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Equipment on Rent: Strong case for the leasing model

October 21, 2019
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In the past few years, the case for renting and leasing of test and measurement (T&M) equipment in the Indian telecom space has become stronger owing to the evolving technology landscape and changing industry dynamics. First, network technologies have evolved at an unprecedented rate. In less than two decades, the sector has moved from 2G to 3G to 4G and preparation is already under way to introduce 5G. The evolving telecom standards render T&M equipment obsolete quickly.

Second, the telecom sector has witnessed huge investments in spectrum procurement. Due to the current financial turmoil that the telcos are facing on account of aggressive competition, decision-makers are becoming extremely wary of allocating big budgets for T&M equipment purchase.

While traditionally, buying T&M equipment was a preferred choice for telcos, the rental market is increasingly becoming an attractive option. In a recent interview with tele.net, David Whitfield, chief executive officer, Electro Rent Asia, said, “Our customers are increasingly becoming careful with cash. They now recognise that for their businesses and shareholders, it is much better to use rental equipment rather than buying new ones every three to four years. New technologies are emerging at a fast pace and thus the life of test equipment is getting shorter. Therefore, it makes more sense to opt for a rental or pay-per-use model.”

However, there are certain inefficiencies associated with the traditional capex or ownership model pertaining to asset purchase, replacement and disposal.

Current scenario

Traditionally, telcos have preferred renting and leasing of non-calibrated or technologically less advanced equipment over fresh purchases. But the scenario is changing as several T&M vendors are now focusing on smart offerings like choice rentals and flexible support. The combination of a good original equipment manufacturer (OEM) and a leasing/rental company is a win-win in current times. Rental companies often buy T&M equipment from renowned OEMs, delivering high quality products and equipment.

From a telco perspective, factors such as availability of inventory with the rental company, quality of products being offered, delivery time and price play an important role in deciding a vendor partner. Often, a large rental product portfolio featuring popular brands is a key deciding factor. Thus, it becomes imperative for rental T&M firms to continuously invest in the latest and advanced test equipment. They need to continuously monitor demand trends to upgrade their rental inventory and also have an efficient mechanism in place to dispose of obsolete, not-in-demand and slow moving test equipment.

Growth drivers

Technology evolving at a fast pace

Technology is evolving fast and as soon as a new one gets introduced, telcos get into the act to replace their T&M equipment. In modern times, T&M equipment becomes obsolete fairly quickly. As per industry experts, while earlier companies would change their equipment every few years, that trend has changed with equipment being upgraded within a few months. With companies striving to bring down the time-to-market for their products, renting/leasing T&M equipment could be the best way forward.

Capex savings are important

The constant need to upgrade T&M equipment puts-significant burden on a company’s capex. In addition, owning T&M equipment involves opex for repair and maintenance. In such a scenario, turning to the rental market can help telcos switch from a capex to an opex model. Instead of making a huge payment upfront on equipment purchase, they are required to pay rent only for a stipulated time period. This brings down the opex for equipment maintenance and capex for equipment replacement.

Conclusion

The overall market for telecom T&M equipment has grown over time, in tandem with the developments in the telecom sector. The large-scale roll-out of 4G services by telcos has opened several opportunities for T&M players and with 5G on the anvil, the interest in the T&M space will only grow stronger. This will give the much-needed fillip to the rental T&M market, which has witnessed limited traction in the country. Cut-throat competition  and cash crunch, coupled with the need to enhance the time-to-market for their services, have compelled telcos to look for strategies that can help them in undercutting their expenses without compromising on service delivery. In such a scenario, leasing/ renting advanced and latest T&M equipment manufactured by OEMs can help. The rental market will give telcos the flexibility to switch to the latest equipment without making significant investment.

 
 
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