by 100% during the year. BSNL, Railways and HDFC bank were among the leading DAX customers.

The router market is poised for further growth, on account of the growing network and communications market. Juniper, despite offering rich features and scalability, will have to work harder on its brand building in the Indian market to compete with Cisco.

Switches: Overall, the enterprise switch market revenue totaled Rs 1,302 crore, fuelled by an increase in the average selling price (ASP) and strong demand for Fast Ethernet and Gigabit Ethernet LAN switches.

With a 70% market share, Cisco is the leader in this space, followed by D-Link, Nortel, 3Com and Enterasys. While Cisco registered a 79% growth with Rs 911 crore in FY 2004-05, Enterasys saw a decline of 84%, with its revenues dropping from Rs 170 crore in FY 2003-04 to Rs 27 crore in 2004-05. Both Nortel and 3Com showed a dip in their revenues. The Foundry alliance with D-Link has been gaining traction and is ramping up the market share.

Cisco garnered further momentum in the Telecom and BPO space. The key win for Cisco were Tata group, SBI,

 Mahindra & Mahindra, Wipro BPO and BITS. Cisco, with the Linksys acquisition made a strong entry into the SOHO and home network market, thereby more than doubling the business in the unmanaged switches segment.

Increase in the total number of endpoints connected to the LAN, increasing diversity of traffic flows on the LAN through network convergence and more awareness regarding security caused an underlying technology shift in the Ethernet switch market as LANs became more intelligent and offered increased bandwidth. Gigabit Ethernet and Layer 3 switches are expected to fuel the switching demand further in the coming few years.

WLAN: The Wireless LAN segment registered the highest growth of 60% as compared to the average datacom market growth of 33%. According to Voice&Data estimates, the WLAN equipment market was valued at Rs 82.5 crore in FY 2004-05 as compared to Rs 51.5 crore in 2003-04. It entered the mainstream with both enterprise and SOHO users.

The drop in equipment prices resulted in the per user cost of deploying WLAN in enterprises slipping to 50% of the cost of FY 2003-04. The fall in Laptop prices and Internet bandwidth, and the expanding networking complemented the low prices.

While Cisco continued to lead the market in terms of value, D-Link reigned in terms of volumes. The WLAN market was primarily driven by ISPs, Telcos and SOHOs in FY 2004-05, and they promise to continue being the key drivers in FY 2005-06.

Modem: The high growth modem industry saw a 43% growth resulting in revenues crossing the Rs 200 crore mark. Dial-up was phasing out, and leased line modems registered high unit sales with ADSL broadband showing strong growth. While D-link, Atrie and Bharti Teletech were big players, MRO-Tek and DAX lost market share.

VSATs continued the march despite stiff competition from MPLS on the wireline side and CDMA or GPRS-Edge on the wireless. India had a total estimated installed base of 53,000 terminals by the end of financial year FY 2004-'05.Viasat, HNS, Gila, ND Satcom and Comtech were the top 5 in the VSAT space. Here ISRO's EduSat project and other e-gov initiatives were growth boosters.

Vendors like Trend Micro, Symantec, Network Associates, MacAfee, Cisco and Juniper were the leading security product vendors. Anti-virus solutions, Firewalls, intrusion detection and prevention, Patch management were major network security products contributing to a Rs 299 crore market segment.

In the Rs 405 crore structured cabling market, Systimax and Tyco formed more than 50% of the market. Cat 6 continued to be the dominant standard, with an estimated 48% market share.

Shifting to NI Services
Network integration (NI) services, including network management services, grew by 19% to reach Rs 1,041 crore.

Network Integration: Last year saw a major shift towards services and management. Integrators added or expanded their service offerings. Even smaller players who had started jumping onto the services bandwagon found a foothold and made their presence felt in the market. The larger integrators differentiated themselves with end-to-end offerings, which held preference by bigger corporates. Enterprises have started investing in building new or ramping up their old network infrastructure.

