The growing usage of data services is triggering a radical transformation in the Indian telecom sector. Wireless services, which have long been the dominant platform and were responsible for India’s unprecedented telecom growth, have become less effective as a channel for delivering high-bandwidth applications. Spectrum available with operators is proving to be highly inadequate as they are recording a massive uptake of data services on their networks. The situation will deteriorate with 3G services gaining further momentum and the launch of 4G services by all operators.

In such a scenario, optical fibre cables (OFCs), with its unlimited bandwidth capacity, are emerging as the key technology for catering to the surging data demand in the country. To this end, several operators have started replacing their legacy copper infrastructure with fibre, ramping up their existing fibre capacity and strategising for future expansions.

While the increasing OFC deployments will help operators address congestion on their networks, it will also give a new lease of life to the Indian telecom cable industry, which has witnessed sluggish growth for many years. The advent of wireless services in mid-1990s had pushed fixed-line communication to the background, impacting the telecom cable industry substantially. The advantage of mobility, coupled with device affordability and declining tariffs, have made a compelling case for consumers to jump on the mobile bandwagon. Even from an operator’s standpoint, microwave emerged as a preferred platform over copper, given the advantages such as higher capacity, better geographic reach, ease of installation/ roll-outs and low maintenance costs. This has resulted in a steep decline in the country’s fixed user base from about 40 million in 2009 to 28 million as of May 2014. This, in turn, has resulted in a bleak business scenario for telecom-specific copper cable manufacturers, particularly the jelly-filled telephone cables industry, which have seen anaemic demand and unremunerative prices. Fluctuations in the price of copper and the volatile exchange rate are other challenges faced by industry vendors.

Also, the growth in submarine cables, which had kept the wireline market active for many years, has slowed down in recent times. Reliance’s acquisition of the US-based FLAG Telecom and Tata’s acquisition of Tyco Global Network in 2005 marked the beginning of strong growth prospects for the Indian submarine cable industry. Since then, operators have invested in several new submarine networks such as the TGN-Intra Asia Cable System, FALCON, India-Middle East-Western Europe Network, Europe India Gateway, South Africa Far East, and upgrades of TGN-Pacific, TGN-Atlantic, FLAG-Europe Asia and FLAG-Atlantic. However, issues related to access facilitation charges (AFCs) have been a major dampener for the submarine cable industry in recent years. Further, private cables have not been able to hold much ground compared to consortium cables and their surplus capacity often has to be sold at very low prices. Also, the Indian cable landing station market is highly concentrated with cable landing station owners alleged to be functioning in a cartelised manner, impacting AFC significantly. While there are some submarine systems in the pipelines that will go live in coming years, the cable industry is betting on OFC to make a major comeback.

tele.net takes a look at the current status, key demand drivers and future outlook of the OFC market in India…

OFC market size, growth and composition

The OFC market has gathered momentum in recent years, which is reflected in its growing share in the country’s cable industry. During 2012-13, the OFC segment accounted for about 40 per cent of the cable market, up from 36 per cent in 2011-12 on account of higher demand from telecom operators for backhaul purposes. The value of the domestic OFC market stood at Rs 6 billion in 2012-13, a 50 per cent jump from Rs 4 billion in 2011-12. The market is expected to reach Rs 15 billion by 2017-18, registering a compound annual growth rate of 15 per cent. Further, as per Vindhya Telelinks Limited’s annual report 2013-14, the Indian market constituted about 7 per cent of global fibre shipments worth 278.5 million fibre km during 2013-14, translating into a fibre shipment of about 19.50 million fibre km. According to the report, the Indian shipments have recorded a year-on-year growth of about 30 per cent.

Even when recording high levels of growth, the industry has remained very fragmented and price competitive. Over-capacity as well as the bargaining power of telecom operators has led to price competition among manufacturers. Currently, the top few players, such as Sterlite Technologies, Aksh Optifibre, the MP Birla Group and Finolex Cables, account for a lion’s share of the total cable manufacturing market.

On the deployment side, most of the current installations by operators have been undertaken on their core networks to connect urban centres across the country. The access network is a small part of the total deployment and is limited to the top 50 cities across the country. Bharat Sanchar Nigam Limited (BSNL) is the only operator with fibre networks in all cities, towns and few rural areas.

Until recently, the Indian operators preferred microwave-based backhaul because of the prominence of voice services with about 95 per cent of base transceiver stations (BTSs) beyond the top 50 cities using this technology. However, the trend is changing with a gradual shift towards fibre networks. Fibre-based backhaul in the top 50 cities has increased from 20-25 per cent in 2010 to 50-60 per cent in 2013 due to the launch of 3G services in Tier I and II cities.

