Fibre network requires 4 folds growth to meet today's data demand: Report

Telcos are taking a cue from the divestment of tower assets and their eventual emergence as an independent industry, the fibre assets are also being hived off to separate entity

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In order to meet the growing demand of data and address the density of population the fibre network would have to expand at least four-fold, as per the ICRA report.

Fibre network  requires 4 folds growth to meet today's data demand

 

India lags far behind other countries in terms of fibre deployment with India's per-capita fibre coverage at 0.09 fibre km vis-à-vis 0.87 for China and 1.3 for the US and Japan.

"To meet the growing demand of data and address the density of population the fibre network would have to expand at least four-fold. This is estimated to require investments to the tune of around Rs. 2.5-3 lakh crore. So far, the fibre assets have been developed and owned by the telecom operators. But the telecom industry is reeling under the pressures of sizeable debt levels, low-profit generation and intense competition, making it challenging for it to incur such capex," Harsh Jagnani, Sector Head & Vice President - Corporate Ratings, ICRA said.

ICRA also pointed out that telcos are taking a cue from the divestment of tower assets and their eventual emergence as an independent industry, the fibre assets are also being hived off to separate entities.

The dynamics of the fibre industry are evolving in a manner similar to the telecom tower industry some years back. Towers to form a critical part of the telecom network, are capital intensive, and initially were part of the balance sheets of the telcos. The increasing prevalence of tower sharing wherein multiple telcos could deploy their radio equipment on one tower allowed for divestment of tower assets by the telcos. Sharing reduced the capex for the industry as it obviated the need for each telco to erect its own tower. Telcos have been monetizing their stakes in the tower companies over the years, to a stage now that the industry is on the cusp of becoming largely independent.

 

Hence, sharing of fibre among multiple telcos would be the key driver of a reasonable return on capital, the ratings, and research company mentioned.

Spinning off of the fibre assets by Bharti, Vodafone Idea and plans of spinning off by Reliance Jio and BSNL and possible sharing of fibre assets by Bharti and Vodafone-Idea would free up capital for telcos, ICRA said.

ICRA also notes that as per ICRA estimates, the market value of the fibre assets owned by the major private telcos is around Rs. 120,000 crores and thus even small quantum of stake sold can generate sufficient funds to improve the liquidity position of the telcos.

Jagnani said that "For the independent fibre assets, tariff structures, revenue models, and service agreements would have to emerge. Data integrity can be a concern, but it is likely to be addressed. Following the template of the tower industry would hasten the evolution. The profitability is likely to be directly related to the extent of sharing and the amount of traffic carried, as it leads to a significant addition to revenue at relatively low incremental cost."

"Thus, bigger fibre companies will be more profitable and thus can incur capex to consistently enhance their networks. Steady, reliable return generation would make them attractive for independent investors, as we have seen for the tower industry. We are likely to witness a completely new industry a few years down the line," he added.

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