The pandemic has accelerated the business of large technology companies and telecommunicationsbut that growing demand for the services of internet also has a dark face: the shortage world of fiber optic cables. In recent months, the difficulty in accessing the components of this infrastructure has pushed up prices and threatens to put a stop to the growing digitization from various countries. How is this problem affecting Spain?
Europa, along with China and India, are the regions hardest hit by the shortage of this crucial material for the industry. The precio of fiber has shot up to 70% from the lows of March 2021, according to a study by the firm Cru Group, which may undermine deployment plans and global connectivity.
On the one hand, experts attribute the shortage of fiber optics to a strong increase in demand, which has grown by more than 8% year-on-year due to the ‘boom’ in connections forced by the covid crisis. On the other hand, due to the lack of key components in the manufacture of this type of cables such as helium or silicon tetrachloride. The price of both materials has skyrocketed by 135% and 50% respectively, according to the same study. This problem has been accentuated with the inflation accelerated after the Russian invasion of Ukraine. “In my professional career I have never seen anything similar to this inflationary crisis,” Wendell Weeks, executive director of Corningthe world’s largest producer of fiber optics.
And Spain?
This problem can wreak havoc in countries like Greece, Belgium, Austria or Germany, where fiber optic coverage is still poor. In spain the impact is being more limited, since its digitization is far ahead of that of its European neighbors. Thus, it is the second country on the continent with the highest fiber optic penetration, 68.4% of the population, only behind Iceland. Spain is also the third country with the highest penetration in rural areas and the second fastest growing market, according to various reports from the FTTH Council Europe, the association that brings together the industry. Active lines reached 13.2 million last Mayaccording to data from the National Markets and Competition Commission (CNMC).
Fiber optics is essential to guarantee the digitization of societies and to accelerate an economy that is increasingly dependent on the network. The promise of 5G, which will allow ultra-fast connectivity for thousands of mobile devices simultaneously, or the so-called industry 4.0 they are supported by this digital architecture. “In the short term there will be no problem, but in the medium term the price increase will affect new fiber deployments”, warns José A. Lázaro, professor at the Barcelona Technical School of Telecommunications Engineering (ETSETB).
Resilience of the ‘telecos’
Currently, 77.6% of the fiber optic lines deployed in Spain are concentrated by the three major operators: Movistar, Orange y Vodafone. In recent years, the Government has provided millions of dollars in aid to these companies to speed up the deployment of wiring and make the internet connection available from broadband to all corners of the territory. Thus, it has opted to turn off the traditional copper network and replace it with a more efficient fiber optic network, a strategic deployment that puts Spain in a position of strength.
The big’telecos‘ of the country tend to conclude multi-year supply contracts with fiber optic manufacturers, which strengthens their position in the face of market ups and downs. “We make long-term and long-volume purchases, which perhaps makes it less sensitive to inflation,” Alberto Moreno, director of regulation for Telefónica in Spain. “We are not immune, but we do have some resilience.” From Orange they point out that although they are beginning to notice “a certain increase in cost” their fiber deployment is not being affected “thanks to foresight and anticipation with suppliers”.
problems for manufacturers
However, those who are being affected by the rising cost of energy, transport and raw materials are fiber optic manufacturers, in the first line of impact. “The general increase in prices has coincided with the lack of capacity to respond to the demand of teleoperators,” says Ramón Alós, president of the OPTRAL manufacturing company. In recent months the cost of fiber optics has gone from less than four euros per kilometer to around the current 6.70 euros.
The damage of the manufacturers does not end here. New fiber orders are agreed at the current price, however it is more complicated when customers who had already agreed long-term supply contracts at a fixed price –many of them financed through public tenders– do not accept an increase in cost , which ends up having an impact on manufacturers. As Alós warns, the prolonged increase in prices will cause more and more problems to accumulate: “No one has a magic wand, but the outlook is bad.”