Demand trends and drivers

The demand for OFC consumption in India primarily comes from telecom operators and multiple-system operators (MSOs), followed by data centres and other PSUs. During 2012-13, telecom operators accounted for 60 per cent of the overall OFC demand in India, requiring fibre across core, middle mile and access networks. They are in the process of upgrading the wireless backhaul from microwave to fibre, and are fiberising their tower sites in order to support high-bandwidth data services and applications such as video streaming. The roll-out of the 4G long term evolution (LTE) mobile network is also driving the demand for high fibre-count OFC, as operators use fibre in tower verticals instead of co-axial cable that runs between the ratio heads and ground level base stations.

MSOs are also driving the current demand for fibre, with most of them upgrading their middle and last mile networks to provide high-speed broadband services to consumers and enterprises. In 2012-13, their share in overall consumption stood at 25 per cent. FTTx (fibre to anything) is likely to become a preferred choice for all players in the telecom industry for offering customers the ultimate experience of triple-play services (voice, video and data) at high speeds. The fibre-to-the-home (FTTH) business has so far seen limited response, having been concentrated in metros or Tier I pockets. However, the segment promises immense potential going forward, and the deployment of micro OFC and drop cables in access and last mile networks will accelerate the OFC demand. Going forward, cable broadband players (especially those offering Ethernet-based cable broadband) will lay out last-mile aerial fibre to provide high-speed broadband. On the other hand, service providers such as Bharti Airtel, BSNL and Sterlite are likely to expand their FTTH networks especially to cover Tier I cities, which exhibit a high demand for cable broadband services.

Government impetus

The government’s ambitious National Optical Fibre Network (NOFN) project to bring connectivity to 250,000 gram panchayats in the country is the biggest growth driver for the OFC market in India, in the near term. The project involves laying of 400,000- 500,000 km of incremental fibre cables in rural areas. Bharat Broadband Network Limited, the NOFN’s implementing agency, has already issued advance purchase orders for 404,995 km of OFC and has placed orders for almost 200,000 km.

In addition to the NOFN, the government has expedited the process of building an alternative communication network – Network for Spectrum (NFS) – for the defence forces in order to free up spectrum for the Department of Telecommunications. BSNL, entrusted with executing the task, has recently issued procurement orders to some cable manufacturers for the NFS project.

The government’s mandate to all telecom service providers to source a minimum percentage of their total infrastructure spending from local manufacturers and the implementation of the preferential market access policy will also provide a sustained demand for telecom cables to domestic manufacturers. The domestic market has been erratic, in terms of both procurement and payments, which has resulted in manufacturing facilities operating at low capacities for many years.

Issues and challenges

Despite offering several advantages, the OFC roll-out and deployment by operators has remained sluggish. Issues related to spectrum availability, high spectrum prices and right-of-way (RoW) continue to hinder the OFC industry from realising its full potential. The lack of a clear spectrum availability road map in India, especially for the 700 MHz band and additional blocks in the 2100 MHz band, is delaying operator investments that would have been used to upgrade their backhaul networks to fibre.

Further, the artificial scarcity of spectrum means that the operators have paid huge amounts in the current (900/ 1800MHz) and previous (3G/BWA) spectrum auctions. As a result, they now have huge debt in their books, which limits their ability to invest in network upgrades and expansion. To this end, the rationalisation of spectrum prices will help the operators have sufficient capital for network upgrades in the future.

The operators and internet service providers also face significant issues while obtaining RoW, including high RoW charges (as high as Rs 10 million in South Mumbai) and bureaucratic delays in getting permissions from various state and local bodies. The National Telecom Policy, 2012 has acknowledged these issues and suggested the simplification of sectoral policies for RoW and the installation of towers for facilitating better coordination between service providers and state or local authorities.

At the industry level, operators are now keen on collaborating with each other to share the fixed line infrastructure in a bid to save on capex and expedite roll-outs. While it offers operational efficiencies, the move may restrict the anticipated demand growth for cable manufacturers in the short term.

Outlook

As the data demand in India hits new record levels, the OFC market is set to witness a period of strong growth. While the increasing usage of smartphones calls for the deployment of OFC across all components of telecom networks (backbone, metro, access), the growth of OFC, at least in the short to medium term, would be driven by increasing deployments in the backbone network. Wireless, on the other hand, would continue to be the last-mile technology for service delivery. The booming OFC market may also result in the entry of global cable manufacturers into the Indian domain, further intensifying the competition in the market.

Net net, the wireline segment in the country is all set for its next innings of growth, riding on the success of OFC. Improved regulations, increasing investments in the data segment and the growing adoption of the mobile platform by enterprises will ensure a promising future for the telecom cable industry.

With inputs from presentation by Ashwinder Sethi, senior consultant, Analysys Mason, at tele.net’s conference on ‘OFC Networks in India’