Ahead of 5G rollout, key fibre players invest big to expand capacity

Although they are tough competitors in the optic fibre cable (OFC) sweepstakes, the fact that the 5G rollout will generate huge demand for fibre has meant that Himachal Futuristic Communications (HFCL) and Sterlite Technologies are together investing over Rs 1,800 crore on backward integration and expanding their capacity. They are also building volumes so they can tap the global demand for fibre too given that 5G is being rolled out more aggressively in the coming months. 

It’s not only OFC manufacturers who see new business potential from fibre. The big boys of telecom — Reliance Jio, Bharti Airtel and Idea-Vodafone — who have built large fibre infrastructure initially for their own use are now looking at spinning off the assets into a separate entity or getting into joint ventures.

The strategy is to monetise the assets by selling stakes to investors, using part of the capacity for their own captive requirement and leasing out the surplus to competitors and making revenues.

Tower companies also see a new opportunity and are looking at diversifying their business from pure play tower companies to managed service providers deploying small cells and tying up with fibre providers or even building it on their own and in turn leasing it to telcos.

Following a slowdown last year caused by China’s need for fibre falling, demand is now set to rise with China all set to deploy 5G. It gave licences to four operators just a few weeks ago. Apart from China, the largest consumer of fibre, demand across the world is expected to rise as more countries move to 5G.

So HFCL is investing Rs 450 crore to build a fibre plant with a capacity to churn out 6.5 million kilometres per annum. Said HFCL chairman Mahendra Nahata: “This move will help us in reducing our cost of manufacturing OFC in which fibre is a key raw material by making it in India. We are also expanding our OFC capacity from 20 million to 30 million fibre kilometres with an investment of Rs 150 crore. This will help us to export 30 per cent of our capacity.”

Following a similar pattern is Sterlite which is going into further backward integration from OFC to fibre and now also to making the glass for the fibre. “We are expanding our cable capacity by 70 per cent to 50 million fibre kilometres and together are making an investment of Rs 1,200 crore. We export nearly 50 per cent of our capacity,” said Sterlite CEO Ankit Aggarwal.

These companies are also bringing in new technologies to quicken the pace and offer better efficiencies. Sterlite has already registered over 270 patents and has bought machines which could double the speed of deployment which in turn means substantial savings to telcos.  It has also developed a cable which can withstand ten times more bending than a normal cable.

And HFCL is making high capacity cable with 2000 counts of fibre, essentially to take care of the needs of data centres which have to transport huge amounts of data from one place to another.

Sensing an opportunity for monetizing, telcos are also jumping onto the fibre bandwagon. Airtel has already hived off its fibre assets in Telsonic Networks and is now in talks with Idea Vodafone to set up a fibre joint venture which will have over 4.1 lakh km of OFC across the country.

They plan to bring in investors and sell a stake in the company and use the money to reduce their debt in telecom services. At the same time, by sharing the infrastructure, they will reduce their overall costs.

The two telcos, which are planning a joint venture for their fibre assets, are also merging tower companies in which they have stakes to create a behemoth.

“It is logical that they would collaborate or even further merge the two entities to create a large infra company and offer managed services to telcos as well as share the assets amongst stakeholders to pare down costs,” said a senior executive of a tower company.
 

Jio plans to demerge its 7 lakh route kilometres (which will go up to 11 lakh) of OFC assets into a separate company which would be monetized through an investment trust.

This has many advantages: it will de-leverage Jio as part of the debt will be transferred to the new company; the assets will be monetized; and it will remain an anchor tenant with rights to utilise 50 per cent of the fibre pairs while getting rental by leasing out the surplus capacity to competitors.

A clutch of funds led by Brookfield are already in talks to pick up a substantial stake in the venture. For such PE or pension funds, investing in an annuity business which offers stable returns across many years is attractive especially as they do not want to take too many risks.

Tower companies see new opportunities in fibre. American Tower Corporation, for instance, might look at leasing fibre capacity from existing infrastructure players or, where needed, deploy its own fibre to offer it on lease to telcos.

Series concludes