Indian telecoms explosion tempts Cisco

Cisco Systems is digging deeper into the Indian market, as it prepares for an explosion in telecommunications spending there.

"There is tremendous opportunity in India," said Jayshree Ullal, senior vice president at Cisco. "We have been working closely with all the premier carriers in India to provide them with packet gear. The next five years will be India's time to establish its IP infrastructure."

Bharti Infotel, a subsidiary of Bharti Tele-Ventures, one of four major telecom providers in India, announced on Wednesday that it has chosen Cisco to be the main equipment supplier to build its IP-based multiprotocol label switching (MPLS) network. The carrier will be using Cisco 12000, 7300 and 7200 series routers and its Catalyst 4500 series switches.

MPLS is a technology that tags IP packets and creates secure tunnels for traffic through the network. Carriers using the technology can reduce operating expenses by sharing bandwidth resources across the network. The technology also allows them to offer new revenue services, such as virtual private networks (VPNs).

The data and broadband group of Bharti Infotel already serves the top 500 corporations in the country, but the carrier hopes that the new MPLS service will attract even more business customers.

"With the advent of globalisation, there is an incessant demand from Indian enterprises to access world-class services such as VPN, bandwidth on demand and managed networks," Badri Agarwal, president of Bharti Infotel, said in a statement. "We are now uniquely positioned to offer high-speed, carrier-class services to various enterprises in the country."

No details were given regarding the size of the deal but the win provides further evidence that Cisco is gaining momentum in this growing market. The networking giant has already been selling IP switching and routing gear to Bharti, as well to the three other major telecommunication service providers in the region: Bharat Sanchar Nigum Limited (BSNL), Reliance Telecom Limited and Videsh Sanchar Nigam Limited.

But so far, Cisco's presence in India has been relatively small. During the past year, between 10 per cent and 12 per cent of the company's total quarterly revenue was generated in Asia.

Analysts expect Cisco to increase its activity in India. The company is rumored to be a top contender for a $2bn multiyear contract with BSNL to build its national IP backbone.

With a population of more than one billion people, India has barely tapped its potential telecommunications market. At the end of 2003, only 42 million people had access to a traditional telephone infrastructure, and only 31 million subscribed to wireless services. But these numbers are rapidly growing as carriers in the country build new networks and begin offering services.

"In its simplest form, the Indian telecommunications market is a unique opportunity in that the number of telephone users, wireline and wireless, are likely to grow at rates that are unprecedented, even compared to the massive buildup in China," according to a recent report from investment bank Lehman Brothers.

But analysts caution that it may be harder for equipment suppliers to actually make profits from these deals. With the average annual income for Indian citizens around $3,000, pricing on services is expected to be low, which could affect gross profit margins for equipment suppliers.

Ullal said Cisco will still have an opportunity to make money in India, even with squeezed margins. "Everyone is looking for bang for the buck these days," she said. "When you're dealing with business-class users, there is premium pricing. But as technology moves to the mass market, there will be more price sensitivity. We expect to have tiered gross margins on our products."

Marguerite Reardon writes for CNET News.com