Surge in Demand - Optic fibre emerges as the transmission medium of choice

Trends and Developments , July 15, 2010

Used for transmission, feeders and distribution, cables form the backbone of telecom infrastructure. In wireline networks, the only medium of transmission is the physical wire. In mobile networks too, cables form an essential part, in the form of radio frequency (RF) and feeder cables, even though the network largely constitutes towers, base stations, antennas, etc.

There are two broad categories of cables in the telecom sector: optic fibre cable (OFC) and copper cable. Over the past few years, the use of copper has declined and fibre cables have emerged as the preferred medium in the wireline space, while aluminium has been giving competition to copper in the RF and feeder cable markets.

Optic fibre cable
Over the past few years, the increased focus on enhancing broadband penetration in the country, from both the government and private operators, has led to a higher demand for optic fibre.

Moreover, as the amount of traffic generated from voice, messaging, emails, games, content downloads, mobile internet access, video streaming, etc. grows dramatically, leading to an exponential rise in bandwidth demand, optic fibre is increasingly replacing copper as 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 and on an average, each tower would require 3-4 km of OFC, with the standard fibre count of each cable being 20-30 fibres.

Currently, over 900,000 route km of OFC is installed across India. This OFC belongs to various national long distance operators or access service providers.

The intercity OFC network is dominated by players like Bharat Sanchar Nigam Limited (BSNL), Reliance Communications (RCOM), Bharti Airtel, RailTel and PowerTel (the telecomfocused business unit of power transmission major Powergrid). Most foreign companies, which provide global connectivity through submarine cable networks, have to rely on them to provide last mile intercity connectivity.

Indian telecom operators are also expanding their optic fibre network in the country with an eye on increasing revenues from enterprise customers. Idea Cellular, Aircel and PowerTel have taken the lead in this regard. The idea is to lease out broadband capacity on the enhanced optical infrastructure to foreign telecom operators, in addition to supporting their own communication needs. During 2009-10, these three companies planned to enhance their OFC networks. While Idea increased its cable network from 38,000 route km to 45,000 route km by March 2010, Aircel is also reportedly in the process of increasing its network from the current 10,000 route km to 25,000 route km. PowerTel expects to have 31,000 route km of optic fibre over the next two years.

A key emerging trend in the OFC market is that operators are increasingly outsourcing this part of their infrastructure.
Bharti Airtel, which started this trend, recently invited bids from telecom vendors to manage its over 120,000 km OFC network. The deal is estimated to be worth up to $1 billion over a five-year period.

State-owned operator BSNL, which has the largest fibre network in the country, comprising about 600,000 route km (covering all state capitals and district headquarters), is also set to invite bids from vendors to outsource the management of its network. The deal is likely to be finalised in the second half of 2010-11.
BSNL's network-outsourcing contract is expected to be worth more than $1 billion over a five-year period.

Another emerging trend is that of operators hiving off the cable part of the infrastructure. RCOM, a leading OFC player, has already hived off this business to its tower subsidiary, Reliance Infratel. As of August 31, 2009, RCOM's OFC network encompassed about 130,000 kmof intercity cables across India, and 66,000 km of metropolitan cables. Its metropolitan network covers 24,000 cities and 600,000 villages.

Copper cable

While copper cables were traditionally used for providing wireline services, their usage has been extended to wireless networks as well, mainly in the form of RF and feeder cables. Most of the copper laid out (for fixed line services) in India is owned by BSNL and Mahanagar Telephone Nigam Limited. Currently, BSNL has about 45 to 50 million km of copper cable networks, which accounts for 90 per cent of the total copper network in the country. Of the company's 29,000 rural exchanges, only 420 are copper based.

Meanwhile, the market size of the RF cable industry as estimated in 2009-10 was $150 million. The huge investment planned in 2G, 3G and Wi-Max is likely to translate into higher demand for RF cables, which is a major user of copper.
The market size of the RF cable industry is expected to grow to $200-$225 million by 2011-12. This is because this industry is directly dependent on network rollout by operators. However, with mobile growth expected to plateau from 2013-14 onwards, the demand for RF cables is likely to decline.

The market for copper usage in the telecom sector has declined during the past several years, though till the late 1990s, the sector accounted for 30-35 per cent of copper demand in the country.Because of the rapid expansion of the Indian telecom network during the late 1990s, copper usage in the telecom sector increased from around 20 kilo tonnes per annum (ktpa) in the early 1990s to 105110 ktpa in the late 1990s. Given the consistent decline in the wireline subscriber base and the strong competition from optic fibre, the demand has declined to around 65 ktpa at present.

Due to the high volatility in copper prices, aluminium has emerged as an important substitute for copper as it is cheaper and gives a fixed price to customers over a longer time frame. As telecom operators realign their network strategies to preserve their operating margins, they are increasingly opting for aluminium.

Currently, operators like RCOM and Bharti Airtel are using copper primarily in the last few hundred metres to the subscriber while deploying fibre to the kerb or building.

A large part of the existing copper network is not of good quality and cannot be used to offer broadband services. This is evident from the fact that while BSNL has over 28 million fixed line connections, only about 8 million (28 per cent) of these are suitable for providing broadband.

Major concerns

There continue to be frequent reports of cable theft with cables being stolen for the scrap value of their metal content. Though cable theft has existed as a low-level problem for many years, it has become a much more serious issue as a result of the rise in metal prices. Repeated damage to cables due to road digging by municipal corporations is another concern. For instance, BSNL suffered losses in excess of Rs 40 million from 1,800 incidents of cable damage and 900 thefts in 2009-10.

One of the key concerns for cable manufacturers as well as operators is the fluctuating and rising price of copper. The cost of copper cable is tied to the copper commodity pricing in the international market. Since copper prices have been highly volatile, these cables are generally priced for a quarter. This impacts the operators' mediumand long-term strategies and planned expenditures.

The way forward
With the upcoming launch of 3G and Wi-Max services on a large scale, mobile operators are investing in upgrading and enhancing the capabilities of their transmission systems and deploying optic fibre-based transmission networks. This is because only optic fibre networks and technologies like dense wavelength division multiplexing that ride on these networks will be able to support the speed requirements of 3G. Furthermore, Indian telecom operators are expanding their OFC network with an eye on increasing revenues from enterprise customers. This offers a huge opportunity for providers of optic fibre.

Given the long life expectancy and substantial capital expenditure requirements, the sharing of OFC networks by network operators is likely to gain traction in the future, allowing them to focus on their core operations and reduce capital expenditure. The new players are likely to leverage the OFC and tower infrastructure of other operators for cost savings and faster time-to-market. The incumbent operators too may find it more economical to lease point-to-point OFC pairs for transmission of voice and data rather than leasing capacity from other wireless operators.


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