STRUCTURED CABLING: Volume driven

The overall mood in the structured cabling industry currently is upbeat.
Though the past fiscal started on a sluggish note, the last two quarters of the
year were very bullish.

Till October 2002, the top vendors had witnessed 10—12 percent growth. But
thereafter, they saw 20—30 percent growth.

Total sales in FY 2002—03 stood at an estimated Rs 265 crore.

The market was earlier strongly dominated by Avaya, but current statistics
suggest that the gap between Avaya and Tyco (the #2 player) closed considerably.
While Avaya’s total sales revenue during the period was an estimated Rs 89
crore, that of Tyco was Rs 69 crore. In terms of market share, Avaya enjoyed
33.6 percent, while Tyco followed with 26 percent. D-Link managed to be in the
third position with a total market share of about 11.7 percent and with an
estimated revenues of Rs 31 crore. Though the going for D-Link is strong, in the
projects, the real contest is among Avaya, Krone, Molex, Panduit, and Tyco.
D-Link rules in small towns.

How Vendors Tackled Pressure...

Most of the major vendors consolidated their base by offering end-to-end
solutions. Some of the projects went to the cabling vendors directly, and they
had to implement and execute the projects and certify the sites. This implied
fierce competition and price erosion. For instance, while the listed price of a
Cat 5E 300m cable box was Rs 3,000—3,500, in projects vendors quoted prices as
low as Rs 2,000.

There was a lot of focus on training and channels. Tyco, with over 700
certified professionals, focused on the existing channels, conducting workshops
in Mumbai, Delhi, Bangalore, and Chennai, besides other cities. It has three
major distributors–Tech Pacific, Ingram Micro, and Compuage, and its emphasis
is on the B- and C-class cities.

Krone took the initiative to create the master installer/designer course in a
comprehensive manner, with the new Cat 6 recommendations and fiber incorporated.
The story of Molex was similar. The focus has been on Cat 6, training, and new
cities. Avaya, which was slow in reacting to the changing market scenario during
the previous fiscal, also has made up for the loss, consolidating its sales team
and setting up new offices.

Apart from adding more number of stockists and focusing on channels, vendors–Panduit,
Molex, Krone or TVS Net–have concentrated on being total solution providers.
And most of them concentrated on projects directly. It must be mentioned here
that D-Link made a major mark in structured cabling because of its ability to
offer complementary active devices. Tyco too entered the scene as a total
solutions provider by adding active devices to its portfolio. Although active
devices from its stable will take time to get off in a big way, the difference
has already started showing.

Further, all the major cabling players have come to India. Corning has
entered the market through an agreement with RPG Cables. This agreement with
D-Link is for the Corning optical fiber range of products like InfiniCor and
SMF-28 fibers, primarily deployed in premise wiring applications. D-Link will
use cables containing Corning optical fiber as part of its Open-Link Connect
structured cabling products. Belden has come directly. It has set up offices in
Delhi and Bangalore. So far, it has indirectly done close to Rs 3.75 crore of
business. Another entry into the market has been that of Dax. The company is
estimated to have done close to Rs 3 crore of business in its first year of
operation.

Another major trend is visible in the market. India may become a big export
base for some big-time vendors like Tyco, Molex, Krone, and D-Link. Molex has
announced that from January onwards, it will be manufacturing the majority of
its Cat 6 products in India and exporting them too. It will be starting off with
2,000—4,000 components and has already made significant investment in tool and
die facilities. For it, India remains the number one focus in the APAC region.
Tyco too is looking at India as a big manufacturing base. Europe will be
offloading work to India. The company will be manufacturing copper patch chords,
fiber optic accessories, followed by IOs. Also, Finolex has plans to set up
manufacturing facilities in India.

Major Drivers

For the past couple of years, growth for the industry has come on account of
buying in the IT, banking and finance, and government sectors. Although the
deployment by the IT sector slowed down, the telecom and BPO sectors gave it the
necessary fillip last year.

Reliance was among the largest buyers during the fiscal. Total procurement by
Reliance was estimated at over Rs 10 crore.

The procurement was for an estimated 1,000 Reliance WebWorld (earlier called
Web Stores), a state-of-the-art network operating center, and the campuses.
Further, other telecom operators, cellular as well as basic, consolidated their
infrastructure and operations. For this reason, significant investment has been
going on at the premise level too. Basic services started by operators have
pushed the demand for broadband connectivity, which in turn has created a demand
for in-building cabling to provide the services. The trend will be that of
wireless complementing wired solutions. That is why the structured cabling
industry feels that this fiscal could be better than 2002—03.

Other big buyers were the BPO/contact center companies like Accenture,
Cognizant, Convergys, DELL, e-Serve, HSBC, Nipuna, Phoenix Global, Prudential,
Southerland Technologies, and Sykes. This sector alone would have spent close to
Rs 15 crore. One key point that needs to be mentioned here is that some relief
came in the form of reduction in duty from 30 percent to 25 percent.

Trends

Copper is winning the horizontal battle, primarily because of the cost of
components for 100BaseT and backward compatibility with legacy systems. Copper
constitutes about 75.5 percent of the total market, and fiber accounts for the
rest.

Despite fiber costs decreasing, there is still a price premium on fiber
components and potentially much more infrastructure needs to be replaced for a
shift to fiber.

Following the ratification of Cat 6 in June 2002, the market is moving to Cat
6. Even though Cat 5E supports gigabit applications using existing technology
and has been stable for a considerable period of time, Cat 6 was being promoted.
Cat 5 accounted for about 5 percent of the copper market, Cat 5E accounted for
60 percent, and Cat 6 for about 35 percent.

Krone launched the TrueNet Cat 6 cabling solution that offers a zero bit
error rate. Avaya has introduced giga-speed XL, and Molex also introduced data
patching systems and patch chords. Belden introduced patented bonded-pair
cables, and 600 MHz Cat 6 cable.

Another development has been the introduction of active cable management
systems by major vendors. For example, Tyco has launched AMP Trach, Panduit
PandView, and Avaya iPatch. And the products have started to get accepted in the
Indian market. Tyco sold its products to Orange and Avaya and Panduit are also
close to clinching big deals. Tyco introduced OM3 fiber for gigabit Ethernet and
AMPACT systems, among several other products.

Tough market conditions led to severe erosion in prices. The threat was from
new entrants in the unorganized sector that offered low priced cabling products,
sourcing them from the gray market. Vendors feel that there has been 10—12
percent erosion in prices on account of this.

Today, the listed price of a Cat 5E cable is Rs 3,000-3,500 for a 300m box,
and that of Cat 6 is Rs 4,500-4,700 per box.

The patch chords are priced at Rs 190-200 per meter, the information outlet
at about Rs 200, and face plates at Rs 60-70 per piece.

Ch. Srinivas Rao