Swedish telecomms supplier Ericsson is putting off fresh investment in India, blaming lower than expected demand.
The decision to downsize its operations in India and adopt a 'wait and watch' policy was taken against the backdrop of an uncertain telecomms market in the country, according to Anil Raj, vice president and general manager of Ericsson Communications.
As part of the cost cutting measures, the company has decided to close down "a few" its 19 offices in India as "many of them have little or no work", according to Raj.
However he refused to disclose which offices would be shut down. "We are also looking at the possibility of retrenching our staff as we have adopted a wait and watch policy on India," he added.
But the company reiterated its stand to remain committed to the country, and to operate and extend its product base as and when the industry picks up.
"We have no plans to pull out. It is just that at this point we do not intend to put in any fresh investments," said a source within the company.
Raj said his company was ready to invest in a "big way" in India in terms of the long term. He claimed the Indian arm was not profitable but hoped to break even within three or four years. "We are far from being profitable now. If the market continues to behave like this, our break even may be delayed further," he said.
The uncertainty in the telecomms equipment sector stems partly from the ongoing process of privatisation. Next year, private operators will be licensed and the winners are likely to begin major infrastructure investment programmes. This may well be the moment for Ericsson to step up its efforts again, said sources.
Contrary to industry expectations that mobile telephony would pick up dramatically and the subscriber base would touch 2.5 million by 1998, the actual base has just touched one million. "Cellular operators have to contend with one-third of the monthly charge they expected," an Ericsson official said.
Admitting that his company's calculations about India went awry, Raj said: "We had assumed that Indians would have a penchant for the expensive models. We never expected that 90 per cent of our total sales would be of the cheapest model." Though mobile phones in India have been a success for Ericsson in terms of market share, sales are nowhere near its initial projections.
Ericsson has operated in India for almost 100 years, selling telecomms equipment, and set up a fully owned subsidiary in the early 1990s. Now the global market leader in mobile telecomms supporting the GSM standard, Ericsson supports 17 networks in India.
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