Why Optical Fiber Stocks Are Rising

The optical fiber industry in India is experiencing significant growth.

The growth is driven by increasing demand for high-speed internet connectivity and the expansion of digital infrastructure in India.

Government initiatives like Digital India and BharatNet also contribute to the growth of the optical fiber industry. This surge in demand has led to a robust expansion of optical fiber networks across the country, connecting urban and rural areas alike.

This growth has translated into a notable rally in domestic optical fiber stocks. Over the past year, Tejas Networks surged by 48.1%, HFCL rallied by 93%, and Sterlite Technologies saw an increase of 42.9%.

These impressive gains reflect the market's confidence in the sector's potential and the increasing reliance on optical fiber technology for data transmission.

Optical fiber stocks are once again in focus as the BharatNet Phase 3 tender opens on 8 August 2024.

This tender, aimed at further expanding India's broadband connectivity, is expected to drive further growth and investment in the optical fiber sector.

Read on to know everything about the tender.

Overview of BharatNet Phase III

BharatNet Phase III is the latest phase in India's ambitious project to extend broadband connectivity across rural areas.

Bharat Broadband Network Limited (BBNL) issued this tender worth approximately Rs 650 billion (bn) earlier this year to kick-start this phase.

This phase is a critical part of BharatNet, which is one of the largest rural telecom initiatives globally.

The overarching goal is to connect all Gram Panchayats in India, ensuring universal broadband access.

The project is essential for enabling services like e-health, e-education, and e-governance in remote and underserved areas, which are crucial for the socio-economic development of rural regions.

Structure and Goals of BharatNet Phase III

BharatNet Phase III is designed with a comprehensive three-tier architecture:

• 1. Internet Leased Line Bandwidth: BSNL is responsible for providing internet leased line bandwidth at 7,269 blocks across the country.
  
  This is the backbone that supports the entire BharatNet infrastructure, ensuring high-speed connectivity is available at the block level.
• 2. Middle-Mile Connectivity: Private sector players will manage and maintain middle-mile connectivity for a duration of 10 years. This part of the network links the block-level infrastructure to last-mile connectivity points.
  
  The long-term involvement of private players ensures sustained quality and service.
• 3. Last-Mile Connectivity: The last-mile connectivity is critical for reaching individual households. BharatNet Phase III introduces the Udyami model, which involves village-level entrepreneurs.
  
  These Udyamis will deliver last-mile connectivity to households on a revenue-sharing model.
  
  The project aims to establish 15 million (m) home fiber connections over the next five years, significantly increasing broadband penetration in rural areas.

Government Investment and Market Expansion

The Indian government has approved a substantial outlay of Rs 1,390 bn for BharatNet Phase III.

This investment is more than three times the combined funding of Rs 420.7 bn allocated for the first two phases.

The increased funding reflects the government's commitment to expanding broadband connectivity across 640,000 villages.

This phase includes not only the upgrading of infrastructure in 164,000 existing gram panchayats but also the connection of an additional 47,000 gram panchayats under the new model.

The significant investment in BharatNet Phase III is expected to create a substantial boost in India's fiber roll-out services market.

The project opens up opportunities not only for fiber roll-out but also for system integration services across various sectors.

Optical fiber companies are actively seeking contracts not only from BharatNet but also from government departments, public sector enterprises, and the defense sector.

The increased demand for these services is expected to drive growth in the telecom and networking industry.

Fiberisation and 5G Readiness

BharatNet Phase III is closely aligned with the National Broadband Mission, which has set ambitious targets to support the rollout of 5G services in India.

One of the mission's key goals is to fiberise 70% of India's base transceiver stations (BTS) by FY25. Fiberisation is crucial for ensuring that 5G networks can deliver the high speeds and low latency that they promise.

As of October 2023, fiberisation in India stood at approximately 38%. This leaves a significant gap that needs to be addressed to meet the 70% target by 2025. To close this gap, the government plans to expand fiberisation to 5 m kilometers by FY25.

Additionally, there is a target to construct 1.5 m new towers across the country. These efforts are crucial for enabling efficient 5G services, which in turn will support a wide range of applications, including smart cities, industrial automation, and advanced healthcare services.

Bidding and Implementation

The BharatNet Phase III tender has attracted a diverse range of bidders. Alongside established players like Telecommunications Consultants of India (TCIL) and ITI, domestic optical fiber cable (OFC) manufacturers such as HFCL, STL, Polycab, and Pratap Technocrats are also in the fray.

While some companies, like Polycab, STL, and HFCL, have submitted solo bids, others have opted to form consortiums to leverage combined strengths.

Notable consortium participants include G R Infraprojects, Vindhya Telelinks, Rail Vikas Nigam (RVNL), and Bharat Electronics.

In total, 21 bidders have submitted proposals for the BharatNet Phase III tender. These bids cover multiple states and regions.

The implementation of BharatNet Phase III will build on the lessons learned from the earlier phases. Initially, the Center had mandated strict average revenue criteria for companies participating in the Rs 650 bn program.

However, these criteria were relaxed in May 2023 following concerns raised by the domestic industry, ensuring broader participation and reducing barriers for smaller players.

Conclusion

BharatNet Phase III represents a monumental step forward in India's digital transformation.

With a massive government investment of Rs 1,390 bn and the active participation of leading industry players, the project is set to significantly enhance broadband connectivity across rural India.

The three-tier structure of the project, involving both public and private sector players, ensures comprehensive coverage and sustained quality of service.

As BharatNet Phase III progresses, it will not only bridge the digital divide in rural areas but also lay the foundation for India's 5G future, positioning the country as a global leader in rural telecom infrastructure.

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Happy Investing.

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