Oer the past few years, the strong focus on increasing broadband penetration in the country from both the government and private operators has led to an increased demand for optic fibre. In addition, as the amount of traffic generated from voice, messaging, emails, games, content downloads, mobile internet access, video streaming and other services grows dramatically, leading to an exponential growth in bandwidth demand, optic fibre is increasingly replacing copper and becoming the preferred transmission medium.
This trend is only likely to accelerate with the launch of 3G and Wi-Max services, which are expected to make broadband ubiquitous and further fuel the demand for fibre. This is because the networks for these technologies would require the installation of transmission towers, with each tower requiring 3-4 km of optic fibre cable (OFC) on average, and each OFC having an average count of 20-30 fibres.
OFCs have the capacity to transmit all forms of communication (voice, data and video) and an optic fibre connection is faster than wireless by many orders of magnitude. For instance, a single optic fibre can carry about 3 trillion bits per second (bps) while the fastest wireless service (fixed wireless access) approaches 2 million bps. Technology advances such as wavelength division multiplexing have made it possible to send multiple signals on a single fibre, leading to terabits per second upgrades.
Globally, a compounded annual growth rate of 10 per cent through 2010 is being forecasted for the OFC industry, which is being driven by fibre-to-the-premises, fibre-to-the-home (FTTH) and fibre-tothe-building applications. India has emerged as the world’s fifth largest consumer of OFC in the world, behind the US, China, Japan and Korea, with an estimated market size of 14 million fibre kilometre (fkm) in 2008-09.
Key trends
State incumbent Bharat Sanchar Nigam Limited (BSNL) currently has the largest OFC network in the country, comprising at least 600,000 route km, covering all the state capitals and district headquarters. Bharti Airtel’s optic fibre network lags behind considerably and spans only 101,000 route km but covers all the major cities. Reliance Communications (RCOM) has approximately 175,000 route km of optic fibre network. Besides expanding their networks across the country, these companies are now also focusing on building undersea cables with investments of about $4 billion by 2010. Bharti Airtel is building a 15,000 km 3.84 terabit OFC submarine cable system connecting Europe (London) to India via the Middle East. The project, known as the Europe India Gateway (EIG), is expected to cost $700 million and is scheduled for completion by 2010.
A key trend that is likely to gain further momentum in the near future is outsourcing of optic fibre networks along with the tower business. For instance, BSNL is planning to outsource management and maintenance of around 80,000 km of its intercity optic fibre network in a deal that is estimated at upwards of $500 million. Bharti Airtel has already outsourced its intra-city optic fibre network to a 26:74 joint venture (JV) in which it is the minority partner with Alcatel Lucent. Under this deal, Bharti Airtel will pay the JV company around $500 million over a five-year period for managing its landline and broadband business in about 100 cities for the next five years.
Meanwhile, as 3G auctions become a reality, other telecom operators like Aircel and Idea Cellular are also in the process of expanding their OFC networks in order to deliver better quality of service. Idea Cellular intends to have 45,000 route km of optic fibre by March 2010, up from the current 38,000 route km. Similarly, Aircel plans to increase the reach of its OFC network to 25,000 route km from 10,000 route km.
Besides carrying their own long distance and intra-circle traffic, these companies intend to lease out broadband capacity on their optic fibre networks to global players like British Telecom, AT&T and SingTel, which provide enterprise telephony services to corporate customers by offering connectivity between India and other countries through undersea cable networks. While these global players also began laying OFC for their long-haul networks after being awarded national long distance licences in 2007, they continue to rely mainly on the optic fibre networks provided by operators such as BSNL, RCOM and Bharti Airtel for intercity connectivity.
Also giving stiff competition to the private telecom companies are public sector giants like GAIL, Power Grid Corporation of India Limited (PGCIL) and RailTel, which are investing heavily in laying OFC and connecting various cities. For instance, the railways has a 30,000 route km OFC network which is under RailTel and services the long distance requirements of operators like Aircel and Vodafone Essar. These operators have, in fact, formed alliances with these companies for using their wide transmission network to enhance telecom services like nationwide internet access.
