India Holds Great Promise for Telecom Growth

By Rich Tehrani

President and Editor-in-Chief

 

Kent Charugundla, a well-known telecommunications entrepreneur and art field sponsor, has diversified global experience in IP/telecom, conferencing, call centers, networking, outsourcing markets and contemporary Indian Art.

During the last week of November 2006, he participated in the largest trade mission ever assembled by the U.S. government to boost commerce with India. Charugundla represented the smaller companies in telecommunications sector.

As U.S. investors are boosting their participation with one of the world’s fastest-growing economies, I thought that this interview would be of value and interest to readers. Charugundla brings in-depth entrepreneur insights and practical recommendations. This can help readers to appreciate opportunity with one of the fastest growing economy in the world and help to participate, more specifically, in the telecom sector.

What follows are excerpts from the interview with Charugundla:

RT: We understand that you have recently participated in the largest trade mission ever assembled by the U.S. Department of Commerce for U.S.-India. Tell me about your observations.

KC: The U.S. Department of Commerce pulled together the largest trade mission hoping to boost commerce with one of the world's fastest-growing economies. A total of 239 participants from 189 companies participated in the mission, which included a business summit in Bombay, followed by meetings in Kolkata, New Delhi and other Indian cities. Companies represented on the mission include such well-known firms as GE, FedEx, and UPS, as well as smaller companies from sectors including health care, industrial machinery and telecommunications. During the past several years of the mission, only large multi-national companies participated.

We are a global player and believe strongly in a free trade to market products and services. We are investing heavily in Europe and Asia, and we see that US will be leading the world in innovation, but deployment of network assets, skills and network operation will be continuously evaluated to extract maximum financial benefits worldwide. I am a firm believer in exchanging ideas and opportunities globally, and in providing optimum business solutions to our customers.

RT: This trade mission goes to India every year, but what was unique about 2006-trade mission?

KC: This year, the U.S. Government recognized that a number of small/medium size companies such as EagleNet are contributing significantly to the bilateral economic growth. They recognized value creations by a company of our size and the sector we represent. Consequently, they had invited a number of small companies. It was truly a historical event and it was my pleasure to participate in the trade mission.

India’s economy, which weighs in at under $1 trillion today, is expected to grow to $27 trillion by 2050, according to the investment bank Goldman Sachs. By comparison, the $13 trillion U.S. economy is expected to expand to $37 trillion. This mission took mini-steps to move forward for this great commerce opportunity and I was personally excited about this trade opportunity since we have expanded our business footprint both in our legacy telecommunication services business and in our newly formed fast-growing contemporary Indian Art business.

RT: You manage a wide range of telecom services and diversified user groups both in U.S. and India. Why is the telecom sector in India appealing now?

KC: India’s 175-million line telephone network (fixed plus cellular) is among the top 5 networks in the world and the second largest among the emerging economies, after China.  India has one of the fastest growing telecommunications segments in the world, with total connections growing at an average of more than 20 percent per annum over the last 4 years. The total subscriber base of cellular subscribers is currently at 130 million, and a number of subscribers added this year alone is more than 50 million.  This is the highest growth rate in the world.

The network consists of more than 28,300 telephone exchanges. The industry is considered to have the highest potential for investment in India and the growth in demand for telecom services in India will be the highest in the cellular services, basic telecom service, national long distance, followed by international long distance. We see significant opportunity for value added services such as Teleconferencing. With our flagship facilities based global teleconferencing platform with the bridge capacity of over 10 billion minutes per year, we are very well positioned for participation in this unprecedented growth in India.

RT: We hear lot about China and India’s economic growth. Specifically, in the telecom sector growth cycle, where is India now?

KC: After a nine years existence in China, wireless services were able to capture fewer than 7 million subscribers. By comparison, after the start date for the comparable period, India had attracted four times more subscribers. The giant elephant in the telecom sector is on the dance floor and is playing an open market tune to meet growing customer needs.

The telecom industry is considered to have the highest potential for investment in India and the Indian telecom market has been displaying sustained growth rates for last several years. For this reason, we believe that we are in the early stages of a long sustaining growth cycle. Due to the deregulation of telecom segment, all major telecom equipment manufacturers and service providers have accelerated their plans to set-up manufacturing plants, network operation centers, and sales and marketing organizations.

We strongly believe that within next five years all entrepreneurs in the telecom sector will find excellent growth opportunity, as we have significantly expanded our operation in India and plan to invest more heavily in the coming years. Value-added service providers such as ours are growing by the day, and we expect further deregulations from the Indian government.

