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Demand for Cables: Issues and opportunities

July 27, 2011

Used for transmission, feeders and distribution, cables form the backbone of telecom infrastructure. While wireline networks were the largest users of cables (largely copper cables) in the telecom sector till the 1990s, the growth of mobile networks has been contributing to the growth of the telecom cable industry since then. While a mobile network largely consists of towers, base transceiver stations (BTSs), antennas, etc., cables form an essential part in terms of their use as radio frequency (RF) and feeder cables.

The demand for cables continues to grow on the back of rural network rollout. The launch of 3G and broadband wireless access (BWA) services presents the next major opportunity for cable companies. The growing internet and broadband business is also a key demand driver for cables. tele.net looks at the issues and opportunities for the Indian telecom cable industry...

Opportunities

India is the second largest telecom market in the world after China and continues to show a strong appetite for mobile telephony and broadband. While the urban population has access to wireless services, the country’s hinterland has huge potential to drive future growth.

With the current rural teledensity at only 33 per cent, the demand for mobile services from these areas is expected to provide an impetus to the telecom cable market. Rural network expansion will step up the development of telecom towers and  drive the demand for feeder cables.

In mobile towers, feeders are cables that are used as a transmission medium to carry high frequency or broadband signals between the antenna and its BTS. These cables are crucial for the site’s optimal performance.

The introduction of mobile number portability (MNP) is also a key demand driver for feeder cables, as telecom operators are now investing in network upgradation to improve their quality of service.

The increased focus on the internet and broadband segments will be another demand driver. Both government-owned and private operators are now trying to increase the country’s broadband penetration, which currently stands at less than 1 per cent.

Bharat Sanchar Nigam Limited’s (BSNL) and Mahanagar Telephone Nigam Limited’s (MTNL) legacy networks for broadband are based on copper cables. In the past few years, optic fibre cable (OFC) has become the preferred medium for internet and broadband services. OFC’s advantages are its virtually unlimited bandwidth, resistance to electromagnetic interference and low latency. Also, the government’s proposed Rs 200 billion national optic fibre network, which is a 250,000 km long system, has provided a fillip to the OFC market.

With a successful run in the wireless voice market for almost a decade, telecom operators are now dependent on data for the next phase of growth. In the past two years, the use of telecom services has shifted from purely voice based to a growing uptake of data. The use of value-added services (VAS) has also grown rapidly. This has led to investments in building capacities on all infrastructure fronts.

The telecom cable market, which constitutes a critical part of the infrastructure backbone, will be a key gainer from this behavioural shift.

The advent of 3G services would further increase the demand for data services, while the increasing number of hours spent on bandwidth-hungry data services and high definition video content on the internet will contribute to the growing demand for cable capacity.

The launch of BWA services will also provide an impetus to the telecom cable segment. Network expansion, building new towers and laying new networks for these services will drive the demand for telecom cables.

The expected growth of in-building solutions as well as the replacement of cable networks with OFC are the other demand drivers for the cable industry.

Cables as infrastructure 

As cables are an important part of wireless backhaul, growth in the wireless subscriber base as well as wireless data services will lead to more cable deployments. While microwave dominates backhaul currently, OFC will cater to the future cable demand for backhaul. The increased viability of OFC will help shift backhaul as well as internet and broadband networks to this platform.

In the past, the cost of building OFC networks was higher than that of laying copper networks. Fibre installations required highly trained specialists, costly equipment and hours for splicing. But by mid-2010, the cost of OFC dropped and fibre cabling became competitive as compared to deploying either copper or microwave.

The installation costs of fibre networking have also dropped and are currently almost at par with copper. Significant improvements include bendable fibre and new fibre termination technologies along with the availability of many more fibre-trained technicians. All these factors will help in generating demand for OFC, which is a superior medium for data transmission.

Submarine cable networks 

Undersea networks for long distance communication have been another major consumer segment for the telecom cable market. Currently, undersea cables carry about 95 per cent of the world’s telephone and internet traffic.

Information travels faster and at a cheaper rate under the ocean than it does through satellites. Submarine cables are considered highly reliable as they provide multiple paths in case of cable breaks. As a result, the global trend in the industry is that major operators are investing about 20 per cent of their asset base, year on year, in submarine cable network deployment.

