C-DOT Gets a Second Life, but will it be successful?

India has seen a telecom boom over the last decade and today has 700-800 million mobile phone connections. But, though thousands of crores of investments have gone into creating the infrastructure for telecom services in India, very little of the equipment has been sourced from, or manufactured in, India.

Why has this happened? The simple answer is that we failed to build up a competitive telecom equipment manufacturing industry in India. Till the 1980s, telecom was a public sector monopoly with the Indian Telephone Industries (ITI) set up to manufacture exchange equipment and telephone instruments. ITI followed the traditional model of sourcing technology from other countries/companies and manufacturing products under licence. Though it had its own R&D, it never succeeded in developing good products of its own. ITI’s woes were compounded by poor decisions on technology and investment – for example, ITI set up a crossbar exchange manufacturing facility in Rae Bareli just when this technology was being phased out elsewhere in the world. Later, ITI’s first move into modern electronic switching systems was located at a new plant in Mankapur (UP) which had absolutely no ecosystem to support it.

C-DOT: History and Achievements

The first serious effort to build indigenous capability in switching technology was the creation of the Centre for Development of Telematics (C-DOT) in 1984. Under the leadership of Sam Pitroda, C-DOT took on the challenge of developing Electronic Private Automatic Branch Exchanges (EPABX), Rural Automatic Exchanges (RAX) and Main Automatic Exchanges(MAX) suitable for Indian conditions (high temperatures, high dust levels, poor handling, power fluctuation, etc.) at low cost. While the first two were developed on time, and were comparable to the best in the world at the time they were developed, the MAX (a much more complex project) took longer, though it was ultimately able to meet the specifications of the then monopoly Department of Telecommunications (DOT).

The main impact of C-DOT’s technology was ushering in an era of nation-wide connectivity, providing the base for the huge network of “STD booths” that dotted the country by the late 1980s. The low prices of C-DOT’s equipment resulted in multinational telecom vendors lowering the prices of their own equipment as well. C-DOT played a stellar role in building local skills and capabilities – in the 1980s (remember this was before the software and IT revolution took root in India), C-DOT provided challenging opportunities for Indian engineers, and C-DOT projects were the first large projects where structured software development processes were used.

In its early years, C-DOT benefited from the relationship its charismatic founder Sam Pitroda enjoyed with Rajiv Gandhi. C-DOT got sufficient funding to develop its equipment, and was allowed flexibility in its organizational arrangements to pursue its mission. But full credit should go to Sam and his team for demonstrating the ability to develop complex products in India at a time when local capabilities were limited.

However, Sam’s rapport with the Congress government proved a mixed blessing when the Congress lost power and was replaced by the VP Singh and Chandrashekar governments. He was literally hounded out of C-DOT.

After completing the MAX project, CDOT went through tough times. Apart from the shift in economic philosophy of the country, the telecom environment in India changed, with the shift from the DOT (now BSNL) to private players; from fixed lines to mobile; and to convergence of information and communication technologies. It’s not surprising that CDOT found it difficult to cope with these changes. Globally, the telecom equipment industry also suffered serious convulsions after a peak during the dotcom boom resulting in bankruptcies (Nortel), consolidation (Alcatel-Lucent, Nokia-Siemens) and the birth and success of new players, particularly from China (Huawei, ZTE).

C-DOT: Second Life?

So, I was pleasantly surprised to find that C-DOT is today getting a new lease of life under the leadership of VVR Sastry (former CMD of BEL) and Vipin Tyagi. My first meeting with Vipin was fortuitous – we were fellow speakers at a seminar organized by a Ghaziabad college last year. We had some sporadic correspondence after that. I finally got an opportunity to visit C-DOT and interact with some of their people when I was invited to speak at a C-DOT internal symposium recently.

In terms of hard infrastructure, I must say that the government has provided the best to C-DOT. It has a fully-equipped, modern campus in South Delhi, a far cry from the rented premises where C-DOT used to operate earlier. I was impressed by the motivation and expertise of C-DOT’s young engineers – they look very committed to the challenging tasks they have at hand.

C-DOT’s bigger challenges today lie in the areas of strategy (technology, product choices) and business models. The current leadership of C-DOT has made some focused choices that make sense: upgradation of the existing installed network of 30,000 RAXs (which were built essentially for voice) to handle data with contemporary technology; a Shared Radio Access Network, which will allow upto three operators to share infrastructure, thus bringing down the cost of rural wireless access; and a Data Rural Application Exchange (DRAX) which helps provide people who are not computer savvy access to broadband information and services. A major thrust of work is on C-DOT’s GPON family of products, optical networking products that will create the long term backbone for advanced digital data access. (Picture below shows Vipin Tyagi and I standing in front of one of the GPON products.)

Many of C-DOT’s current products have an Indian flavor – they are designed to meet Indian requirements but incorporate current technology and have a low cost base. This is a good approach, one that is being followed already by leading Indian telecom players like Tejas Networks (see my earlier post) and even multinationals like Cisco (see another post on ASR901, Cisco’s successful cell site router, developed by Cisco in India). But, what is still not clear is how will C-DOT’s technologies and products reach the market?

Will C-DOT Succeed?

C-DOT is following the same approach they followed earlier – licensing their technologies to multiple Indian companies, who will then take them to market. I wonder whether this will work. In the case of C-DOT’s earlier switching products, remember that they were developed at a time when self-reliance was an official policy of the government, and there was a single (monopoly) telecom services provider owned by the government. Today, there are multiple service providers across the country, and the state-owned BSNL and MTNL are both in poor shape. Competition is fierce and there are frequent allegations of some multinational vendors “dumping” their equipment in India. It is not clear as to how C-DOT’s licensees will deal with this challenge. Pre-qualification requirements (such as proof of operation in networks for a defined duration) that were earlier used to delay and thwart the induction of IIT Madras’s TENET network’s solutions may come up again. And, though the new Preferential Market Access norms for products manufactured in India have been announced, it’s anyone’s guess how effectively they will be implemented.

I always felt, and continue to believe, that we made a major mistake in our failure to create one or more integrated telecommunication equipment companies. ITI never had distinctive technological capabilities of its own; but C-DOT as a technology organization always remains one step away from the market. This prevents it from dynamically responding to market and technology changes. It is instructive to remember that most Chinese companies had their origin in government laboratories, and were the result of spin-offs from these laboratories.

Today, it is not essential for a technology organization to do manufacturing itself. Most companies using electronic technologies (including iconic companies like Apple) rely on specialized third parties like Flextronics or Foxconn to take care of manufacturing. But decisions on technology, brand, products, marketing and pricing need to be taken under one roof in order to be competitive in a fast-changing marketplace. The licensing model doesn’t support such an approach.

C-DOT looks poised to create great technologies and products. But will these reach the marketplace?