Nokia sees strong Asian growth

Telecom equipment vendors see the managing of operators' systems as increasingly important, adding to their sales of radio and transmission gear.

india Updated: Feb 07, 2006 13:47 IST

Nokia, the world's top handset maker, said on Tuesday that its networks business in Asia would post robust growth in 2006 as more mobile operators outsource the running of their telecoms infrastructure.

Telecom equipment vendors see the managing of operators' systems as increasingly important, adding to their sales of radio and transmission gear, while operators use the service to cut spending and concentrate on acquiring and servicing customers.

For Finland's Nokia, which competes with Ericsson and Motorola Inc and Lucent Technologies Inc, a combination of positive factors will drive growth, said Rajeev Suri, the senior vice president of Nokia Networks in Asia Pacific excluding China.

"Technology transition is happening in some countries, and growth is happening in other countries, so overall, the trend is for a strong momentum in 2006," he said in an interview.

Suri said the "hyper-growth zones" of India and Indonesia, as well as Thailand and Vietnam, would drive business this year.

Nokia Networks accounted for nearly 20 per cent of group revenues and operating profit in 2005. The company does not break down the regional sales contribution for this division. Networks posted global net sales of 6.6 billion euros in 2005, up 2 per cent from 2004, while operating profit was 855 million euros, down from 884 million euros a year earlier.

Services - including the running of operators' networks and the integration of hardware and software applications for them - accounts for about 30 per cent of total networks sales globally. In Asia Pacific, the percentage is much higher.

International Data Corp (IDC) has forecast growth of 22-25 per cent this year for managed services, in which operators outsource the running of their networks and infrastructure to companies like Nokia. This is up from 15-20 per cent in 2005.

It has estimated growth of 4 per cent for telecom carrier equipment sales in 2006, flat from last year.

"Telcos are cutting capex to manage their balance sheets, so they're looking at how to lower operating costs, and managed services is one way," said IDC Asia Pacific analyst Sandra Ng.


Last month, Nokia said it struck a 5-year deal to manage and operate networks in nine areas for Hutchison Essar Ltd in India. The contract value was not disclosed.

Last November, it clinched a $141 million deal to expand the GSM network and manage infrastructure systems for India's top telecoms firm by sales, Bharat Sanchar Nigam Ltd (BSNL).

Suri said he expects Nokia to win more of such services contracts in high-growth India and mature markets like Japan. "India has led the way, and there will continue to be a growth momentum as we're starting to get those economies of scale. We will go for as much as we can take in India," he added.

But pricing pressure and competition in the industry is ferocious, he admitted.

"India is intensely competitive, but there's a lot of growth. Today, we're at $10-$12 ARPUs (average revenue per user), and new subscribers will come at $3-$5 ARPUs -- it gets pretty tight at the $3-$5 ARPU level for operators to make money. Some of that comes down to us in the value chain."

Nokia said intense price pressure and start-up costs in new markets hurt operating margins for its networks business in 2005, which fell to 13 per cent from 13.7 per cent in the previous year.

First Published: Feb 07, 2006 11:01 IST