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The telecom cable industry continued to fare badly during the year and found no respite from the decline it suffered during the previous fiscal. The decline during 2002–03 was very steep, the last fiscal was no different. Led by a drop in demand and plummeting cable prices, the industry mantra was clearly survival as players looked at diversification portfolios to remain in business.

The telecom cable market during 2003–04 recahed a low of Rs 453 crore. Demand remained flat as wireless became the flavor of the season. Jelly filled telecom cable (JFTC) demand during the year stood at 150 lckm and optical fibre cable (OFC) stood at 1.2 million km. The JFTC market was pegged at Rs 200 crore while the OFC market was at Rs 253 crore.

The low demand for telecom cables was due to the aggressive growth of wireless telephony. Last year wireless growth overshot wireline growth by over 80 percent with CDMA technology leading the wireless ingress. GSM is expected to experience a CAGR of 34 percent while CDMA is expected to grow by 58 percent during the 2004–08 timeframe. Aided by steep tariff cuts and increasing competition between the two technologies, wireless market grew by leaps and bound. Consequently, basic telecom operators withheld capex expenditure and waited for the wireless tide to abate.

Secondly, it was quite natural for telecom cable demand to reach a plateau as most operators had already laid out the backbone and the focus had now shifted to providing access technologies.

Finally, the sector was hit hard as BSNL's focus shifted to wireless technologies last year, withholding expansion in basic telephony. BSNL being a major customer, the sector reeled from this decision as no significant tender was floated by it during the year.

To make matters worse, rates for JFTC, as quoted by the BSNL tenders during the previous fiscal, i.e., 2002–03 hit rock bottom, making it impossible for manufacturers to participate in the tenders. The low quotes did not even cover the cost of manufacturing.

Typically, since tenders take a long time to get processed, the impact was felt into the next fiscal. However, during 2003–04, BSNL revised the rates by about 21 percent making it viable for manufacturers to participate in the tenders. The bright bleep in the otherwise poor performance radar of the industry was the huge BSNL tender, which was recently passed, valued at Rs 525 crore.

Though the tender was floated in July 2003, the order materialized recently in the first week of April 2004. This effectively brings it to the next fiscal. However, players are not complaining as many of them have benefited from this tender.

JFTC Versus OFC
JFTC is clearly out of favor as OFC becomes the darling of the market. BSNL's demand for JFTC declined from a high of 700–800 lckm during 2000–01 to a low 150 lckm during 2003–04.

In fact, not only has demand gone down, even prices have registered a downward trend with JFTC prices going down by 28 percent during last year making it impossible for manufacturers like RPG Cables and Sterlite to participate in tenders. The JFTC market plunged from a record Rs 3500 crore during the boom year 2000–01 to a low of Rs 200 crore during 2003–04.

There is no doubt that the telecom market will clearly be dominated by OFCs in the future. Pegged at Rs 250 crore, OFC is on the growth path as demand is further expected to increase the market to Rs 320 crore in the next year.

Vendor Strategy
Clearly the boom time of 2000–02 is over and the industry is facing a downturn. Except Sterlite Opticals, all the other players faced losses. The mantra before the industry is survival, with all the vendors looking at diversifying their business.

Finolex, RPG, Sterlite-companies with larger group companies and diverse offerings-increased their focus on sectors like power cable and tried to expand their product offerings. Finolex, for instance, focused on power cables and structured cabling and accessories market. It also developed new product designs in telecom cables. RPG focused majorly on the power sector so much so that 75 percent of its revenues came from power cables.

Vindhya Telelinks plans to focus on the export market and power cables. Sterlite Opticals found saving grace by early on increasing its focus on the exports market which picked up volumes during the last fiscal. Aksh Opitifibre diversified into the access business by focussing on the CATV market.

Manufacturers introduced changes on the factory floor to streamline production and did away with inventory, resorting to just-in-time manufacturing.