Over the past three-four years, more than 15 submarine cable systems have been developed in Asia, involving an investment of over $4 billion, which is more than double the investment in the previous three-four years (in the early 2000s). Going forward, investments in a submarine cable system connecting India to the Middle East and Africa can be expected.

Issues 

Despite the growth prospects, some issues continue to plague the Indian telecom cable industry. The first being that the industry is under the constant threat of changing technologies. The cable industry has suffered a major setback due to the dwindling wireline subscriber base. The demand for wireline networks, which was the mainstay of the cable business, has reduced as wireless has evolved as the preferred medium for voice telephony.

Operators like BSNL and MTNL have tried to capitalise on their strong and wide wireline networks for internet and broadband services. However, the recent launch of 3G and the future launch of BWA are emerging as competitors to the wireline broadband business.

In the case of wireline broadband cable depolyment, OFC, which is the preferred medium for internet and broadband, continues to face several issues. The high cost of OFC deployment, as well as the associated high maintenance costs continue to be major deterrents.

The cost pressure is not restricted to the OFC market alone. With aluminium, steel and nickel being the major materials for cables, price volatility of metals has  adversely impacted the companies. Passing costs on to customers may not be easy considering that most orders are small. The fact that operations are capital intensive in nature stretches the balance sheets of companies further.

The rising price of copper is a major concern for cable manufacturers. The cost of copper cables is tied to copper commodity prices in the international market. Since copper prices have been highly volatile, these cables are generally priced every quarter. This impacts the operators’ medium- and long-term strategies and planned expenditures.

Not only does the high cost of metal directly impact manufacturers, it aggravates their problems as there are frequent metal thefts. Metal thefts have increased in step with the increase in global metal prices. According to the International Cablemakers Federation (ICF), metal theft is widespread and not limited to the developing countries. The ICF states that copper theft is encouraging the poor countries to adopt wireless networking as the only viable solution.

Cable theft is not only a cost burden but can also affect the industry’s strategic decisions. In African countries, such as Kenya, telecom operators have consciously decided to invest more in wireless networks due to the problem of cable theft. In India, BSNL has attributed the loss of fixed line customers in some cities to disruptions in services caused by cable theft.

There have been reports of OFC theft as well, but these have been negligible as compared to copper theft. According to the ICF, the scrap value of these fibre cables is negligible.

Some vendors are offering solutions to curb copper theft. These products include typical anti-theft monitoring and surveillance devices that are applied to central offices and BTS environment.

The influx of cheaper cable variants, imported from companies in China and Taiwan, is a major concern for local manufacturers. Vendors are facing constant pressure from turnkey service providers to reduce the cost of equipment, as the cost per line is continuously declining.

The huge cost associated with cable deployment and network maintenance is a major issue. Fibre cuts leading to a drop in network speeds is a regular problem faced by cable providers. According to cable vendors, the solution to fibre cuts is underground cabling and using multiple links from multiple providers.

The time and models for cable installations in the country vary across seasons and locations. It is difficult to take a cue from global practices as aspects like climatic change that play a major role in cable network performance in a tropical country like India, are very different from those in Western countries. Regular maintenance is also important to ensure that the cable network is working efficiently.

Specific to the RF feeder segment, a key issue is the distinct shift in preference among select vendors from a centralised RF to a distributed RF architecture using remote radio heads to build networks for broadband data services. This may impact the demand for RF cables, as the new architecture reduces the need for feeder cables.

There are some atypical challenges for the submarine cable business. A multi-terabit, transoceanic submarine cable network involves huge costs, which is a concern for all stakeholders. Disruptions occurring in underground cable networks is another problem. The time and cost involved in addressing these issues is huge.

Despite these issues, the importance of cables in telecom infrastructure cannot be overemphasised. Fibre connectivity has emerged as a key focus area for the telecom industry, as it not only provides an additional revenue stream but also assumes a critical role as the sector embarks on its next level of growth with 3G and BWA. According to industry experts, operators may divest the OFC network business into a separate company, similar to the tower infrastructure business. This is because the recent launch of 3G  will result in an increased demand for bandwidth backhaul and fibre will become a crucial part of infrastructure. 

As far as copper cables are concerned, their demand is likely to decrease and will only be driven by their use in the RF and feeder cable segments

 
 

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