The Indian telecom sector is witnessing a radical transformation due to surging mobile data usage and growing smartphone adoption. This increase in data demand has made it imperative for operators to establish high capacity optic fibre cable (OFC) networks, both for the last mile and the backhaul. India now contributes around 5.7 per cent to the global fibre demand. The advent of new technologies like 5G and the internet of things is going to further fuel the demand for fibre in the country.
Key demand drivers
Surging data usage
Falling 4G data prices and rising internet penetration have led to a surge in data consumption. During 2018, operators’ strategy of launching simplified bundled tariffs for 4G services drove down 4G data prices by around 60 per cent. Further, India now ranks second after China in terms of internet users. All these factors have contributed to the exponential increase in data consumption, creating the need for establishing future-proof fibre-based networks.
Advent of 5G
Indian telecom industry stakeholders have started readying themselves for the 5G revolution. The government is planning to hold 5G spectrum auctions in the second half of 2019. Operators have, meanwhile, started focusing on trialling 5G services and upgrading networks. Fibre connectivity will play an essential role in creating high-performing, dense urban networks that are able to sustain the high data growth resulting from 5G services.
Emergence of new infrastructure
In the coming years, telecom infrastructure will comprise not just macro tower sites, but also small cells, fibre-to-the-home (FTTH) networks and Wi-Fi services. Dense networks with deep fibre penetration will be necessary to support this new infrastructure. Currently, only 25 per cent of towers in the country are fiberised. Therefore, operators need to increase the level of fiberisation, especially in the present 4G/5G environment. This will result in significant cost savings for telcos. To this end, the National Digital Communications Policy [NDCP], 2018 has set a target of increasing the level of tower fiberisation to 60 per cent by fiscal year 2022. The increase in the use of small cells and in-building solutions as part of network densification will also generate infrastructural demand for fibre backhaul. Fibre-based small cell networks are preferred wherever possible as fibre is scalable, secure and cost-effective.
The government has embarked on the world’s largest rural fibre roll-out initiative through the BharatNet project, which has been a major contributor to the growth in fibre demand. The second and third phases of the project will continue boosting the country’s fibre infrastructure. The government has also announced several policy initiatives under the NDCP, 2018 to expedite fibre roll-out. Some of these initiatives are the National Broadband Mission, which comprises the GramNet, NagarNet and JanWi-Fi initiatives; the Fibre First initiative that entails according OFC the status of a public utility; and the creation of a National Fibre Authority. State-run initiatives such as MahaNet, AP Fibre Net and T-Fibre are also contributing significantly to fibre roll-outs. Meanwhile, development under the government’s Smart Cities Mission hinges on a robust common digital infrastructure backbone that includes fibre as the core component.
New business models
The migration to high speed broadband has forced the industry to rethink its business models. Two emerging business models in the industry are:
- Creation of separate fibre companies – Operators have started hiving off their fibre assets into separate companies to promote fibre sharing, which can help in reducing capex and deleveraging balance sheets. It would also help in enhancing asset value through sharing, utilising unused capacity, building optimal routes, delivering operational efficiencies and creating incremental financial flexibility.
- Towercos may explore the option of becoming neutral hosts for FTTH services – In the future, towercos may take up the role of neutral hosts to cater to telcos’ need for providing FTTH services. The neutral host model offers multiple service provider options to the customer, leading to increased uptake. Further, it leads to a reduction in the overall capex per service provider. Moreover, the specific expertise of the neutral host can be leveraged by service providers to achieve faster time-to-market.
Challenges and the way ahead
Right-of-way issues, inadequate maintenance of fibre infrastructure and uncoordinated development activities such as road expansion, which result in fibre cuts, remain the key impediments to fibre roll-out. The challenges notwithstanding, fibre presents a promising opportunity for the country. The overall fibre deployment is expected to increase at a compound annual growth rate of 13.8 per cent, from 1.5 million cable km in 2018 to 2.8 million cable km in 2023. This growth would be driven by 5G networks as fiberisation is essential to develop heterogeneous networks that meet the capacity and latency requirements for 5G services. s
Based on a presentation by Swapnil Srivastava, Global Analyst Leader, TMT, EY