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For the Indian telecom cable industry, there could not have been a worse year than 2002–03. From a total of Rs 4,133.05 crore in 2001-02, the industry shrunk to a record low of Rs 1,397.74 crore, plummeting by more than 66 percent. While industry watchers were busy writing the epitaph for the jelly filled telecom cable (JFTC) sector, even optic fibre cable (OFC) players were not spared. Even biggies like Sterlite Optical Technologies, Finolex Cables and Aksh Optifibre bled profusely, while medium-and small players like Birla Ericsson Optical, RPG Cables and Gujarat Telephone Cables had to struggle hard to stay afloat. Some like Usha Beltron decided to move out of the business altogether.

JFTC: On the Verge of Extinction
The year virtually marked the end of the road for JFTC. Black-sheathed JFTC rolled around big drums, a common sight even a year ago, looks set to be consigned to history books. The demand and growth of JFTC reduced substantially from the levels of the past decade.

This definitely impacted the JFTC industry especially given the huge capacities created by Sterlite, Finolex Cables, RPG Cables, Vindhya Telelinks and other small players. Some of the small players had got into the business only because of the low entry barrier and a shared order-placement system adopted by BSNL. The bigger players added capacities rapidly over the last few years to get a larger share of the order cake. Capacities had increased four-fold between mid nineties and 2001.

The rating agency Crisil estimated the capacity utilization of JFTC in fiscal 2001–02 at 44 percent, which dropped to 24.1 per cent in 2002–03. With the growth in demand declining, the price competition only intensified. The situation was well reflected in Vindhya Telelinks’ figures—one of the more profitable players in the JFTC segment. Its revenues in 2002–03 were down 76 per cent to Rs 79.2 crore. For the first time in many years, it suffered a loss, largely due to depressed market conditions.

With cellular services getting more attractive and growing by 15-20 per cent and the entry of players such as Tata Teleservices and BSNL with basic services on CDMA and WLL technologies, the need for copper wire connections got increasingly limited.

OFC: Faring no Better
For OFC players, the year was a vicious coil of huge excess capacities, built both by manufacturers and telecom players who put up cable networks. Demand for bandwidth-based services and products were not up to expectations. Consequently, there was idling of created cable networks and after that there was an inevitable toll on prices and profits. There was a major crash in OFC prices. The average realization per fiber km has dropped to around $16-20. In the Indian market, the prices have halved, from Rs 8,000 per fibre km (fkm) to around Rs 4,000.

That an integrated producer such as Sterlite Optical has ended up in the red on top of a decline in turnover from Rs 954.89 crore to Rs 131.99 crore shows how strong the impact of lower prices had been.

The business model was transformed from a price driven model to a volume and cost driven model, which is more sustainable.

In this context, Sterlite pursued enhancement of capacity to the planned 5 million fkm, which placed it in an advantageous position from a long-term perspective. As integrated producers, Sterlite Optical, and, to a lesser extent, Aksh Optifibre are now better placed to make this transition to the changed industry dynamics. Finolex Cables may also eventually get there, as it is also in the process of backward integration.

Vendor statistics
For Sterlite, the steep drop from Rs 954.89 crore to Rs 131.99 crore was due to non acceptance of the order from BSNL for supply of JFTC due to low price coupled with decline in OFC prices in a globally depressed market.

For Finolex too, BSNL was primarily responsible for the decline. There was a substantial reduction in the procurement quantity of JFTC by BSNL and its lower procurement pricing was also harmful. During the year, BSNL placed orders for 15.4 lckm as against 40.68 lckm for the previous year. However at exports worth Rs 67.35 crore, Finolex witnessed a quantum jump of 82 percent over the previous year.

Aksh Optifibre was the other major player with some degree of integration though not as deep as Sterlite Optical. But still its turnover came down from Rs 231.70 crore to Rs 90 crore. This was because it did not have the cushion of JFTC revenues to provide cash flows and at least modest profits.

The year saw the merger of RPG Cables with Concepta Cables. However, with a revenue of Rs 177.06 crore, the new entity fell way short of the combined revenues of RPG Cables (Rs 170 crore) and Concepta Cables (Rs 66 crore) achieved in 2001–02. Though both Vindhya Telelinks and Birla Ericsson Optical suffered massive losses in 2002–03, they also promoted a new company called Optic Fibre Goa Ltd. for the manufacture of OFC.

In addition to the large number of domestic players, even global players like Corning, Siemens and LG added to the crowd in the market. Corning entered into a strategic agreement for the supply of optical fibre to D-Link through 2005. Through this agreement, Corning would ensure D-Link with a steady supply of Corning optical fiber products, including InfiniCor and SMF-28 fibers, primarily to be deployed in premise wiring applications. In addition Corning also bagged orders from Tata Teleservices and VSNL for a major portion of their high-speed national, long-distance network. On the other hand, Siemens sold around 6900 km of OFC earning revenues around Rs 90 crore.

Rajneesh De