[June 19, 2013] Telcos increase spend on cable as data service demand rises Tweet MUMBAI, Jun 19, 2013 (Mint - McClatchy-Tribune Information Services via COMTEX) -- India's top telecom service providers are increasing expenditure on building fibre optic infrastructure to meet the rise in demand for data services even as voice offers less headroom for growth and spectrum becomes costlier. India's largest telecom operator Bharti Airtel Ltd, for instance, said it has been "overinvesting", having ploughed $500 million into building its next generation cable systems in the last four-five years. "We have invested in multiple submarine cables around the world both for servicing our enterprise and carrier customers," said an Airtel spokesperson. The company's national long distance (NLD) infrastructure comprises 171,610 route km or Rkm of optical fibre and a global network of 225,000Rkm, covering 50 countries and five continents. Likewise, Vodafone India Ltd and Idea Cellular Ltd officials said the companies are steadily increasing their investment in building fibre optic networks. Idea had an optical fibre network of 74,000km on 31 March while Vodafone is expanding its existing 120,000km of long-distance fibre across the country. The company has also set up another 4,000-5,000km network in cities for enterprise customers, said Naveen Chopra, head, Vodafone business services. Analysts agree that fibre optic networks are necessary as there isn't enough spectrum to service data customers. Telecom operators get only 5MHz of 3G (third generation) spectrum each, part of which is also used for voice to prevent call drops in the big cities. Fibre optic cables, according to industry estimates, typically cost around Rs.5-6 lakh a kilometre, going up to Rs.1 crore in a big city. "It's not a cost-based approach (for instance, comparing the cost of laying down a kilometre of fibre versus buying 5MHz of spectrum) but based on a long-term opportunity. There are no estimates for this (the comparison) -- they vary from geography to geography and customer type," said a telecom consultant who did not want to be named. Telcos derive, on average, 20% of revenue from data and SMS (non-voice revenue), double the 10% it was in 2009. The share of SMS in non-voice revenue has fallen from 50% then to 35% in the same period, according to analyst estimates. In developed markets such as Europe and the US, data is as much as 50-60% of the revenue of telecom operators. In India, too, data revenue for telcos is on the rise with high revenue-generating subscribers, especially in metros, consuming more such services. According to a Nokia Siemens Networks 22 May study, mobile data in India nearly doubled in 2012. Bharti Airtel's data customers now represent at least 23% of the base. This has reflected in data traffic growth and 3G (third generation high-speed mobile services) customer growth of more than 135% from a year ago, with non-voice revenue making up 17.4% of Bharti Airtel's total India revenue in the year ended 31 March. Bharti Airtel's India and South Asia mobile services revenue stood at Rs.44,023.5 crore for the year ended 31 March. The company does not disclose its India revenue separately. Idea also derived 21.8% revenue from data and value-added services in the year ended 31 March. "Data business will become big and our proportion of investment (in fibre optic cable) is increasing," said Akshaya Moondra, chief financial officer of Idea. Even though the last mile connectivity (to the home) is wireless, data has to be carried over fibre, for which "one needs to make the investment", he said. In fiscal 2013, Vodafone spent Rs.4,730.1 crore "on future growth areas including 3G and data". Vodafone's data revenue grew 50.5% year-on-year to make up 7% of its revenue in fiscal 2013. "As more and more data is being used, you will need more fibre technology. Anything that is data hungry, you will need fibre optic cables to ship the information across," said Chopra of Vodafone. With every telco planning investment in fibre optic, telecom operators are considering a single entity to manage the network infrastructure. Idea's Moondra said there was a large amount of redundancy in fibre optic networks, so it would help to have a single company apportion capacity to telecom companies, similar to tower sharing. Sharing of fibre-optic infrastructure is likelier for so-called backhaul services (connecting core telecom networks with smaller ones) than last-mile connectivity (connecting directly to the enterprise/service customer location). "This strategy is critical," said Mritunjay Kapur, country managing director of Protiviti Consulting Pvt. Ltd. "As broadband starts booming, we will see telecom operators building infrastructure together. Managing a fibre optic network is not as complicated as managing a tower business. So the joint ventures between companies could be for sharing capital expenditure and additional usage, than just infrastructure management." Mukesh Ambani's Reliance Jio Infocomm Ltd, which is planning to launch its fourth generation (4G) services, has reached such IRUs, or indefeasible right to use, agreements with telcos. On 2 April, it announced a fibre optic infrastructure sharing deal with brother Anil Ambani's Reliance Communication Ltd and on 23 April, it announced an IRU agreement with Bharti Airtel for data capacity on its submarine cables. "Fibre optic allows various services like IPTV (Internet Protocol television), VoIP (voice over Internet Protocol), etc. on a device and can be controlled for data usage like a tap controls the flow of water," said Romal Shetty, head of telecom and partner at advisory firm KPMG. "On the other hand, spectrum is like pipes where limited water goes through them and convergence of data services becomes tougher." Alok Shende, founder director and principal analyst, Ascentius Consulting, said: "Rapid growth in adoption of high speed Internet in geographically contiguous areas will pose a new sort of dilemma to telecom operators -- should the operator continue to serve customers through wireless networks or should the operators invest in fibre-optic networks and offer remunerative triple-play (voice, video and data) services? He said that the manner in which Indian consumers adopt broadband Internet will determine the risk profile of last-mile fibre optic investments. ___ (c)2013 the Mint (New Delhi) Visit the Mint (New Delhi) at www.livemint.com Distributed by MCT Information Services [ Back To TMCnet.com's Homepage ]