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AMI-Partners' Study Shows India Medium Businesses Spent US$596 Million on Telecommunications, Mainly Contributed By Fixed and Mobile Services

Posted on: Tuesday, 12 April 2005, 21:00 CDT

Adoption of Various Advanced Telecommunication Technologies such as VoIP (Internet telephony), and IP-based PBX and Centrex Systems is on the Anvil

In 2004, more than 20,500 medium businesses in India invested almost US$596 million in various kinds of telecommunication-related technologies. This overall spending is dominated by local, long distance and cellular services that comprise a mammoth 73%. However, the overall telecom expenditure is likely to drop marginally in 2005 due to a rapid price decrease in various fixed-line telecom services like local and long-distance telephony as well as falling cellular tariffs. Overall spending on IP-based technologies like IP phones, IP PBX and IP Centrex display a high anticipated rate of escalation within the next few years.

The above findings were released today by New York-based Access Markets International (AMI) Partners, Inc., a leading consulting firm that specializes in IT, Internet, telecommunications and business services market intelligence -- with a strong focus on global small and medium business (SMB) enterprises. AMI-Partners conducts the industry's most comprehensive annual tracking surveys of SMBs in more than 20 countries, including North America (the U.S. and Canada); Europe (the U.K., France, Germany, Czech Republic, Poland and Russia); Asia-Pacific (Australia, China, Hong Kong, India, Indonesia, Japan, Korea, Malaysia, Singapore, Taiwan and Thailand); and Latin America (Mexico and Brazil). Within India, AMI has recently conducted an extensive survey of 250 medium businesses across the cities of Delhi, Mumbai, Chennai, Kolkata, Bangalore, Hyderabad, Kanpur and Ahmedabad.

Strengthening basic telephony infrastructure -- an effort by India MBs to reinforce the existing base

Having achieved complete saturation in terms of basic telephone connectivity, India MBs are trying to strengthen the existing infrastructure; close to a quarter of businesses plan to add a further 2.5 telephone lines per enterprise next year. An interesting observation is that mid-sized manufacturing businesses are keener to install additional lines to boost their existing communication infrastructure. BSNL is the market leader in local and long-distance services, occupying more than half of the MB market. It gets a head start mainly due to its widespread presence and reach throughout India in metros as well as tier-2 cities. Its partner MTNL has a market share of around 20 to 25%, controlling the telecom market in the main metros of Delhi and Mumbai. Bharti and Tata Teleservices are coming up quite fast while Reliance is gradually gaining a foothold within MBs, mainly in the long-distance sector.

Each telecom provider tries to woo the consumer by offering a multiple range of services, including Internet access, broadband service and leased lines, fixed wireless, Internet telephony, conference services and VPN. AMI's survey shows that more than 40% of India medium businesses prefer a bundled offering of local and long-distance services along with high-speed Internet services from a single provider. Close to a quarter of businesses desire additional services like VoIP, hosted applications, etc. Businesses are generally not very prone to switching service providers frequently. "Desire to remain with a single service provider is possibly prompted by the lure of anticipated cost savings due to volume discounts and also the wish to avoid hassles in switching operators," said Dev Chakravarty, analyst at AMI-India (Kolkata branch).

Cellular usage by India MBs indicates rapid growth boosted by falling tariffs, increasing options of value-added services and advent of newer operators with state-of-the-art technologies

Importance of cell phones has increased significantly in recent times among India MBs since this mobile technology enables companies to keep in touch with business partners as and when required. This is especially relevant in the current business scenario when enterprises need to be accessible by customers anytime and anywhere on a 24x7 basis. Consequently, around 69% of India MBs use cell phones currently; this proportion will escalate rapidly next year as India MBs approach complete saturation. Today's technically advanced cell phones are capable of not only receiving and placing phone calls, but also of storing data; taking pictures; receiving and sending e-mails and voice/text messages; web browsing; accessing WAP services; and being used as walkie-talkies, to name just a few available options. With the confluence of technology trends such as better hardware, faster networks and more sophisticated software, India MBs can utilize cell phones to perform essential business applications.

"The escalation of price wars has been a major factor in the telecom market where tariffs of local and long-distance calls have been falling rapidly as telecom operators rush to replicate each others' marketing strategies. Needless to say, the major beneficiaries in this war have been the India small and medium business sectors," commented Chakravarty. A few recent events have caused a major shake-up of the telecom market. These include a rapid gain in market share of CDMA providers like Reliance Infocomm at the expense of existing GSM cellular vendors and landline telephone service providers. Another significant development is the advent of state-of-the-art global technologies such as BlackBerry messaging service, push-to-talk capability and others.

IP-based technologies like IP-PBX/Centrex and VoIP are likely to show high future growth -- boosted by increased broadband adoption

A high growth area of note among India MBs is the IP-PBX system. Currently it has low usage, but is likely to be adopted by an additional 18% of MBs next year. IP-based technologies and voice solutions for the enterprise space are anticipated to make slow yet steady inroads at the expense of traditional PBX systems. Some of the advantages of the IP PBX are its ability to handle voice and data, flexibility and scalability, reduction in equipment costs, as well as long-distance charges for inter-branch calls. Consequently, IP PBX spend (approximately US$1.23 million at present) shows a very high future growth rate -- around 129% CAGR for the next five years. Some prominent vendors in this space are Nortel, Cisco, Avaya and Tata Telecom.

VoIP (voice over Internet protocol) has a current marginal usage of 6% within India MBs -- yet it is expected to display a high growth rate in the future. MBs are gradually waking up to the fact that IP telephony can enable substantial telecom cost savings and also offer various converged services using voice and data network services, such as collaboration with business partners across the globe and shared applications. Moreover, voice and data integration has been mentioned by a considerable proportion of India medium businesses as a primary area of strategic focus for the future.

Growth-enhancing factors behind telecom usage by India MBs

Some of the factors driving telecom growth are the proposed government plans for the privatization of the International Long Distance segment, legalization of Internet telephony and increasing the proportion of foreign direct investment. These are likely to result in increased telecom investment, along with enhanced implementation of various communications-related technologies. India MBs are also rapidly embracing high-speed Internet with the gradual decrease in related access prices. Thus, increase in broadband usage is expected to be another important factor enhancing usage of IP-based technologies like IP PBX, IP Centrex, VoIP and even Internet access through cellular phones and handhelds.

About Access Markets International (AMI) Partners, Inc.:

AMI-Partners specializes in IT, Internet, telecommunications and business services strategy, venture capital, and actionable market intelligence -- focusing on global small and medium business (SMB) enterprises. The AMI-Partners mission is to empower clients for success with the highest quality data, business planning and "go-to-market" solutions. AMI was founded in 1996 under the name of Access Media International (USA), Inc. by Andy Bose, formerly group vice president at IDC. Since its inception, the firm has built a world-class management team, each with ten to fifteen years' experience in IT, telecom, online communications or multimedia.

AMI-Partners has helped shape the go-to-market SMB strategies of more than 150 leading IT, Internet, telecommunications and business services companies over the last eight years. The firm is well known for its IT and Internet adoption-based segmentation of the SMB markets; its annual retainership services based on global SMB tracking surveys in more than 20 countries; and its proprietary database of SMBs and SMB channel partners in the Americas, Europe and Asia-Pacific. The firm invests significantly in collecting survey-based information from several thousand SMBs annually, and is considered the premier source for global SMB trends and analysis.

For more information on AMI-Partners or our global SMB surveys, please visit www.ami-partners.com or call 212-944-5100.

Source: Business Wire

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