Article updated
News lead: Indian fiber optic cable and digital network integrator STL (the company now claims to be the largest fiber optic supplier to the UK market) said that due to the war, helium (a by-product of natural gas production) and polyethylene (from crude oil) have been affected. Fiber optic shortages are worsening, which could delay broadband deployments in Europe and the U.S.
Most people know helium as the gas that fills party balloons in the air, but few know how important it is as a raw material for making fiberglass. This is a problem because helium, along with various other raw materials, is in extreme shortage.
As noted in a White House report on supply chain vulnerabilities released about a year ago, helium is a by-product of natural gas production, meaning it is "subject to natural gas prices" and can only be obtained from countries with natural gas reserves. The report authors said back in June 2021 that there is also a shortage of helium.
Unfortunately, things are worse now than they were a year ago. European countries have been looking for alternatives to Russian natural gas since the outbreak of the Russian-Ukrainian war in February. Russia is the world's second-largest natural gas producer, after the United States. The Nord Stream 2 project to transport Russian gas to Germany is currently on hold and is likely to die prematurely. Russian President Vladimir Putin has been saying he would cut off the supply of arms to Ukraine. When the White House released the report, the spot price for natural gas was $3.26 per million British thermal units (BTU). Last month, it reached $8.14.
The chain reaction is the helium squeeze. Combined with rising freight and other raw material costs, this is threatening the network buildout of the UK and other countries' ambitious broadband targets. "Helium is a key component in glass and fiber optic manufacturing and it is impacting our global operations," said Ankit Agarwal, managing director of STL, an Indian fiber optic cable and digital network integrator. STL supplies fibre-optic cables to British Telecom (BT) and other UK networks.
Supply constraints and rising costs have now prompted STL to start talks with BT's networking business, Openreach and other big customers, about higher prices. "This situation has increased the cost of fibre optic cables to the UK market by 20 to 25 per cent," Agarwal told Light Reading. "We're seeing good support from customers in Europe and the US, which are discussing raising costs to this level."
An Openreach spokesperson said in an emailed statement: "We are not currently experiencing any disruptions to fibre sourcing or stock supply. We are very aware of the potential risks to the current supply chain and we are working closely with our global partners, to manage risk and continually seek to diversify suppliers and sources of inventory.”
Oil business
Costs have risen sharply for a variety of reasons. STL and other companies that make fiber optic cables also use a raw material called polyethylene. "It's a critical jacket material on cables," says Agarwal. Just as helium is a by-product of natural gas, polyethylene is derived from crude oil. "It's closely related to the oil price index," Agarwal said. Between June 2021 and March this year, U.S. crude prices rose from $68.58 a barrel, according to the U.S. Energy Information Administration. $107.12 a barrel.
Unsurprisingly, shipping fees also keep rising like a runaway helium balloon. “From a steady state two years ago to now, the price of any container from India to Europe or the UK has probably risen three to four times,” Agarwal said, noting that STL can also serve the UK from its factories in Italy.
STL said that due to the current tight supply, customer lead times are rising significantly. The company said the latest lead times in Europe are between 12 and 15 weeks, while those in the U.S. are between 50 and 60 weeks. Agarwal estimates that U.S. lead times have increased by 30 to 40 percent over the past six months. "Fiber shortages are worsening, which could delay broadband deployments in Europe and the US, including rural connectivity targets," STL representatives said in an email to Light Reading.
The component shortage has caused some outages at Giganet, a small UK broadband operator, which STL says is a customer. "What we had expected to be available in August has now been pushed back to April 2023," CEO Jarlath Finnegan said when asked about supply chain issues on a recent Telecoms.com podcast.
Financial pressure
A look at STL's last set of financial results shows the pressure it is under. In the last fiscal year (ended March this year), its revenue rose by almost a fifth to about 57.5 billion Indian rupees (about 735 million U.S. dollars). However, STL's net profit plummeted to just 473 million rupees ($6 million) from about 2.7 billion rupees ($34 million) last year. Raw material costs surged 28 percent to nearly 32.4 billion rupees ($414 million). STL's share price has nearly halved since the beginning of the year.
The Indian company now claims to be the largest fibre supplier to the UK market, with Virgin Media O2, Cityfiber and Netomnia among its customers, in addition to BT and Giganet. But Agarwal noted that its cost issue is an industry-wide problem, not just STL's.
Its U.S. rival Corning has started charging customers higher prices to make up for some of the cost increases it has seen. "We expect prices to rise again in the second quarter," CEO Wendell Weeks told analysts in April when it reported first-quarter results.
But Prysmian, STL's rival in Italy, said this year that margins in its telecoms business had suffered because it couldn't pass on the sharp rise in raw material costs. In March, CEO Valerio Battista said in a call with analysts: "When it comes to fiber, of course fiber is no longer a pleasant business as energy costs, labor costs and raw material costs increase."