The growing telecom market has contributed significantly to the development of the cable industry in India. The industry is likely to witness considerable growth with the emergence of new technologies and government initiatives under the National Telecom Policy (NTP), 2012. Industry experts share their views on key trends, opportunities and challenges in this space...
What are the key demand drivers for cables in the telecom industry?
Ashish Basil
The telecom cable industry has witnessed a sharp decline in the demand for jelly-filled telephone cables (JFTCs) and copper cables due to the wireless technology revolution. Also, there has been slow offtake from private players in the wireline segment in the past few years. However, the optic fibre cable (OFC) industry is expected to witness significant growth in the coming years. A few key drivers for this growth include:
• Increasing data usage on the 3G platform and the introduction of 4G services, for which high speed and high bandwidth backhaul is required. This can be met through OFC networks that provide stable and upgradable backhaul systems. These systems are focused on data and converged services as well as making the solutions more robust, which will drive the demand for OFCs in the coming years.
• The central government’s National Optical Fibre Network (NOFN) is proposed to be implemented over the next five years. On July 22, 2011, the Department of Telecommunications approved the NOFN project, for providing broadband connectivity to 250,000 villages in India.
• Fibre-to-the-home (FTTH) technology is finally emerging as a mainstream connectivity medium and will transform the telecom environment worldwide over the next decade.
Abhishek Chauhan
The key demand drivers for the telecom cable industry include:
• Strong government impetus on providing connectivity to villages: The NTP, 2012 aims to connect all the village panchayats via an optic fibre network by 2014. It also intends to promote FTTH in cities and towns. In October 2011, the NOFN was approved by the union cabinet for providing broadband connectivity to the panchayats. The project entails an investment of about Rs 200 billion to be contributed by the Universal Service Obligation Fund. Similarly, private sector investments for services in the individual domain could also drive industry growth.
• Focus on data: With the industry moving towards data-centric applications, FTTH and OFC are likely to be the preferred connectivity mediums. Also, good quality backhaul infrastructure, which is required to provide quality wireless networks, consumes a significant amount of cables.
• Penetration of broadband services: The total broadband subscriber base is likely to exceed 400 million by 2017. According to estimates, a 10 per cent increase in mobile broadband penetration would attract revenues worth Rs 3,506 billion across the transport, education and health care sectors by 2015. To achieve this, huge investments in radio access networks would be required. As of end-2011, there were 630,000 2G and 50,000 3G base transceiver stations in the country. Further, a 16x increase in the number of mobile broadband cell sites is expected by 2017.
Backhaul transformation from legacy time division multiplexing (TDM) to all-IP networks for supporting data traffic will benefit equipment vendors. Currently, about 80 per cent of the cell sites are covered by microwave backhaul systems and the rest by copper and optic fibre networks. Backhaul networks in India are predominantly TDM networks and to optimise this, operators need to adopt hybrid technologies such as carrier Ethernet over synchronous digital hierarchy/synchronous optical networking.
Jaideep Ghosh
The telecom cable industry was valued at Rs 14.22 billion, registering a 9.46 per cent year-on-year growth in 2011-12. The sector will witness further growth in 2012-13, with the implementation of the National Broadband Plan and increased data usage due to the introduction of bandwidth-hungry applications.
The OFC segment is expected to be the core growth driver for the cable industry. In 2011, the cabinet approved the NOFN for extending broadband services to all villages and towns by 2016-17. Moreover, the increased focus on FTTH has further driven the demand for OFC, which is a suitable medium for the convergence of voice, video and data applications.
The demand for telecom cables in India will also gain a fillip as service providers upgrade their backhaul networks. A choked backbone network has led to low quality 3G services, resulting in slow uptake. With service providers planning to shift to long term evolution and high speed packet access plus (HSPA+) networks, they would need a radical upgrade of their network capabilities.
How has the cable telecom market evolved in the past few years in terms of technology and product offerings? What are the emerging technology trends?
Ashish Basil
Prior to the wireless revolution, fixed lines and copper cables/JFTC dominated the telecom cable market. However, with the rapid growth of wireless services, the country’s fixed line segment witnessed a decline. This leads to anaemic demand coupled with non-remunerative prices for JFTC. Fluctuations in copper pricing and the volatile exchange rate are other challenges faced by industry vendors.
With the launch of 3G and 4G services, the OFC segment is likely to witness considerable growth, going forward.
Abhishek Chauhan
The telecom cable market is expected to gain traction after experiencing a rather sluggish growth rate last year. The implementation of the NOFN and the NTP, 2012, as well as the increased uptake of smartphones will lead to an exponential data-centric growth, indicating the need for a robust network. The following are some emerging technology trends:
• The cable TV (CATV) segment is registering a significant compound annual growth rate, whereas the polyethylene insulated jelly-filled (PIJF) cable market has witnessed a decline due to the growing preference for OFCs.