Hallmark to our success is that we provide the most reliable infrastructure to our clients with the most competitive rates. The cost of bandwidth and telecom equipment has fallen sharply during last few years, thus making the telecom sector more attractive.

RT: The Indian telecom market is not fully deregulated like the US market. What reforms are made to date, what telecom reforms are needed and what is expected in the future?

KC: Looking at this from a distance, one can see that the Government of India authorized the National Telecom Policy in 1999, opening the telecommunications market to the world. Availability of affordable and effective communication for every citizen in India was the core vision and goal of this telecom policy. From that point to date, the growth in subscribers has been more than 500%, an astonishing achievement by any standard. The recent deregulation allowed for 74% foreign ownership, and will undeniably catapult the growth.

India has made important moves to begin opening its economy, including lowering tariffs, reducing non-tariff barriers, and taking initial steps to increase the protection of intellectual property. Liberalization of the national and international long distance sector by the Government led to the setting up of private companies in both service segments.

There are still many regulations including not allowing 100% foreign ownership and eliminating foreign equity caps and prohibitions, licensing procedures, licensing fees, local labor laws, and other corporate governance requiring further deregulations. We are very optimistic about the Government’s commitments and in my recent participation in this trade mission, the Government’s supportive commitments were strongly present. The Government of India is committed to virtually deregulating every segment of the Indian Telecom industry over next few years. India needs to continue creating, adopting and enforcing clearly-defined policies. We congratulate the Indian Department of Telecommunications for what they have done in the market. Indian telecommunications deregulators have a huge advantage in being able to look at the European and American markets to avoid making the same mistakes they have seen in the deregulation of systems; thus remaining cautious, while still insuring the basic necessity of the telephone in every village of India. For this reason, some companies may feel that the market is overregulated.

RT: From investment point of view, what specific advice would you give to U.S. based potential investors in telecom sector?

KC: India represents vast untapped potential and offers an unprecedented opportunity for telecom service providers, infrastructure vendors, manufacturers and associated value added service providers. India is at a transformational time in its relationship with the world, and is now making itself more competitive and prosperous. The telecom sector is steering the economy towards increased liberalization and unleashing the pent-up potential for growth. This solid foundation is beneficial to U.S. based investors and investors can look to capture gains of the Indian telecom boom.  My strong advice to any potential investor looking into India is to invest in India telecom equities because, due to the fact that Bombay Stock Exchange is a heavily regulated entity under the government of India, they take great steps to see that investors are not taken for a ride.

RT: Within telecom sectors, which services to emphasize for business opportunities?

KC: To date in India, the market focus has primarily been on the basic services. In the past, monopoly carriers essentially controlled all value added services. Due to deregulations in 1999, a new era has launched, offering a wide range of value added services. Within the telecom sector, we see significant growth in such value added services as: teleconferencing; call center services, voice messaging, IP services, video conferencing, web conferencing, Internet services, and distance learning. As the Indian workforce becomes more mobile, we see several folds increase in value added services growth.

RT: It would seem that you have been successful doing business in India. What market entry strategy would you recommend for U.S. based investors?

KC: With regards to market entry strategy to India, I would suggest that U.S. based investors consider following three points:

--Finding partners and agents.  New business must address issues of sales channels, distribution and marketing practices, pricing, labeling and protection of intellectual property. Relationships and personal meetings with potential agents are extremely important, and, of course, due diligence is strongly recommended.

--Geographic diversity.  U.S. companies, particularly small and medium-sized enterprises, should consider approaching India’s market on a local level.  Good localized information is the key to success in such a large and diverse country.  U.S. Commercial Service posts in New Delhi, Mumbai, Chennai, Ahmedabad, Bangalore, Hyderabad and Kolkota provide indispensable local information and advice and are well plugged in with local business and economic leaders. Often multiple agents are required to serve in each geographic market within the country.

--Market entry options.  Options include using a subsidiary relationship, a joint venture with an Indian partner, or using a liaison, project, or branch office.  U.S. companies are strongly urged to consider a regional plan, focusing on multiple locations and markets within India and to find the appropriate partners and agents within each region.

RT: What are some key points one should consider for selling U.S. products and services in India?

KC: A company choosing to sell its products or services in India prior to establishing a branch office or a subsidiary can enter the market by appointing an agent, representative, or distributor.  If the product has a wide market appeal, it is advised that regional representatives or distributors be appointed after a thorough due diligence study is completed in the interest of establishing a relationship.

When evaluating a distributor or agent, the Indian firm’s business reputation, financial resources, willingness and ability to invest, marketing strength, regional coverage industry expertise and credit worthiness should be considered. Therefore, it is important to objectively measure the ability, willingness and aggressiveness of the firm in developing new networks, contacts and areas of business.