STRUCTURED CABLING: Happy Days ahead…

The structured cabling industry is optimistic. Though the first two quarters
of the fiscal year were sluggish, the third and fourth quarters seem to be
promising. Although the real numbers are yet to come, firsthand talks with the
industry sources reveal that till October 2002, vendors had recorded about 10—12
percent growth, and thereafter they were seeing a 20—30 percent growth. Going
by these trends, it is predicted that the vendors may see about a 15—20
percent growth by this fiscal end. It may be noted that the premises cabling
market was growing by over 30 percent in FY 2000—01, and in the last fiscal,
it reported about 20 percent growth. In revenue terms, the market for 2001—02
was Rs 270 crore.

Buying
in banking and finance, and government sectors gave push to sales in the
structured cabling market. But the slowdown in the IT sector somewhat negated
that. For most of the vendors, the first and the last quarters of the previous
fiscal were bad, but things started picking up from June and the outcome was
visible in the OND quarter. While vendors confide that the era of 30—40
percent growths is over, they are expecting about 10-15 percent growth in their
internal projections for the year.

Findings of MAIT pertaining to PC sales have also given structured cabling
vendors cause for cheer. MAIT says that in the first half of 2002-03 the PC
market saw units sales close to 1 million, which was expected to touch the 2
million mark by the end of this fiscal. As the structured cabling industry has a
direct co-relation with the PC shipments, cabling vendors are sure of achieving
the 15—20 growth figure.

Banking on Telecom and BPO

The biggest saviors for the structured cabling market have been the telecom
and the BPO sectors, though banking and the government sectors have also
contributed to the deployments. It is being hoped that Reliance’s telecom
plans will act as prime catalysts. It is estimated that there will be about
1,000 Reliance WebWorld outlets, combining an Internet café, entertainment
center, and digital products shop. Orders for these outlets alone are likely to
be quite big.

Reliance apart, other operators, be it cellular or basic, are augmenting
their infrastructure. Significant investments are being made at the premise
levels too. Basic services started by private operators have pushed the demand
for broadband connectivity, which in turn has created a demand for in-building
cabling to provide the services. So structured cabling vendors feel that this
fiscal could be better than 2001—02. Vendors are seeing a fair amount of
activity in all key verticals like government, software, education, and
manufacturing.

On the technology front, the market is now moving from E-Cat-5 to Cat-6 as
the Cat-6 standard got ratified in June 2002.

Though E-Cat 5 supports gigabit applications using existing technology and
has been stable for a considerable period of time, Cat 6 was being promoted.
This is because despite the enhanced performance of E-Cat 5 cabling, it cannot
support frequencies greater than 100 MHz, whereas Cat 6 cable can support
frequencies up to 250 MHz and can run networks up to 6 Gbps with the current
experimental technology. Further, Cat 6 also has an increased signal-to-noise
ratio of 15.8 dB at 100 MHz, as compared to 3 dB for Cat 5e. In addition, Cat 6
cabling has backward compatibility with Cat 5 and 5e. This was the answer to
have additional bandwidth requirements.

Copper is winning the horizontal battle, primarily because of the cost of
components for 100 BaseT and backward compatibility to easily support legacy
systems. Most of the organizations have at least some degree of legacy system to
be supported. Though fiber costs will continue to decrease due to economies of
scale, it is important to note that there will still be a substantial price
premium on fiber components such as NIC cards and switches, and potentially much
more infrastructure to replace with a move to fiber. Installation procedures
need to be more stringent as more care must be taken to ensure proper handling
and termination. All these are essential in order to ensure a good return on
investment. Cat 6 copper cables promise enhanced performance of 250 MHz and
copper to desktops, which is still cheaper. At the end of the day, it is highly
unlikely that end-users will require gigabit to desktops. But when they do,
there is fiber.

