Hiccups for telecom fiber rollout with higher duty on optic fiber

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As optic fiber and cable producers cheer the hike in basic customs duty on optic fiber, analysts and telcos feel that there could be initial hiccups until the domestic makers gear up production to meet the enhanced demand. The industry also expects a 2-3 per cent rise in their fiberisation costs for the time being.

According to sources from the telecom operating companies, they already source a large part of their requirement from the leading Indian companies in this space. However, some of the specialty cables are still sourced from abroad, largely Chinese manufacturers in this space. At present, Indian manufacturers have a capacity to produce 50 million fiber-km of optic fiber at the moment.

"The objective of increasing customs duty on optical fibres is to give Indian manufacturers a favourable push in this area. The immediate cost impact will be on the telcos who import fiber from the global manufacturers and are rushing to rollout fiber across the country," said Prashant Singhal, Emerging markets TMT leader, EY.

While Indian manufacturers match in quality, the capacity of production is higher abroad. With this additional impetus, the domestic players should be able to match up in the medium term, Singhal added. 

"The Budget move will push the capex for fiberisation at the moment until more local capacity comes up. While we have not done a detailed calculation yet, but costs can rise by around 2-3 per cent. The Basic customs duty has been raised from 10 per cent to 15 per cent on imported cables and the ongoing contracts cannot be scrapped," said a senior official at a telco. 

Fiber accounts for more than a third of network costs for telecom operators and is likely to impact their network cost by at least 2 per cent according to various industry estimates. 

In general, analysts note that the Chinese optic fiber manufacturers have a significant share of the market lately in India and this move will result in some teething costs to Indian telcos before the Indian fiber manufacturers can rise to the occasion and improve their production capacity. Companies like Sterlite Technologies, Aksh Optic Fibre, Finolex Cables and Paramount Cables are among many others who also export products to markets abroad. 

The likes of Sterlite Technologies, Aksh Optifibre, Finolex Cables, Himachal Futuristic Communications are some of the top manufacturers in the domestic optical fiber and cable market. 

Anupam Jindal, Group CFO at Sterlite Technologies noted that this move will give some respite to domestic manufacturers who were coping with Chinese players in the market lately. “Over the past few years, with some slowdown in the Chinese market, a lot of their local manufacturers had started entering the Indian market for the opportunity in telecom growth it offered. This move will certainly give the Indian manufacturers, who have better capacity, added incentive.”

On the whole, the telecom industry rued the minimal support measures announced for the sector that is undergoing a financial crisis. 

Rajan Mathews, director general of Cellular Operators Association of India (COAI) said that while the impact of the customs duty would be a very marginal short-term impact, the budget has put huge emphasis on digital transactions, connectivity and BharatNet, there was a lack of support for the telecom sector itself which would be involved in this process. “For a rapid fiber rollout across the country, there should be some incentive for the private players as well because a lot of the rollout would be in regions that are not commercially viable. Such initiative however was absent in the budget”, said Mathews.

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