The demand of optical fiber cable in the country is going to decrease as majority of service providers has already deployed a large portion of the network. It seems OFC manufacturers are now focussing more on VSNL as it is deploying its NLD backbone infrastructure. With private basic service providers focussing more on WLL (M) for residential users, the demand for PIJF (polyethylene insulated jelly filled) cable has also reduced. It seems even BSNL is planning to focus more on wireless technologies this will further reduce the demand of PIJF cable in the country. With public utilities companies like GAIL and Indian Railways deploying telecom backbone there will be additional requirement of OFC in the country.

n The JFTC Market: As mentioned earlier, the top lines and bottom lines of almost all the JFTC cable manufacturers were affected in 2001-02. While the top lines suffered because a number of new manufacturers sprung up last year, the bottom line suffered because there was at least 15 percent drop in prices due to fierce competition. As many as 30 new companies, mostly power cable manufacturers and copper scrap dealers, got into the JFTC business last year, thereby eating into the established players’ market share. The appearance of so many new players is basically ascribed to almost nil entry barriers. As most power cable manufacturers have found it easy to get into telecom cable manufacturing. For these players, telecom cable was like an incremental business with low overheads, as they already had experience in the power cable business. What made life difficult for the existing players was the fact that everybody was fighting for just one customer—BSNL.

It is estimated that the JFTC capacity in India during 2001-2002 was 1,651 lakh cable km (lckm). The offtake is estimated at 500 lckm, which means that there was a lot of idle capacity. This naturally puts tremendous pressure on the manufacturers with many of them being forced to restructure their operations. BSNL’s offtake was 450 lckm while MTNL bought around 12 lckm. The private basic service operators and the railways bought the rest. The JFTC off take was certainly higher than 2000-01. However, the presence of too many manufacturers proved costly for the industry, especially, the established manufacturers. As this led to a fierce competition in the segment, the per lckm cost of JFTC dropped by 16 percent.

n The OFC Market: In the OFC segment, the demand for OFC increased by an estimated 95 percent. However, there was a drastic drop in the price of OFC. Value-wise, the market was especially down in the last two quarters of 2001-02. OFC prices declined from an average of Rs 5,500 per fiber km (fkm) at the beginning of the year to an average of Rs 2,000 per fkm at the end of 2001-02. The prices dropped because of several factors. This included a drop in the cost of optic fiber, domestic over capacity, global glut as well as competition from new manufacturers. The price of fiber which was around $80 in the beginning of the financial year dropped to $20 by the end of the year. This led to a drop of more than 50 percent in the price of OFC. There was plenty of demand but two of the big private service providers—Reliance and Bharti—met their complete demand through imports. Reliance, which imported around 15,000 km of 48-fiber, purchased them through the EPCG route at 5 percent duty. Bharti imported 12,000 km of 48-fiber during 2001-02. In effect, Reliance and Bharti together imported more than what was locally bought by BSNL, the largest buyer of OFC in India. As more of the demand is being fulfilled by imports, the balance sheets of the manufacturers got affected. With the contraction in global demand, the export market too disappointed the OFC manufacturers. There was a 84 percent fall to Rs 60.33 crore in exports from Sterlite. Similarly, Aksh’s export order of $70 million was canceled midway with the company being able to fulfill orders worth just $3 million.

OFC manufacturers expanded their capacity though most of them did not expand on the scale as had been planned earlier. Despite all this, OFC capacity in the country increased from 3.3 million fckm in 2000-01 to 5.2 million fckm in 2001-02. The capacity utilization also increased to 48 percent from the previous year’s 33 percent. In India, only two manufacturers—Aksh and Sterlite—have enough capacity to fulfill the domestic demand but there are too many players. The new entrants are mainly companies, which were earlier into the JFTC business. Ironically, while everywhere the OFC market is contracting, it is still growing in India. There was a 20-25 percent increase in demand last year. Adding to the glut in the domestic market are foreign manufacturers like Corning, Fujikura Sumitomo, Lucent, and LG, among others. OFC manufacturers started the year making what one of the leading players termed ‘obnoxious’ margins. The only bright spot, according to a leading OFC manufacturer, was that OFC prices are so low now that they are competing with JFTC and pushing out copper—coaxial cables even in applications like cable TV. Many players feel that while the demand for OFC in the backbone may have saturated or would be so soon, there is still a lot of potential in the access market.

The biggest problem that JFTC manufacturers would increasingly face is that of huge idle capacity. This, in turn, would either force them go out of the business or drastically restructure their operations. Many of the copper cable manufacturers might also get into the OFC business.

In 2002-03, the demand for OFC is expected to increase by 20-25 percent to 2.5 million fckm. While BSNL is going to remain the biggest buyer, private operators like Bharti, Reliance, and Tata, are also likely to procure significant quantity of OFC. However, even as BSNL and MNTL would continue to source from the domestic manufacturers, private operators are likely to continue importing OFC to meet the major portion of their demand.

EXPERTS PANEL Sanjay Badri, vice president, Finolex Cables Ltd Umrao Khivsara, CFO, Aksh Optifiber