Tata’s strong signal: game on in telecom gear

Amid all this, one stall attracted an unusual amount of footfall—the Tata group’s display zone. The salt-to-software conglomerate filled its tent with telecom equipment; marketed its semiconductor prowess and, quite predictably, solutions around 5G.

“I’ve not had a minute to breathe,” Parag Naik, the chief executive of Saankhya Labs, a wireless communication and semiconductor solutions company, told this writer at that time. “Visitors from the central government, states, companies… so many are here.”

Naik walked away before finishing the conversation to receive yet another set of visiting bureaucrats.

In March 2022, Tejas Networks, an Indian telecom equipment company, acquired a majority stake in Saankhya Labs. A year before, in July 2021, an arm of Tata Sons acquired a controlling stake in Tejas Networks. At the mobile show, Saankhya Labs was showcasing equipment it developed, alongside equipment by Tejas Networks.

We all make calls, surf the internet, download videos, and stream music on the go. While most of us are familiar with the telecom service providers, like Jio and Airtel, the equipment makers are the backroom people. The equipment is the backbone that enables communication.

This equipment market is a playfield dominated by multinationals. Within visible distance of the Tata stall at the Mobile Congress, were two massive stalls, set up by Nokia and Ericsson. They are the two giants, holding a combined share of 68% in India’s telecom and networking products market in 2021-22, according to Frost & Sullivan. The Tata group now wants to disrupt this market and compete fiercely with them.

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Through acquisitions and group synergies, the Tatas are gradually building its telecom gear play. The stall, and subsequent statements from the conglomerate’s executives, signalled their intent.

“The goal is clear. We want to be one of the top five players in the $200 billion global telecom gear market in the next five years,” said a senior executive at Tejas Networks, asking not to be named.

“The group is committed to being a large player in the telecom technology space. We are consolidating all our telecom equipment and technology offerings under Tejas Networks which we acquired recently,” Tata Sons chairman N Chandrasekaran recently said in an interview to Fortune India.

Tata group’s growing ambitions is well-timed. The world is in transition. India and many other countries want to reduce their exposure to Chinese telecom equipment makers—Huawei and ZTE, in particular. Even beyond telecom, multinationals now want to reduce their dependence on China for manufacturing of critical goods and equipment. They learnt a tough lesson over the past two years as China’s ‘zero-covid’ policy backfired, causing severe disruptions in supply chains. Input and production costs rose, so did the price of goods to end consumers.

India has emerged as the second most sought-after manufacturing destination across the world and telecom is a priority sector—the central government has announced a production-linked incentive scheme for telecom equipment.

The Tata group wants to position itself as a formidable player here, starting from being a key supplier to the government-owned telco, Bharat Sanchar Nigam Ltd (BSNL).

The liftoff

Tejas Networks started in 2000, in Bengaluru. Over the past two decades, the company has seen many ups and downs. And it has remained a small to mid-sized player.

Industry insiders said that the company’s products were yet to gain major traction in any market. “They don’t have products or market share to show,” said a senior industry watcher, asking not to be named.

Numbers tell the story. Nokia reported net sales of €2.7 billion (about ₹23,533 crore) for network infrastructure and €2.9 billion (about ₹25,274 crore) for mobile networks in the December 2022 quarter. Tejas Network’s consolidated revenue for the same period was ₹275 crore.

Under the Tata group umbrella, the company appears to be fast transforming, from a tiny player to a force to reckon with. It may soon taste its first multi-billion-dollar 4G equipment contract.

Tejas Networks is part of a Tata consortium that is the frontrunner for supplying 4G equipment to BSNL. The consortium also includes IT services exporter Tata Consultancy Services (TCS) and the government-owned Centre for Development of Telematics (C-DoT). This deal could be a mammoth order for 100,000 sites, with an estimated outlay of about ₹25,000 crore, of which network equipment would be about ₹13,000 crore.

“We are L1 (the lowest bidder) in a very large pan-India tender for building a backbone for our 4G and 5G, winning against global MNCs. And we believe this will have a significant revenue potential during next year. We expect to close (the order) sometime in this quarter and this will possibly be the largest single order for optical networking business till date,” Sanjay Nayak, the co-founder and chief executive of Tejas Networks, said during the company’s third quarter earnings call on 6 February. He did not name BSNL.

He added that the gear maker had significantly increased production capacity by signing up three new electronic manufacturing services, or EMS, vendors as its contract manufacturing partners and had invested in expanding its own internal capacity—warehousing, production floor, research and development (R&D) as well as people. The company now has 1,250 employees, up 60% from a year ago. About 800 of them are in R&D.

