The Indian telecom industry has not witnessed any large-scale infrastructure ramp-up in the past two years. Various factors have been responsible for the sluggish growth in infrastructure, the foremost being the after-effects of the 2G scam, which has shaken investor confidence in the regulatory measures and overall governance of the sector. Moreover, telecom operators who have spent huge amounts in acquiring 3G and broadband wireless access spectrum are now exercising caution before making any further investments.

This has had a trickle-down effect on ancillary industries such as communication cables. Due to the slowdown in overall investments in the telecom infrastructure segment, the demand for cables remained sluggish in 2011-12. Moreover, in the initial 3G roll-out phase, eight of the nine licensees only upgraded their already operational 2G networks and that too, at select urban locations. Greenfield 2G infrastructure roll-outs have been minimal.

However, this seems to be a temporary phenomenon. The cable industry is already gaining momentum with operators gearing up for the next phase of the telecom revolution – broadband services.

In the initial phase of growth, fixed line connections dominated the telecom market, which, in turn, drove the demand for copper cables and jelly-filled telephone cables (JFTCs). However, with the wireless technology revolution, the demand for these cables declined sharply.

Traditional technologies such as digital subscriber line and cable modem are not efficient in meeting the demands of high-bandwidth applications such as high definition TV, 3D TV, high speed internet access, video-on-demand, IPTV, online gaming and long distance learning due to the limitations of copper infrastructure. In contrast, optical fibre cable (OFC)-based fibre-to-the-home provides high quality multi-play services with broadband speeds of up to 100 Mbps.

Therefore, as copper cables and JFTCs continue to be used by operators in access networks there has been a major shift towards OFC installations in the past few years, especially for backbone infrastructure and long distance services.

Operators in the country have set up their own OFC networks, both for domestic as well as international long distance services. In fact, Tata Communications has emerged as one of the biggest players in the global submarine cable space. Bharti Airtel and Reliance Communications (RCOM) also have extensive submarine cable networks.

With regard to domestic OFC networks, Bharat Sanchar Nigam Limited (BSNL) leads the space with 625,000 km of cables across the country, followed by RCOM with 190,000 km and Bharti Airtel with 130,000 km. Some large state utilities like Powergrid Corporation of India Limited, GailTel and RailTel too have set up OFC networks for their internal communication needs as well as for leasing out to other operators.

Industry structure

The telecom cable industry in India is fragmented due to the presence of a large number of small players. Among cable manufacturers, Sterlite dominates the sector with a market share of over 50 per cent followed by Aksh Optifibre accounting for about 12 per cent. Some of the other key players in the market are Birla Ericsson Optical and Vindhya Telelinks.

Given that the customer base in the domestic market is restricted to a few operators, most cable manufacturers have also established a strong international presence. Some companies have also collaborated with large global vendors. For instance, Birla Ericsson Optical is a joint venture between the Birla Group and Ericsson Cables AB.

Overall in 2011-12, the domestic market accounted for almost 70 per cent of the telecom cable industry’s revenues while the remaining was contributed by exports.

Among the various cable segments, the OFC segment, valued at Rs 4 billion, accounted for 36 per cent of the domestic market. The polyethylene insulated jelly filled segment accounted for 10 per cent at Rs 1.1 billion while the cable TV (CATV) segment stood at Rs 2.5 billion. According to Abhishek Chauhan, senior consultant, ICT Practice, South Asia and Middle East, Frost & Sullivan, “Telecom service providers accounted for the maximum share of OFC consumption, using Rs 2.45 billion worth of fibre, followed by multiple system operators at Rs 1.07 billion, railways at Rs 0.24 billion and other public sector units at Rs 0.24 billion.”

Growth drivers and the way forward

Given that the country’s fixed line subscriber base is on a decline, the market for JFTC is primarily being driven by repair and maintenance activities of the existing telecom networks.

On the other hand, OFC forms the backbone of all telecom networks and is mainly used in long distance networks. With enhanced digital connectivity and the growing need for broadband access, OFC is increasingly becoming the preferred medium for network deployment. OFC-based networks offer higher bandwidth as well as ultra high speeds as compared to wireless networks. Also, the upcoming surge in data traffic will attract significant investments in the OFC segment. Moreover, the launch of 3G and long term evolution services will further drive the demand for OFC networks, which have the high-bandwidth capabilities required for these applications.

However, operators have to face several challenges while deploying OFC-based networks. These include high right-of-way charges levied by local bodies, procedural delays and bureaucratic hurdles.

Going forward, the consumption of JFTC is expected to decline on account of increasing teledensity and the large-scale deployment of wireless technology. On the other hand, the CATV segment has been performing well and is likely to register 30 per cent growth in 2012-13. Moreover, the OFC market is gaining traction due to the advent of new technologies and introduction of products at competitive prices.

Therefore, with operators shifting towards 3G and 4G services, the overall telecom cable demand is likely to increase further. According to Jaideep Ghosh, partner, KPMG, “The demand for OFC comes at the cost of JFTC cables and is largely a replacement demand as the launch of wireless broadband technologies has pushed service providers towards the adoption of OFC.”

Several operators have already announced their expansion plans. For instance, BSNL has placed orders for procuring 30,000 km of cables in 2012-13. The operator plans to deploy another 10,000 km of cables in the Kolkata circle. Sterlite will supply 30 per cent of the 30,000 km of 24F metal-free OFCs with double HDPE sheath. The unit basic price is Rs 43,553 per km, excluding taxes. Seven other vendors – Tamilnadu Telecommunications Limited, Himachal Futuristic Communications Limited, Paramount, Aksh Optifibre, Vindhya Telelinks Limited, Finolex and UM Cables – will provide the rest of the cables.

In mid-2011, the government decided to set up the National Optical Fibre Network (NOFN) for providing broadband connectivity to all villages. Under this scheme, the existing OFC network that is available up to the district and block levels will be extended to the gram panchayat level. The project, likely to be completed by 2014, will require an investment of about Rs 200 billion from the Universal Service Obligation Fund. The private sector is expected to make similar investments to complement the NOFN infrastructure and provide services to individual users.

The industry is also awaiting a decision on the OFC-based nationwide optical backbone to be deployed at 414 defence sites and optical gigabit access networks at 219 army sites. The Indian Navy also plans to procure 96F OFC cables on a turnkey basis for network deployment at its own sites. Teracom-Neo Duct had won the contract offering the lowest bidding price of Rs 8.54 billion.