As a general trend, companies are now realizing the pros of staying focused on their core competencies and leaving the networks to be handled by experts. Network integrator service revenues have gone up from 12% to 25% and managed Network operating center (NOC) services are now finding increasing preference among customers. As the size and complexity of networks increased, enterprises' dependence on integrators rose too resulting in a huge market demand for managed services. Here the network integrator takes full responsibility for operating the network of the customer on an ongoing basis.

FY 2004-05 saw emergence of partnerships between telecom service providers and companies like IBM and HP, wherein the Telco brought connectivity strengths and integrators contributed with their networking expertise.

Wipro Infotech took the largest share of the NI pie recording a turnover of Rs 486 crore, closely followed by Datacraft at Rs 466 crore. HCL Comnet, Tulip, HCL Infosystems, CMC, GTL, Network Solutions, HECL and 3D Network followed.

Most integrators had their revenue flows generating from the BFSI sector, which drove NI growth in FY 2004-005. HCL Comnet had almost 17 banking clients, Datacraft closed a $1 mn deal with SBI, Wipro Infotech had Overseas Bank and Union Bank of India in its clientele and a Rs 35 crore PNB deal was concluded by Tulip. Wipro Infotech, HCL Comnet, Tata Infotech, HECL and GTL worked on Bharti, Reliance, Tata Indicom, BSNL, and MTNL integration projects. Wireless held strong frontiers for companies like Tulip (Mallapuram implementation) and Gemini which executed a Rs 8 crore MTNL Garuda network-Delhi deal.

Network Management: As networks became bigger and more complex, Indian businesses continued to outsource their network management needs to Network Management Service (NMS) providers. The NMS market in the past fiscal registered a 33% growth to reach a size of Rs 311 crore. Enterprises started looking for end-to-end service, which would provide all pieces under a unified SLA.

HCL Comnet led the race with revenues of Rs 112 crore with key projects from Tata AIG, LIC, NIC, HLL and Ford. The other top 4 management companies were Datacraft, GTL, Network Solutions and Wipro Infotech. Vendors like IBM, HP, Telcos like Reliance, Bharti (with IBM) and VSNL, besides Wipro Infotech, Infosys, HCLT and HCL Comnet joined in to get their share in the expanding pie.

Manufacturing, BFSI and Telecom were in the forefront with the potential of spending more than Rs 4,000 crore over the next 4 years. Managed services like IP-VPN, managed IP-telephony, and managed security found acceptance among both large enterprises and the SMBs.

Core Buyers
BFSI and BPO sectors were among the large buyers of networking equipment last fiscal, together totaling 50% of the total demand. Competitive pressures in BFSI compelled public sector banks to continue investments towards expansion of their ICT infrastructure.

In the switching space, the market saw large deals coming from Telcos like Reliance, Bharti, Tata Indicom, BSNL and MTNL. Also verticals like Defence, government, BFSI, ITeS and BPO made huge purchases.

State Bank of India, United Bank of India, and Bank of India drove VPN deployment in the Banking sector.

SOHO: The New Link
Small businesses have emerged as networking customers as well as solution providers in a big way. The SMB market also contributed to the growth of the network integration market spreading across tier2 and tier3 cities.

The traction here was a direct result of cost of equipment, which kept coming down. On the installation side, PC dealers could support small companies by providing networking services. Wireless networking gained traction in the SOHO segment last year. While more small companies started investing in the low-end routers, Medium businesses are now demanding more features in their routers.

Cisco's increasingly aggressive positioning in the SMB space is corroborated by the fact that about a quarter of Cisco's India revenues came from the SMB segment. Cisco's plans focused and tapped the Small and Medium businesses in auto component manufacturing, retail, textile and government sectors. It launched its set of SMB class solutions in Nov 2004. Integration and Management companies too will continue to remain bullish over this segment. Players like HECL profited by servicing niche segments like digital cinema and television.

Jasmine Kaur

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