The installation of optical cable in communication networks currently is running at an annual level of 300 million fibre-km, much more than was imagined a decade ago. In 2006, for example, optical cable demand was 95 million fibre-km. The compound annual growth (CAGR) was 15.2% from 2006 to 2014. This high-growth interval includes the years of the great recession. Optical cable demand actually increased 24% from 2008 to 2009, a year when almost every other industry suffered a downturn due to the recession.
This impressive growth raises several questions. Can it be sustained? Or, how long will this growth continue? Has it strained capacity? Who is supplying all this cable? Are profits zooming upwards? Are there opportunities for new cable makers? CRU examines these questions in its semi-annual Telecom Cables Market Outlook (TCMO) report. This article will review two topics - the outlook for growth and the distribution of cable manufacturing. The data here are excerpted from the most recent edition of the TCMO, which came out earlier this month.
A small number of big projects can cause sharp spikes in optical cable demand
A major conclusion from CRU's analyses of optical cable demand is that growth rates vary significantly among countries and regions in the same year. What's more, growth rates for one country's optical cable demand can vary significantly from year to year, as major network construction projects are launched or completed.
The International Telecommunications Union (ITU) reports telecom statistics on 215 countries. The telecom operators in many of the smaller markets do not purchase optical cable every year. CRU estimates that at least 150 countries have some demand for optical cable in any specific year. With large markets having many telecom and CATV companies, CRU estimates that the world has more than 3,000 potential customers for single-mode optical cable, with several hundred having network construction projects underway in any specific year.
Thus, the current market for optical cable has hundreds of customers building networks in more than 100 countries. Despite this breadth, a relatively small handful of customers can have a big effect on the growth in optical cable demand. In 2014, for example, Spain's optical cable demand nearly doubled from 2.4 million fibre-km to 4.6 million fibre-km. One carrier in Spain, Telefonica, accounted for most of this growth. The 2.2 million fibre-km increase in Spain was 8% of the entire world market's increase from 2013 to 2014.
A group of top cable customers including AT&T, BSNL (India), China Mobile, Reliance Jio Infocomm (India), Orange (France Telecom), Telefonica, and Telmex accounted for more than 16 million km of additional optical fibre installed in 2014. The increases at these accounts contributed significantly to the world market's growth and helped offset lower orders at some other accounts.
If optical cable is such a good growth business, why would some customers have lower orders? The reason is that they have completed major projects or have achieved a high level of coverage with fibre in their networks. Some of the advanced telecom markets, such as Japan, the US, and major markets of Western Europe, began installing optical cable more than 30 years ago. Most of this cable is still operating quite well. In fact, some of it may be carrying more traffic than initially envisioned, due to the recent advances in transmission optics and electronics. In recent years, the operators in these advanced markets have been adding fibre in their access network - in FTTx projects. ['FTTx' refers to fibre-to-the-home, fibre-to-the cabinet, fibre-to-the-building, and other access-network architectures.] But as the access networks in these advanced markets become "filled up" with fibre, orders for optical cable may diminish. This situation already has occurred in Japan, Singapore, and several other markets.
The developing economies, on the other hand, started using fibre more recently - say in the last 10 to 15 years. As a result, the telecom network operators in these countries are still building out their inter-city backbones and metropolitan networks. FTTx installations in many developing markets are limited to field trials or smaller projects that target higher-income communities. Over the next five years, CRU expects to see optical cable demand in several advanced markets flatten out, with major contributions to the world market's growth coming from India and Southeast Asia. Other high growth markets will include additional countries of the Indian sub-continent, Mexico, Central, and South America, Africa, and the Middle East.
Cable production is concentrated in the large markets
With the world having more than 200 telecom cable markets, and only 55 countries with optical cable producers, most countries rely on imports for fibre-network projects. More than half the countries with domestic cable production are net importers of fibre optic cable. That is, the total of optical cable produced in that country is less than domestic demand. This is the case in Argentina, Mexico, Pakistan, Russia, Saudi Arabia, Ukraine, the United Kingdom, and several smaller markets.
The countries with net exports include the largest cable-making markets: Belgium, China, France, Germany, India, Israel, Japan, Netherlands, Poland, Romania, South Africa, South Korea, Spain, Switzerland, Turkey, and the US. Several other important cable-making markets, such as Indonesia, Malaysia, Thailand, and Vietnam are producing optical cable at levels quite close to their domestic demand, plus they have had a fairly close balance of both imports and exports in recent years.
Several new optical-cable factories have started production in recent years. Most of these have been in Asia, including India, and Latin America. In two cases, Furukawa's new factory in Colombia and FiberHome's new joint-venture in Ecuador, the new operations are the first optical cable factories in those countries. Currently, Africa has the most countries that rely entirely on imported cable. The region's total demand in 2014 was about eight million fibre-km, and the total output of the factories in Algeria, Egypt, and South Africa was two million fibre-km. Africa's market, however, is fragmented into about 50 countries, many of which have inconsistent annual demand.
Currently, optical cable production is running at a high level in all markets. The factories are busy with extra shifts, the owners are investing in new equipment, and in some cases there are "brick-and-mortar" expansions, with new buildings or extensions. The opportunity for new factories or expansion is not over, but future investments most likely will be aimed at high-growth countries or regions that have fewer local producers or where there are local partners to facilitate local operations and local market penetration.
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