Setting up the 4G network for India’s largest public sector unit in the telecom sector will set the ball rolling for the local gear maker. Possibly, set the stage for other domestic contracts and, going ahead, a global expansion.

The China factor

A massive tailwind for Tejas is coming from the absence of Chinese telecom gear makers, Huawei and ZTE, from not only all new Indian telecom contracts – spanning 2G, 4G, 5G and so forth – but also from many foreign markets, such as the US and Europe.

India barred the use of Chinese gear by its telecom service providers a couple of years ago. Recently, India barred Chinese gear for being used as replacements as well, effectively shutting them out from any telecom business in the country.

“The geopolitics is working in our favour. Another factor working for us is economies of scale that is comparable only to China. This, in turn, gives us a real competitive edge,” the executive quoted above said. He added that Tejas Networks was among the four companies—the others are Nokia, Ericsson and Cisco—to have received the ‘trusted sources approval’ from the National Cyber Security Coordinator (NCSC). In India, the NCSC coordinates with different national agencies on cyber security matters and has the final say on the source destination for telecom gear.

Group synergies

For the longest time, Tejas had limited access to large customers even when it had the products.

“We have pretty much everything that you need in the product portfolio—almost the same as Nokia or Huawei or Ericsson. The problem is, we never had enough customers. We never had enough market access,” the executive quoted above said.

The Tata group’s brand opens many doors. The conglomerate is also pumping a total of ₹1,890 crore into Tejas. “The Tata Group’s backing will put the company on the map,” said a sector analyst who did not want to be named. The evidence is in the company’s stock performance, he added. Tejas Networks’ shares have more than doubled from ₹246 a piece on 29 July 2021—when it announced that a Tata Sons’ subsidiary will acquire controlling stake – to ₹613.55 on 6 March.

While it may have had a tough time on its own, Tejas could have a winning chance at contracts, in India and overseas, as part of a consortium of Tata Group companies. The BSNL bid is an example, where Tata Consultancy Services, or TCS, has pitched itself as a systems integrator. Tejas can also be part of a consortium alongside Tata Communications, a company aiming for the 5G business pie in enterprises. Tata Communications, which operates an advanced subsea fibre network, sells communication, collaboration, cloud, mobility, network and data centre services, among other solutions.

TCS did not comment on its plans to expand its role as a systems integrator or partner with other Tata group companies for building 4G and 5G telecom networks in India.

So, what exactly is the private 5G opportunity and how can Tejas benefit?

5G is expected to offer ultra-high data speeds with extremely low latency. In other words, no lag. This will facilitate automation and efficiencies never seen before. Coupled with other technologies such as internet of things (IoT), artificial intelligence (AI) and machine learning (ML), 5G is seen to be enabling autonomous vehicles, drones, remotely assisted surgeries, traffic control, and everything smart – from cities to factories.

This is why telcos as well as non-telco companies are pinning their hopes on 5G for the enterprise, also called private 5G networks or captive non-public networks. This is expected to be a multi-billion-dollar revenue stream globally. According to Finnish gear maker Nokia, private 5G in India is likely to be a $240-250 million market by 2027, while globally, the market could generate $7.5 billion in revenues, increasing at a CAGR of 23.5% from $2.5 billion in 2022.

A.S. Lakshminarayanan, MD and CEO of Tata Communications, said in a recent interaction with Mint that the company has invested in delivering industrial connectivity as a service. 5G networks would power such connectivity, going ahead. The company is talking to Indian and international customers to offer the same.

TCS’ chief operating officer, N Ganapathy Subramaniam, has been quoted in media reports saying that the company would help organizations across sectors set up their private 5G networks.

Tejas could well benefit from being the telecom gear supplier for 5G private networks, when the roll out begins.

Challenges ahead

All this doesn’t mean that the Tata group won’t face challenges. If Tejas doesn’t scale up, and at the right time and pace, the group synergies it is hoping to leverage may go for a toss. After all, Tejas continues to be a mid-sized business with an order book of ₹1,431 crore as of December 2022.

A telecom sector analyst, who did not want to be named, said that the global telecom vendor market had space for more players. But as things stand, Tejas will have an uphill task. Not all global markets will be available for entry since Huawei and ZTE are still operational in several South East Asian and African markets, leaving the pricier and tougher US and European markets open, he said.

Tejas, meanwhile, also needs to integrate Saankhya Labs, a company developing technology for 5G as well as 6G. “The focus of Saankhya’s R&D team now is to strengthen and accelerate the development programs for 5G, radio, cellular broadcasts, satellite communication and other areas like semiconductor chip design,” the senior executive quoted earlier said.

As of now, executives at Tejas, and the Tata group, are brimming with confidence. India’s push to promote indigenous telecom ecosystems is a great opportunity they don’t want to miss at any cost.