With long distance voice and data traffic on the rise, fibre optic cables have become a necessity. Not only is the supply of digital subscriber line (DSL)-based solutions expected to fall short of demand within the next three to five years, but copper prices too are subject to high volatility. Telecom companies are, therefore, increasingly moving from copper to fibre access networks.
According to CRU of the UK, the global demand for optical fibre in the April-June 2007 quarter was 24.7 million fibre km ?? a 7 per cent increment over the corresponding quarter of the previous year.
This growth is slated to rise further. According to FTTH Worldwide Market and Technology Forecast, 2006-2011, the total number of households connected via fibre will increase from about 11 million at the end of 2006 to 86 million by the end of 2011. Asia will be home to a large chunk of the additions, with the number of connected households in the continent expected to reach 59 million by the end of 2011.
With such buoyant growth prospects, optical technology providers such as Sterlite Optical Technologies Limited (SOTL) have sufficient reason to be optimistic. Having entered the Indian telecom industry in its infancy in 1988, the company could not have envisioned the phenomenal growth which followed. But now, it has rolled up its sleeves and is set to intensify its presence with a vengeance.
Background
SOTL manufactures optical fibre, fibre optic cables and copper cables for long-haul, metro access and premise networks. It caters to industries including telecom, power, oil and gas, defence and aviation.
Of late, the company has started diversifying its product portfolio. For instance, it has begun manufacturing and supplying power transmission conductors. It has also started manufacturing ADSL2+ modems at its manufacturing facility in Aurangabad.
In addition to being a major supplier to the country’s growing telecom and power sectors, the Pune-based company earned about 25 per cent of its total sales revenues in financial year 2006-07 from the export of its telecom and power products.
Recent initiatives
Since the start of financial year 2007-08, SOTL has been especially busy. It has won a Rs 1.69 billion contract from Mahanagar Telephone Nigam Limited (MTNL) for deploying a broadband and metro Ethernet network in Delhi and Mumbai.
Sterlite will design, develop and implement the network which, once completed, will support approximately 500,000 broadband connections in the two metros. The project is expected to be completed by the end of financial year 2008-09.
Commenting on the deal, Dr A.Agarwal, CEO and director, SOTL, notes: “We believe that there is a big opportunity in offering Ethernet-based solutions for broadband offerings, and have accordingly positioned ourselves to address these customer requirements.”
In November 2006, Sterlite won a $5 million contract from Qatar-based telecom company Q-Tel for manufacturing and supplying copper telecom cables.Meanwhile, the company continues to supply fibre optic and copper telecom cables to telecom PSUs such as Bharat Sanchar Nigam Limited and MTNL, as well as to private telecom players such as Reliance Communications, Tata Teleservices and Bharti Airtel. In fact, it is currently implementing a multi-protocol label switching network for MTNL in Mumbai and Delhi.
SOTL’s power business is also experiencing significant activity. The Power Grid Corporation of India has chosen Sterlite for manufacturing and supplying ACSR Lapwing Power Transmission Conductors, which are suited for transmission of over 2,500 MW of poer, on the +/500kV HVDC Ballia-Bhiwadi transmission line.
SOTL has also introduced several new products. In fact, the US Patent & Trademark Office has granted Sterlite a patent for its Sterlite DOF-LITE (LEA) optical fibre, designed for access networks. The company was granted additional patents in the European Union, China and India.
Financial results
Sterlite’s efforts have paid off. In 2006-07, SOTL registered a 118.9 per cent increase in net revenue from Rs 5,473.72 million as on March 31, 2006 to Rs 11,981.54 million as on March 31, 2007. The company’s export revenues also increased by 249 per cent from Rs 850 million to Rs 2,970 million. SOTL’s net profit also grew by 24.75 per cent from Rs 407.66 million to Rs 508.57 million.
Financially, Sterlite enjoys an edge over its competitors. According to an annual survey of the Indian Telecom Equipment Industry, it boasts a 44 per cent revenue share of the Indian telecom cables market. It is followed by Finolex Cables, Birla Ericsson and Paramount Cables with 16 per cent, 6 per cent and 6 per cent shares respectively.
Key concerns
Despite the bright prospects, the high cost of optic fibre deployment and the presence of wireless substitutes may pose a hurdle to future growth. “The only concern an optic fibre manufacturer may face is that the cost of providing fibre is much higher than other wireless technologies.Consequently, the company must ensure that its business model is financially viable for its customers,” says Mahesh Uppal, director, ComFirst.
Fibre to the home (FTTH) deployment costs are often significantly high. It has been estimated that the construction cost per household varies from $300 in an ideal scenario to $7,000 in the worst-case scenario. Equipment costs can also be very high, especially compared to a new copper build-out.
The road ahead
Nevertheless, Sterlite is moving full steam ahead. In the future, the company intends to increase its manufacturing capacity. It has earmarked approximately Rs 1.3 billion for its various capacity expansion projects and intends to increase its manufacturing capacity from 4 million km to 6 million km at its integrated optical fibre plant.
The company is also aiming to establish a strong position in the power transmission conductors market. To this end, it has acquired Sterlite Industries (India)’s power transmission conductors business and captured significant market share in the high voltage power transmission and distribution conductors segment. SOTL is currently setting up a new manufacturing facility for power conductors at Haridwar.
This segment is slated to be a key revenue generator for the company in the coming years. According to industry sources, Power Grid plans to spend Rs 705 billion to add 60,000 circuit km of lines by 2012. Such a hefty investment is bound to provide a boost to the demand for cables.
With the increased government focus on the penetration of broadband, wireline and wireless telephony, the fibre optic cable segment may also witness a similar surge in the future.
All in all, the company faces busy times ahead. Uppal expects it to experience strong growth. As he says, “In the long run, companies will need more bandwidth and will look towards fibre to provide it.”