In line with the standards and beyond the standards, players have been
launching new variants. Take Krone, for example. Its TrueNet Cat-6 cabling
solution has impedance matching of 100 Ohm G3 percent, which is double than the
current Cat 6 standard. For information outlets, it introduced the KM8 Cat 6
jack with cable management features. Another vendor, Molex will be introducing
data patching systems soon and the patch chords. Tyco introduced OM3 fiber for
gigabit Ethernet and the AMPACT system among several other products.

The tough market conditions in the previous fiscal led to severe erosion in
price terms. One threat was from new entrants in the unorganized sector, with
low-priced cabling solutions, mostly sourced from the gray market. Fortunately,
buyers have started realizing that the quality of such products is poor. For
example, a so-called Cat 6 solution available in the market didn’t even pass
the specifications on channel requirements on completion of installation.
Nevertheless, major vendors feel that there has been about 10—12 percent
erosion in prices. And that’s why they are estimating growth in revenue terms
at 10—15 percent, even though quantity-wise the growth would be 15 percent.

Vendors can take heart from the fact that CIOs/CTOs are now insisting for
solutions that are not just standard-compliant but also offer better
throughputs. Moreover, organizations are also looking at return on investment as
a parameter.

The Performers

Majors like Avaya, Tyco, D-Link, Molex, and Krone have performed well,
mainly by creating a niche for themselves. Both Avaya and Tyco, which account
for close to 60 percent of the market share, continued to dominate the market.
The real picture is still to emerge, but by talking to channels and integrators,
one gets the picture that Avaya and Tyco are neck to neck.

Last fiscal, Avaya had close to 40 percent market share, while Tyco had about
21 percent. The system integrators believe that Tyco is No 1 in south, east, and
central India, while Avaya is strong in north and west. Based on this, some
estimates say that Tyco could well surpass Avaya this fiscal. Meanwhile D-Link,
Krone, Molex, Panduit, and Finolex are also consolidating their bases. It may be
recalled that in the previous fiscal, D-Link’s market share had gone up to
about 17 percent.

While a clear picture of market shares will emerge only after the fiscal is
over, one significant development has been the growing mindshare of all the
companies mentioned above. One driving factor behind this has been the fact that
most of the vendors have focused a lot on training and channel partners. Take
the case of Tyco. It has over 700 certified professionals so far. And it focused
on conducting workshops in Mumbai, Delhi, Bangalore, and Chennai, besides other
cities, for existing channels. At present, it has three major distributors–Tech
Pacific, Ingram Micro, and Compuage. This fiscal, it has put a great deal of
emphasis on the B- and C-class cities.

Krone also took the training initiative through its Master Installer/Designer
course, with a comprehensive view of the new Cat-6 recommendations. The course
focused on the design aspect as well as on the creation of quality
infrastructure for those organizations that intended to set up an IT network.
Krone received an overwhelming response for the course, which played an
important role in increasing the installed base of Krone’s products. Molex too
focused on Cat6, training, and new cities.

Apart from adding more number of stockists and focusing on channels, vendors
have also emphasized on being total solutions providers. Be it Panduit, Molex,
Krone or TVS Net, all of them have directly concentrated on projects. It must be
mentioned here that, D-Link made a major mark in the structured cabling space
because of its ability to complement with active devices. Tyco too entered the
scene as a total solution provider by adding active devices to its portfolio.

A major development is that India may become an export base for some of the
big vendors like Tyco, Molex, Krone, and D-Link. Molex has announced that it
would soon be manufacturing a majority of its Cat 6 products in India and
exporting them to other parts of the world. It plans to begin with 2,000—4,000
components and has already made significant investments in tools and die
facilities. It also says that its primary focus will remain on India, as far as
the APAC region is concerned. Tyco too is looking at India as a manufacturing
base, with Europe being the target market. The company will be manufacturing
copper patch chords, fiber optic accessories, followed up by IOs. All these
things show about not only the commitment of the vendors but also of the things
to come.

Ch. Srinivas Rao