Vendor Performance
Sterlite Opticals is the only player to have shown positive results registering a marginal growth of 13 percent from Rs 132 crore in 2002–03 to Rs 148 crore during the last fiscal.

The steep decline in demand coupled with the decline in JFTC rates forced Sterlite to look at the exports market. Sterlite began its foray into the Chinese and West Asian market early in the previous fiscal and benefited as volumes began to grow in the last fiscal. The China market did particularly well, so much so that Serlite expects about 30–40 percent of this year's revenue to come from the export market, depending on performance of the China market.

On the domestic scene, Sterlite supplied to Tata, Reliance, and Bharti; with Reliance being its biggest customer. Sterlite was the L1 bidder in the recent BSNL tender, winning the largest chunk. It bagged 15 percent of the tender to supply 18 lckm, valued at Rs 110 crore. Sterlite has started working on the order and expects to fulfil the delivery commitment within the next six months. This order is expected to herald the beginning of better times for the company during this year.

As a group, though Finolex Cables did well it was not spared the downturn faced by the telecom cable industry, registering a 40 percent decline in its telecom business. About half its turnover came from BSNL and MTNL. It also supplied to VSNL, Tata, and Reliance, supplying 600 km of OFC to Tata and Reliance. In fact, Finolex introduced innovations in its armouring technology to develop a totally metal-free design for Reliance, called fibre reinforced plastic (FRP).

Bharti was the biggest customer for Vindhya Telelinks, providing 68 percent of its total business of Rs 51 crore. Vindhya Telelinks also won Rs 40 crore in the BSNL tender.

The year was particularly bad for RPG Cables as its revenues plummeted from Rs 180 crore in the previous year to Rs 100 crore this year. Not only that, only Rs 25 crore of its total revenues came from telecom cables.

This is in contrast to the year before when its entire revenue was from telecom cables. RPG did not participate in any BSNL tender during the year as the quotations were unviable. However, it did bag small orders in the range of Rs 2–5 crore from private operators and Indian Railways.

Paramount Cables saw telecom revenues increasingly plunge over the last two years. While in 2001–02, 80 percent of its Rs 125 crore turnover came from telecom cables, in 2002–03, about 60 percent of its Rs 85 crore turnover came from telecom and in 2003–04 the figure plunged still lower with only 20 percent of its Rs 85 crore turnover coming from telecom cables. The company is looking at diversifying into allied cables business and is exploring the exports market. During the year, it supplied to all the private operators as well as to MTNL.

For Aksh Optifibre, whose major business line is telecom cables, it was a bad year. It did find some relief by building up its presence in the CATV market. During the year, the company supplied cables to BSNL, Indian Oil, and GAIL.

Outlook
The year 2004–05 may finally find the sector looking up after a gap of two years with upward movement in demand and prices. As the base for 2003–04 is low, the sector is likely to achieve 50–100 percent growth this year.

A number of factors are likely to aid this growth. First, JFTC prices have started looking up. BSNL has placed a big order in the beginning of this fiscal and another large tender is on the anvil. Bharti is also expected to make some huge purchases during the year. The OFC market is pegged at Rs 320 crore this year.

Second, the exports market is looking up. Third, industry pundits claim broadband will be the next big wave in telecom pushing up demand for OFCs and JFTCs.

Yet, the downside is that there are still too many players. With increasingly lower demand, the market cannot fit more than 15–20 players and the market will clearly need to consolidate.

Today there are around 40 players with a couple of new players like Singla Cables and PSJ Cables making their foray even as late as last year. Lured by the exponential market growth during the boom days and the tax incentives in states like Himachal Pradesh and Jammu & Kashmir, these are really the delayed projects seeing the light of day now.

Companies like the Gujarat Telecom Cables, CMI, NICCO, Telephone Cable of Punjab, and Haryana Telecom are not doing well and are already on the verge of winding up. Only those with diverse product portfolio and focus on the exports market are likely to survive the industry downturn.

Balaka Baruah Aggarwal