A data centre boom globally, in addition to rapid 5G rollouts, is silently propelling the growth of another ancillary industry: Optic fibre cables (OFCs). With top dollar expected to flow into the segment in the next decade, service providers and fibre manufacturers are looking to simultaneously strengthen deployment locally and double down on building capacities and boosting exports.
Investment banking firm Avendus Capital expects around $2 billion capital expenditure towards data centre fibre alone over the next decade, with global private equity funds eyeing the India opportunity. Deloitte estimates that overall fibre deployment in India will be 4 million kilometres in 2024, expected to expand at 12-15% over the next two years.
Manufacturers are also looking to harness India’s already established credentials in the export markets. According to data from the Ministry of Commerce, India’s OFC exports to more than 100 countries in FY24 totalled Rs 39,600 crore. Nearly half of the shipments were to major European nations, including Spain, the Netherlands, Poland, Italy, and the Czech Republic.
To be sure, fibre is no longer the exclusive preserve of telecom companies, as newer ventures like Lightstorm and Space World Group are laying their own infrastructure. Backed by US PE firm I Squared Capital, Lightstorm has invested more than $100 million over the past four years in laying down 30,000 km of fibre network, connecting 60 data centres. It is now looking for M&A opportunities, group CEO and managing director, Amajit Gupta.
“We are a challenger (to telecom companies) and not an incumbent,” he said, explaining that Lightstorm offers direct connectivity between cloud and enterprises. He added that sizing the market opportunity post-AI is extremely difficult.
Exponential Demand Growth
“When we started modeling this business, pre-AI, four years ago, we predicted data utilisation of 300 Mbps per rack. And now, with AI, the traffic is going through the roof–almost 10 to 15 times more,” Gupta said. Consumption per rack has nearly quadrupled to 11 kilowatt in four years, he added.
Space World Group, a fibre assets company, plans to connect 35 data centres in seven major Indian cities, entailing an investment of $500 million through its new ventures called Constl and Ranext, co-founder Ankit Goel said. Back in 2021, US PE firm Brookfield bought Space Teleinfra, the fibre arm of the Space World Group. for Rs 900 crore.
“Fibre is a crucial piece in this fast-growing industry given the requirement for P2P connection of data centres within a city and across cities along with the connectivity with subsea cable landing stations,” said Prateek Jhawar, managing director and head – Infrastructure & Real Assets, Avendus Capital.
He pointed out that telcos are the biggest use case for fibre in India owing to 4G/5G tower and cell site fiberisation. High levels of tower fiberisation— where India is a relative straggler—are critical to support 5G data speeds and apps such as video-on-demand. “Only 40% of India’s telecom towers are fiberised, which is way below the 85- 90% fiberisation levels in China, the US, the European Union or South Korea. Bharat Net’s fibre resources can be handy to bridge this fiberisation gap, as private telcos can definitely use its long-haul fibre,” said a top tower industry executive.
Scope for Expansion
Even after two years of 5G, India continues to remain highly under-fibreised, with cumulative fibre-deployed to-population ratio at 0.1x, compared to 1.2X in the US and 0.7x in China, Deloitte said in a study. But with the availability of a large pool of capital in this sector, telecom companies are moving from a capex model to an opex model reducing upfront cost. “In the last few years, close to $1 billion of capital expenditure has been incurred in India annually towards fibre infrastructure. We expect this to at least double from now for the next ten years,” Jhawar said.
‘Digital Infrastructure’ has been an overarching investment theme lately, said Siddharth Tipnis, Leader – TMT Consulting, Deloitte. “Asset classes around data centre, TowerCos have seen fair action recently, but this could very likely pivot toward fibre assets players who have a clear plan of creating value,” he said.
According to Research and Markets, the global fibre optic cable market was valued at $14.61 billion in 2022, and it is expected to grow at an annual rate of 10.70% to reach $43.02 billion by 2032. American telco AT&T last week signed a $1billion multi-year deal to buy fibre from glass-specialist Corning. In Colombia, Telefónica has joined forces with KKR to form ON*NET Fibra. This year, two fibre giants in the US–Uniti and Windstream–announced a merger at a mega enterprise value of $13.4 billion.
