TELECOM CABLES: Weaning Returns

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