Interview with K.S. Rao: “OFC to drive the country’s digital transformation”

As the Indian telecom industry embarks on a data-led growth journey, the outlook for the optic fibre cable (OFC) market looks very promising. A robust OFC network is a fundamental requirement for the successful execution of the Digital India, BharatNet and Smart Cities Mission projects. This, coupled with the private sector’s focus on rolling out new-generation technologies, has opened up a plethora of opportunities for OFC manufacturers in India. K.S. Rao, managing director and chief operating officer, Sterlite Technologies, talks about the company’s growth strategies to leverage the emerging opportunities in the OFC space. Excerpts…

How has the telecom OFC market in India evolved in the past few years? What have been the key challenges and growth drivers?

A major demand driver for OFC is data usage, which is doubling globally. In India, data usage is increasing at 60-80 per cent every year. All the technologies, be it 3G, 4G, 5G or Wi-Fi, need optical fibre to backhaul data. Government initiatives like Digital India, BharatNet, the Smart Cities Mission and Network for Spectrum, and the private sector’s focus on setting up a scalable broad­band infrastructure to curb data drop and ensure a true broadband experience, have been the major drivers of OFC demand in India. New technologies such as long term evolution (LTE) and fibre-to-the-x (FTTx) are expected to drive further demand. With the government trying to match pace with the world for 5G adoption by 2020, we see a long-term increase in demand for OFC.

In the past, obtaining right-of-way (RoW) permissions and coordinating with multiple agencies was challenging. In this regard, the announcement of a single-window clearance facility under the new RoW rules will help in delivering smar­ter networks.

Currently, countries globally have real­ised the role of broadband in their economic and social progress, and have defined am­bitious broadband targets. In the US, where the minimum download speed is 25 Mbps, they are targeting to cover 100 million households by 2020. China, with a mi­ni­mum download speed of 50 Mbps in urban areas and 12 Mbps in rural areas, aims to cover 98 per cent of the administrative villages by 2020. In India, the minimum download speed is 512 kbps, which needs to be brought at par with the global standards.

With demonetisation, many financial transactions are being done digitally. In order to shift to a digital economy, internet penetration needs to be improved. Currently, the country has merely 30-40 per cent internet penetration, which is widening the digital divide.

With a pure-play focus on telecom, what is Sterlite Technologies’ growth strategy and key focus areas?

As a telecom-focused company, our offerings and capabilities encompass all the layers of telecom networks. A key growth driver for us is  the Smart Cities initiative, wherein we are endeavouring to build the digital infrastructure by converging our expertise of system integration and software services to combine infrastructure creation with a host of applications to ma­ke the cities future-ready. Moreover, we are looking to support mobile backhaul creation and FTTH roll-outs as we sit on the cusp of a data revolution. We also expect to play a key role in creating a nation-wide optical fibre backbone to bridge the urban-rural digital divide. Going forward, we will expand our reach in the international markets, where our focus would be on deeper penetration into global Tier I accounts with our suite of optical communication products and software offerings. We will continue to strengthen our system and network integration and software solutions.

How has been the company’s performance in the recent quarters, post the demerger of its te­­­lecom and power business? What are some of the key operational and financial highligh­ts?

The demerger has given us the scope to amplify and leverage our network and system integration service offerings, and software and product portfolios as a pure-play telecom entity. In the last two quarters, we have seen a strong and increasing global demand for optical fibre as well as optical fibre cable.

At the start of 2016, we had set the target of expanding our optical fibre capacity to 30 million fibre km by mid-2017-18, which is progressing well. We also launched the Sterlite Tech Academy to enable the entire value chain involved in broadband network deployment. The academy nurtures skilled talent to solve challenges such as low lifetime and low reliability of the currently deployed networks.

Financially, we registered a 39 per cent increase in net profit at Rs 510 million during the second quarter of 2016-17 over the corresponding quarter in the previous year. Our recorded revenues for the second quarter stood at Rs 5.51 billion, with earnings before interest, taxes, depreciation and amortisation of Rs 1.09 billion and international sales doubling to reach to Rs 2.31 billion.

