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S. Vaidya Nathan

THE last 18 months were turbulent for the optical fibre/optical fibre cable manufacturers world over. Not surprising, as a sudden slump in demand coincided with a sharp jump in capacities despite the presence of a small number of players of global scale.

The primary problem has been the US market. Virtually all long-haul networks are well connected by OFCs.

Traditional telephony players such as AT&T, WorldCom, Sprint and the Baby Bells as well as bandwidth providers such as Level 3, Global Crossing, Qwest have created a multiplicity of networks on most routes.

Installing an OFC network is probably the more expensive part. For, apart from the cables, there is also the cost of digging and putting in the cables.

So, when a company lays a network, it usually puts in more cables than what may be required for quite some years so as to minimise on the laying cost.

In an environment of widespread expectations of an explosion in demand for bandwidth for broadband — to facilitate fast transmission of voice, data, pictures, video, cable channels and myriad range of Internet services — there was more incentive to pack more power into the OFC network.

When quite a few players do so on the same routes (much like the Tatas, the Reliance, BSNL and the Bharti group digging up for cable networks in Chennai), the extent of capacity creation can well be imagined.

Even two years ago, the US' Federal Communication Commission had warned of large unused capacities. With easy financing, the capacity creation binge was compressed within a short time period of two-three years.

The only problem was that for all the hype, the demand for bandwidth, even in the US, has not taken off as the players expected. Broadband usage is placed at less than 20 per cent of capacity.

Once the dotcom bubble burst, the pressure mounted. There was also for all practical purposes a telecom bubble in bandwidth creation and that too has gone bust.

Though OFC manufacturers think that the demand will become robust in the long term, the near-term prospects are viewed as distinctly bleak.

Corning — the leading player — expects sales in 2002 to be substantially lower than 2001. It has also closed its OF facilities in Australia and proposes to do so in Germany.

It is also mothballing its Concord facility in the US with the ability to re-open in six to nine months if needed.

These are planned by end 2003 to bring "capacity in line with current revenues". Lucent — once a big player and now mired in manifold problems — has sold out to Furukawa, Japan.

Until economic growth picks up and then telecom spending (which would be with a considerable time lag due to excess capacities except on the metro network in the US), the OFC business is likely to be under pressure across countries.

Capacity rationalisation by manufacturers and demand from China may provide some support but profitability levels are likely to be thin even when the companies move out of the red that is splashed all over now.

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