A massive increase in data demand coupled with the government’s ambitious Digital India programme has resulted surge in demand for optic fibre cable (OFC). This is likely to grow further with the increasing adoption of new-age technologies such as internet of things (IoT) and cloud. Therefore, operators and towercos need to undertake higher investments in fibre roll-outs, and develop new business and revenue models.
Demand drivers for fibre
Mobile data usage in India has significantly increased since 2016. This has been enabled largely by falling data and voice tariffs, the availability of cheaper smartphones, and the growing emphasis on content services. Operators are increasingly focusing on deploying 4G network services and would soon shift their efforts towards 5G deployment, further adding to the data growth. 4G subscribers, accounting for the biggest portion of the total mobile data users in the industry at 53 per cent. Given the increased demand, operators are now investing in expanding their 4G footprint and working towards rolling out 4G services in rural areas as well. Going forward, telcos will need higher backhaul capacities, which, in turn, will make site fiberisation crucial.
Demand from enterprises
For the enterprise market, the demand for fibre will be primarily driven by data centre and connectivity requirements such as IPLCs and DLCs, Ethernet. In addition, IoT connections in India are expected to grow at a compound annual growth rate (CAGR) of 32 per cent by 2022 and the cloud market is expected to grow at a CAGR of 33 per cent by 2020. The efficient functioning of these new-age technologies will largely depend on robust Wi-Fi and fixed broadband solutions.
Currently, the largest demand for OFC is being generated through projects such as the Smart Cities Mission, the BharatNet project and Digital India. It is through these initiatives that the government aims to enhance the country’s ICT infrastructure, thereby improving connectivity and transforming society into a digitally empowered one. The projects encompass proliferation of IoT and digital payment, transformation into a cashless economy and implementation of e-governance initiatives. Smart cities would require a large-scale deployment of sensors and connectivity equipment for the uptake of smart services. Although mobility will play an important role in driving these initiatives, it will not be sufficient. In order to succeed, the government will need to establish a complementary robust physical connectivity system, in which fibre will play an important role.
Till now, broadband services to the home are being offered using digital subscriber lines (DSL) and their variants, but this needs a major overhaul given the current scenario. Most of the traffic that gets generated today is in the video format. Latency has emerged as an important service parameter. Further, operators need to now offer multiple services like broadband, TV and surveillance services to home users on a common network, all of which calls for massive fibre deployments in the last mile.
Despite the growing need for OFC networks in India, fibre penetration continues to be low. Currently, less than 15 per cent of the sites are fiberised. Various challenges exist in rolling out fibre, the biggest being the issues related to obtaining right of way. Moreover, given the precarious financial situation of most Indian telecom players today, they might not be keen to invest heavily in the OFC space even though it is the need of the hour. This calls for the development of new and innovative business models for infrastructure roll-out such as the neutral host model. Under this model, middle and last-mile roll-outs can be undertaken by third parties who can then allow multiple operators to use this network to offer services under their own brand. Also, there is a big opportunity for pure-play fibrecos and towercos to venture into this space.
The government has also emphasised the growing need for fibre as is evident in the new draft National Digital Communications Policy, 2018. It has introduced various strategies like the fibre first policy, common duct policy, leveraging of assets of other utilities and single-window clearance, among others, to provide an impetus to OFC roll-out in the country.
Based on a presentation by Bharat Bhargava, Partner, EY