Wiring for Success

With the proliferation of broadband in India, the telecom cables industry is
redefining itself with an increased demand from operators and service providers
for the deployment of broadband services in India.

According to VOICE&DATA estimates, the industry has grown by 50% in FY
2007-08 as compared to the previous fiscal. The demand has increased due to
increase in the adoption of fiber-oriented networks by the cable TV section,
service operators, and various initiatives and projects on e-governance by the
government.

Sterlite retains the top spot in the telecom cables space, by recording
revenues of Rs 400 crore in FY 2007-08 as compared to Rs 311 crore in the FY
2006-07.

Birla Ericsson Opticals emerged as the second major player with an overall
growth of 234.4%.

The other key players included Vindhya Telelinks, Finolex Cables, Aksh
Optifibre, and Paramount Cables.

Market Share

Sterlite had a market share of 27.8% and recorded growth of 28.6%.

In order to ensure technological enhancements of its existing product lines
and with an objective of developing new products while taking care of the needs
of the telecom industry, the company also set up a new R&D facility at
Aurangabad in FY 2007-08.

Sterlite has announced its plans to expand fiber optic cables facilities to
an annual manufacturing capacity of 6 mn km, from its present capacity of 2 mn
km. The optical fiber expansion is on track and will be completed by June 2009
and the cables expansion would be staged by March 2009.

Furthermore, Sterlite received contracts from BSNL for manufacture and supply
of high fiber count ribbon fiber optic cables. According to the estimates, the
contract was valued at Rs 38 crore. The company will also manufacture and supply
20-2,000 pairs of copper telecom cables to BSNL targeted at providing basic
telephony and broadband services.

The main sectors that contributed to the company's revenues are sale of OFCs
and FRP. The company has also added high-count cable and micro cables in terms
of the latest technological additions. Pune-based cable manufacturer, Finolex
Cables also gained significantly with an estimated 11.1% market share in FY
2007-08. The company also has plans of establishing mega power plants at
Ratnagiri, Maharashtra. The company emerges as #3 player in V&D rankings. On the
other hand, Vindhaya Telelinks recorded an outstanding growth of 115.8%, and a
market share of 8.5%.

In a move to expand the business, Paramount Cables acquired 25-acre
industrial land from RIICO in Khushkhera Industrial Area, Rajasthan, for its
third phase expansion project. The company already has manufacturing plants in
Khushkhera, Rajasthan and Dharuhera, Haryana.

Market Curves

Globally, the industry has witnessed revitalization in demand for optical
fiber and cables. While European markets are in the early stages of deployment
of FTTP (fiber-to-the-home), these markets have emerged as the key contributor
in the fiber optic cables market in the US.

Fibre-to-home and increased usage of broadband, both in cities and
underdeveloped areas, are key growth drivers for optical fibers in India.

Interestingly, the incumbent operators such as BSNL and MTNL, which always
had the lion's share as purchasers of telecom cable products, are going through
a second phase of development in their operation cycles. With the market moving
toward maturity, buyers are inclined toward careful analysis of product options
in terms of product evaluations, compatibility with existing networks, and
fulfillment of international standards.

While the government remains a significant purchaser in the fiber optic
market, private telecom operators have increased their share to 36%.

Bharti Airtel announced to partner with the Gujarat government in the eGRAM
Connectivity Infrastructure Project aiming to set up telecom infrastructure to
connect 13,716 village panchayats and common service centres in the state.
Airtel Telemedia Services had 2,178,175 customers as on December 31, 2007 of
which 34.5% were subscribing to broadband/Internet services up from 1,871,387
customers as on March 31, 2007 of which 32% were subscribing to broadband
services.

Sify, Tata, MTNL, and Idea Cellular have also been very keen on their
expansion projects.

On a similar note, BSNL is planning to connect more than 25,000 villages with
the aim to expand its rural broadband access offering using network access.

Considering the kind of expansion plans various operators have, the growth of
telecom cables is bound to grow in the coming few years. The only thing that
could create a slump for the shorter period is the delay in implementation of
projects.

Interestingly, many industry experts also felt that with the occurrence of
new capacity, there should be an avoidance of major fiber shortage; however,
some temporary and localized tightness is expected to occur.

Focus 2008-09

The growth of broadband in India has failed to meet the expectations of the
industry. It seems like the ambitious target of the government in terms of
broadband incursion will take some more years. However, considering the
potential and demand drivers in India, the growth could happen in a rapid phase,
but for that to happen, consideration needs to be given to the infrastructure
needs and cost effectiveness in a price-sensitive market like India.

The increased usage of broadband in urban and rural areas will act as a
driving force for optical fiber cables. The market is expected to see growing
competition and intense price pressure in the copper cable market, especially
due to the emergence of global players to tap the Indian market.

One of the key reasons for the negative growth witnessed by the telecom cable
industry in FY 2006-07 was the considerably decrease in purchases by the
incumbents, BSNL and MTNL, in the copper telecom cable section. With significant
tenders of more than 90 lakh km, the demand is expected to grow further by 15%
in 2008-09.

The key concerns, which are posing challenges to the industry, are increase
in the prices and hardening of supply of some of the key raw materials. The
margins are also under stress due to competitive selling prices. The increase in
raw materials could not be countered by an equal increase in selling prices as
bulk of sales are done to BSNL/MTNL, under fixed price.

India has established itself as one of the largest markets after China, the
US, and Japan. The country constitutes the characteristics of both highly
sophisticated telecom markets as well as developing economies in rural and
far-flung areas.

A considerable amount of global instability was witnessed in the metals
industry for copper and aluminum in the last fiscal. This resulted in a
situation where most manufacturers like Sterlite, who have substantial economies
of scale, strategically hedged their copper requirements against their orders
received which eventually helped these players protect themselves from the
impingement of volatility in copper as a raw material for cabling.

Interestingly, many industry experts also felt that with the occurrence of
new capacity, there should be an avoidance of major fiber shortage, however,
some temporary and localized tightness is expected to occur.

With the focus consistently shifting toward broadband penetration in India
after the mobile revolution, the country is expected to maintain the lead in the
telecommunication sector. The increasing rate of broadband incursion and
government investment on projects such as e-governance would certainly give a
boost to the demand for the creation of high bandwidth communication
infrastructure.

Jatinder Singh

jatinders@cybermedia.co.in