What is the current rate of fibre deployment across the Indian telecom industry? How do you see the wireless-wireline mix change on the access and backhaul sides in future?

Currently, fibre is being deployed in both rural and urban areas as a part of various government-led projects and private sector investments in new infrastructure creation. Moreover, for the successful deployment of 4G and 5G services, the backhaul network needs to be fibre supported.

All data that is to be transmitted on wireless networks such as 4G and 5G (in the future) has to be transmitted through optical fibre, which is a future-ready technology. In India, less than 20 per cent of mobile tower sites are fiberised as compared to 70-80 per cent of sites in developed countries. With increasing competition, a robust mobile backhaul network that ensures seamless voice with data connectivity across 2G, 3G and 4G/LTE technologies is very critical.

What are your views on the recently released RoW rules?

The much-awaited RoW rules are critical to the creation of smarter data networks, which would serve as the backbone of information highways in India. These new rules address the issue of lack of transparency in payments and bring predictability in approvals. We believe the rules will not only streamline the permission procedure but also help in timely deployment of smarter optical fibre networks in a transparent manner. These broad­band highways will connect rural India (through BharatNet) to urban (smart cities) regions, becoming a strong foundation to realise the Digital India targets.

What is the company’s current order book? What are the key ongoing and future projects?

Sterlite Tech closed the second quarter of 2016-17 with a strong order book size of Rs 23.24 billion, which is 11 per cent higher than that of the previous quarter. A major highlight is our winning the smarter network order for Ahmedabad Janmarg Limi­ted, a public transit system of the Ah­me­dabad Municipal Corporation. As a part of the project, an optical fibre backhaul infrastructure will be deployed to interconnect Ahmedabad’s bus rapid transit system corridor to the main data centre and disaster recovery site through passive network integration. The Jaipur Phase II project under the Smart Cities Mission is underway, while the Gandhinagar smart city project is nearing completion.

As for our products vertical, we were recently selected as one of the two global vendors for supplying optical fibre products for a leading global telecom operator. We are seeing traction on the system integration front as well. There has been an increase in demand from a diversified customer base across the defence, public and private sectors. With Digital India gaining pace and 4G investments by operators, we expect the opportunity flow to continue for the next three-five years.

What has been Sterlite Tech’s experience in the fibre-to-the-home (FTTH) space? What are the operational ch­a­­llenges and how are you addressing them?

India is still catching up with the deployment of FTTH across geographies. Our partnerships with Airtel, Tata Teleser­vices and SpectraNet have been fruitful as we have connected 167,000 homes with access to 100 Mbps speed via FTTH. We are currently operating FTTH networks in Mumbai, Delhi, Pune, Ahmedabad, Bengaluru and Chennai. The new RoW policy will support the faster roll-out of OFC infrastructure for FTTH and bring true broadband to the masses.

How can the government support and encou­rage the manufacturing and deployment of OFC in the country? Globally, what are the initiatives being undertaken?

In an era where smarter data networks are valuable to India’s digital transformation, budgetary allocation for broadband infrastructure is a must. Today, broadband infrastructure is the lifeline of a cashless society and provides the much-needed access that helps deliver key services to society. A certain percentage of the GDP should be allocated for the roll-out of this critical infrastructure. For optical fibre manufacturing, the government should back high quality “Made in India” products by creating a conducive market environment. In terms of OFC deployment, there is an urgent need for encouraging private partnerships in the second phase of BharatNet to ensure its timely completion and roll-out.

Globally, many governments have included broadband infrastructure creation in their annual targets. Very recently, the UK government created a new Euro 1 billion Digital Infrastructure Fund, for the roll-out of full-fibre ultrafast broadband. The UK government is also developing a new Universal Service Obli­gation for broadband, which is expected to deliver at least a minimum internet download speed of 10 Mbps.

In the US, broadband service has been defined as a core utility. In India, too we need to think of broadband as an essential service and realise the vision of “Broad­band for All” under the Digital India programme.