• Due to limitations in the copper infrastructure or air interface, digital subscriber line (DSL) and cable modem technologies are not efficient in meeting high-end customer demands for applications such as high definition TV, 3D TV, high speed internet access, video-on-demand, IPTV and online gaming. However, an OFC-based FTTH network is capable of providing high quality multi-play services. Going forward, copper access networks worldwide are expected to give way to fibre access networks due to the requirement of higher bandwidth and speeds.
Jaideep Ghosh
In the 1990s, the use of copper cables for fixed line connections dominated the country’s telecom cable industry. However, with the advent of wireless communication, the demand for fixed line telephones declined, thereby impacting the demand for JFTC. Another major transformation came in with the introduction of broadband services. Traditionally, DSL has been the most preferred technology for delivering these services. It was being used by more than 85 per cent subscribers as of December 2011.
However, these conventional technologies are unable to meet the customer demand for high bandwidth applications. This has led to service providers opting for OFC networks. Lately, new optical technologies, that can create self-aware networks with flexible photonic layers as well as adapt to changing traffic patterns and unexpected bandwidth fluctuations seamlessly, have been introduced in the market. In a country like India, where fibre cuts are the biggest impediment to growth, manufacturers have developed intrusion-proof cables that send signals to a control room in case of a fibre cut.
How has the price movement of copper, aluminium and fibre cables impacted the cost dynamics of cable vendors?
Ashish Basil
Typically, the supply contract for cables includes price benchmarking of key commodities like copper. However, extreme price volatility can significantly impact vendors’ cost dynamics.
Abhishek Chauhan
Copper pricing has seen a lot of fluctuation in recent years. Depreciation of the rupee and fluctuations in the London Metal Exchange are the biggest challenges in stabilising copper prices.
That said, overall low costs for copper give it an edge over fibre in the market. However, with the advent of better technologies that can support long distance and high speed data traffic, the OFC segment would certainly witness a demand surge in the coming years.
High competition in the market has further led to a downward pressure on pricing, leading to compromises in quality.
Jaideep Ghosh
The cost of raw materials (including copper, aluminium and optic fibre) has been volatile in India, with an escalation in the prices of most metals during 2011-12. This, coupled with the weakening of the rupee against the US dollar, added to the woes of Indian manufacturers. Also, due to overcapacity in the segment and the bargaining power of buyers, manufacturers could not resort to any price hike.
What is the current cable market industry structure in the country?
Ashish Basil
The telecom cable market was valued at Rs 10 billion in 2010-11, with the domestic and international shares being 60 per cent and 40 per cent respectively. The OFC segment constituted 75.2 per cent of the domestic share while JFTC accounted for 9.6 per cent. The balance was accounted for by the CATV segment.
Abhishek Chauhan
The Indian telecom cable market stood at Rs 11.2 billion in 2011-12. Of this, the domestic market, valued at Rs 7.6 billion, contributed almost 70 per cent while the rest was contributed by exports. The OFC segment stood at Rs 4 billion and accounted for a 36 per cent share in the domestic market. The PIJF market is on a decline with OFCs being the preferred connectivity medium. With a share of 10 per cent, it stood at Rs 1.1 billion. The CATV segment, which stood at Rs 2.5 billion, is expected to witness a growth of 30 per cent in 2012-13.
Telecom service providers accounted for the highest share in OFC consumption at Rs 2.45 billion, followed by multiple-system operators at Rs 1.07 billion, railways at Rs 0.24 billion and other public sector undertakings at Rs 0.24 billion.
Jaideep Ghosh
The telecom cable industry in India is fragmented due to the presence of several small-scale players. The sector has witnessed limited consolidation over the years, with big players choosing to grow organically rather than acquiring smaller companies. Sterlite leads the sector with a market share of 56.5 per cent followed by Aksh Optifibre accounting for only 12 per cent.
The demand for OFC comes at the cost of JFTC cables and is largely a replacement demand as the launch of 3G and 4G technologies has pushed service providers towards the adoption of OFC.
What are the key challenges and issues faced by the cable market in India?
Ashish Basil
Delayed project implementation due to various environmental and regulatory factors is one of the key challenges faced by the telecom cable industry. Other challenges include right-of-way issues, reduced lifetime of cables due to mishandling, high deployment time, complex tendering processes, fluctuating dollar rates and intensive price wars.
Abhishek Chauhan
The cable industry faces several challenges. The tsunami in Japan last year led to fibre shortages followed by a large-scale fluctuation in dollar rates and unstable commodity pricing. These issues made long-term contracts unfeasible and led to irregular pricing of products. Though manufacturers have to maintain a fixed price for the customer, the buying prices are erratic, impacting their bottom line. Moreover, high competition has squeezed margins, leading to compromises in quality.
Jaideep Ghosh
While telecom cable manufacturers have to maintain fixed prices, raw material prices remain erratic, which directly impacts their bottom line. Weakening of the rupee as well as fibre shortages led to unstable commodity pricing in 2011, thereby making long-term contracts unfeasible. Indian manufacturers also face stiff competition from substandard quality product suppliers, adding to the pricing pressure