With high speed internet connectivity and seamless data flow becoming a necessity, the demand for optic fibre networks is spiralling upwards. Optic fibre cable (OFC) demand in the country is being led by a mix of segments, including telecom players, internet service providers and cable TV operators, along with utilities such as Indian Railways, oil and gas companies, and power transmission and distribution firms. Fibre growth is also being driven by the government’s Digital India push through initiatives such as BharatNet and the Smart Cities Mission. BharatNet Phase I, which was completed in December 2017, alone involved the laying of over 250,000 km of OFC. Phase II, which is scheduled to be completed by March 2019, will see another 400,000 km of OFC being installed. The Smart Cities Mission will also generate significant opportunities for the industry as OFC is fundamental to enabling services such as Wi-Fi, video surveillance and security, smart lighting, smart parking and smart traffic management.
- Operators: Mobile networks are increasingly getting choked due to the surge in data traffic. Operators are therefore being compelled to step up their investments in rolling out high capacity fibre networks to meet this increasing demand. They are also expected to make significant investments in fiberising their backhaul networks to meet the high bandwidth requirements of 4G and 5G. The current focus is on 4G site densification and on the fiberisation of these sites. The network transformation to 5G will also require deep fiberisation of the access network with high fibre counts. Each 5G fronthaul will need 1 fibre pair with a latency of 1 millisecond. Operators are showing interest in small cell deployment, which will result in the demand for small cell fibre backhauling. The initial focus will be on urban and dense-urban areas of the top 10-15 cities (in terms of population). This will include high capacity locations such as business hubs, high-rise residential buildings, malls, airports and railway stations.
- FTTH deployments: Substantial OFC capacity will also be added to the last mile, as the uptake of video-on-demand grows. Urban households are demanding high speed internet content, particularly for web surfing and online streaming of services. This, in turn, is making fibre-to-the-x (FTTx) mainstream.
- Government projects and state initiatives: The government’s BharatNet initiative envisages the building of a massive OFC network to provide broadband connectivity to the country’s 250,000 gram panchayats. Meanwhile, the Network for Spectrum project is a pan-Indian OFC-based communication network being developed for the defence services. Under this project, an OFC network of around 60,000 km has been planned for connecting all the military stations of the army, air force and navy.
- Cable TV and direct-to-home providers: The government’s drive to digitalise the cable TV industry has resulted in cable operators switching from coaxial cable to OFC in the last mile. It is expected that by 2020, around 12 per cent of the revenue for the OFC market will come from cable multiple service operators. For cable operators, fibre deployments come at a lower total cost of ownership and provide a better return on the initial investment than the DOCSIS 3.1 technology. Although migrating to DOCSIS 3.1 can be achieved at the same cost, it requires continued investments even at later stages. Moreover, fibre offers symmetrical upload and download speeds, which is not possible with coaxial cables. On the downside, the government has not permitted infrastructure sharing in the cable TV sector despite recommendations by the Telecom Regulatory Authority of India in this regard. Moreover, subscribers are increasingly considering other options for consuming content. For instance, IPTV (internet protocol television) is finding new takers with lower data costs, increased smartphone penetration and content creation.
Emerging business models
- OFC sharing: In a bid to monetise their existing investments in OFC infrastructure, operators are trying to move beyond competition towards “co-opetition”. They are sharing or leasing networks to bring down both opex and capex, as well as avoid infrastructure duplication. OFC sharing is more prevalent on the backhaul side, with limited or no instances of sharing for last-mile connectivity. For backhaul, operators share fibre either for redundancy purposes or to offer services in difficult terrains. In recent times, service providers have been focusing on sharing infrastructure in a big way, given their levels of financial stress. In fact, OFC network sharing was a key component of Reliance Jio’s infrastructure agreements with its peers. Until recently, all major operators except Bharat Sanchar Nigam Limited (BSNL) were sharing their fibre infrastructure with one another. However, in mid-2017, BSNL announced that it was in talks with private telecom operators for sharing its dark fibre. Besides telecom, public utility companies such as Power Grid Corporation of India Limited, Bombay Gas Limited, Indian Railways and GAIL (India) Limited have been leasing the surplus capacity on their OFC networks to telecom operators. On the policy front, the government is working on a common duct policy to facilitate OFC sharing. As per the policy, service providers will only have to lease the micro-duct for the cable, while the owner of the duct infrastructure will maintain the duct. Using a common duct will result in considerable cost savings, as the cost will be divided among various service providers. Further, there will be no need for frequent right-of-way (RoW) permissions, and digging multiple times can be avoided in cities.
- Fibre as a separate business: Operators can look at hiving off their fibre assets into a separate entity for better asset monetisation and to ensure faster and more efficient deployments. Globally, operators are hiving off their fibre business to pursue growth opportunities, while at home, Airtel India is planning to transfer its OFC business to its wholly owned subsidiary, Telesonic Networks Limited. The separated entity can actively pursue growth opportunities in the industry in a focused manner. The entity will also have more flexibility in providing services to other operators (beyond the parent mobile network operator [MNO]) and incorporating third-party assets. Meanwhile, for the parent MNO, capex requirements go down, although opex increases. Further, operations become much leaner with the separation of fixed assets. The parent MNO may also generate funds from selling stake in the new entity to other investors, as the enterprise value/earnings before interest, taxes, depreciation and amortisation multiples for a pure asset business are much higher than for an operator business.
- Towerco-led fibre deployment: Tower companies will emerge as a one-stop shop for operators to access co-locations and backhaul. There are also likely to be cost synergies between tower and fibre operations, particularly in terms of planning, maintenance and overheads.
While the growing data consumption levels make the OFC market look attractive, regulatory challenges pose a threat to the rapid deployment of fibre by operators and service providers. There is an urgent need for strict implementation of the RoW rules, as no major success cases have emerged even after a year of the notification of the rules. Operators are still struggling to make a rational business case for the exorbitant charges levied by various state agencies. Even state-run operators such as BSNL have faced difficulties in dealing with the municipalities. Moreover, there is a lack of strong administrative and legal provisions for compensation in case of cable cuts or damage by government agencies or private third parties. RoW policies do not provide clear guidelines on restoration costs that companies deploying fibre need to incur. In urban areas, local bodies use this as a revenue generating mechanism and thus levy high costs solely for the purpose of restoration of fibre.
As India embarks on the path to digital empowerment, OFC will serve as the foundation for this transformation. It will play a pivotal role in making the Digital India vision a reality, and will be instrumental in the success of programmes such as the Smart Cities Mission and the BharatNet project. Further, the ongoing competition among operators will create a need for network enhancements over the next three to five years. The incumbents will continue to step up their investments to improve network quality and customer service. The densification of 4G networks and the introduction of 5G will also bolster fibre demand, as 100 per cent site fiberisation will become critical to enabling next-generation wireless services. Going forward, with the advent of new data-centric technologies, fibre will continue to get closer to the actual point of consumption. FTTx will emerge as one of the key revenue-driving services for operators.