Similarly, power transmission major PGCIL currently provides services to almost all the major telecom operators. It has made a profit of Rs 100 million by leasing out bandwidth capacity to telecom operators. The company has set a revenue target of Rs 1,500 million from telecom services for the current financial year and a target of Rs 5-6 billion by March 2012.
According to S.K. Chaturvedi, chairman and managing director, PGCIL, the public sector unit is among the few telecommunications network providers that has infrastructure in remote areas, like the north-eastern region including Assam, Manipur, Meghalaya, Nagaland and Tripura. It has also created a network across Jammu & Kashmir and Himachal Pradesh. Intending to further strengthen this business, PowerTel, the telecomfocused business unit of PGCIL which currently has an OFC network of 20,000 route km, plans to expand it to 31,000 route km over the next two years.
While all these companies are focusing on expanding their networks, their plans pale in comparison to the plans of the National Optic Fibre Authority (NOFA). NOFA, which would be an offshoot of BSNL, intends to lay over 1.2 million km of optic fibre throughout the country, involving an investment of Rs 400 billion. However, the biggest challenge for fibre optics is the economics. While operators and cable television companies can cost-justify installing fibre links to remote sites, the terminal equipment remains too expensive to justify installing fibre all the way to homes, at least for the present services. Instead, cable and phone companies run twisted wire pairs or coaxial cables from optic network units to individual homes.
The government has therefore stepped in to subsidise fibre deployments. Recognising the critical role played by fibre connectivity in carrying large amounts of data and for backhaul (essential for providing mobile broadband services), it intends to heavily support the development of optic fibre infrastructure through the Universal Service Obligation Fund which is funded by a 5 per cent levy from service providers. As a step in this direction, fibre will be laid in Assam at a cost of Rs 1.5 billion. The fund has already commissioned Telecommunications Consultants India Limited to identify gaps in optic fibre coverage in the state. The government is also exploring the possibility of taking optic fibre below the district headquarters level to all villages. Moreover, the government is in the process of establishing statewide networks like the Andhra Pradesh Broadband Network and the Gujarat State Wide Area Network which are based on an optical core.
All these developments translate into a significant increase in the demand for optic fibre cables.
Key players
Sterlite Technologies remains the dominant player in the OFC domain and accounts for over 30 per cent of the installed OFC in India. Its optic fibre facility of 6 million km, which is being expanded to 12 million km, is likely to get established in the current fiscal year. The company has decided to further enhance this capacity to 20 million km and is aiming for a slot amongst the top three manufacturers globally. Earlier this year, the company was awarded a Rs 2.5 billion BSNL contract to roll out the next generation of broadband technology called gigabit-capable passive optical network.
The other key players in this space include Birla Ericsson, Aksh Optifibre, Finolex Cables and Paramount Cables. Aksh Optifibre is the second largest company in the Indian OFC industry. Currently, about 50 per cent of its turnover comes from state government projects, which is expected to be strong for the next two-three years.
All of these companies are currently in the race for the Rs 2.5 billion tender from BSNL for supplying 60,000 route km of OFC.
The way forward
Clearly, fibre connectivity has emerged as a key focus area for the telecom industry as it provides not only an additional revenue stream but also assumes a critical role as the sector embarks on its next level of growth with Wi-Max and 3G on the anvil.
According to industry experts, going forward, operators may divest the fibre optic network business into a separate company, similar to the tower infrastructure business. This is because as and when 3G services are launched, there will be an increased demand for bandwidth backhaul and fibre will become a commodity as applications like tele-presence, streaming videos and other data-intensive applications will need to be backhauled on fibre.
In addition to India, fibre deployments in high-growth markets like China and Russia are also rapidly gaining momentum, raising the expected FTTH subscriber base to over 100 million globally by the end of 2012.
Given the strong momentum towards fibre connectivity, the OFC industry is set to witness a hockey-stick growth curve in Indian as well as global markets.
