High demand hikes fiber-cable prices
ben harrison
Intense demand for fiber-optic cable has boosted cable prices for the first time in at least a decade, according to several leading cable marketing companies and industry analysts. For the past several years, such factors as the cost of plastic and other raw materials, as well as rising transportation and labor costs, are driving a wave of unprecedented cable price hikes. Other contributing forces may be a worldwide shortage of optical-fiber cable.
Commenting on the fiber-cable shortage, Craig Lemrow, director of marketing at Pirelli Cable Corp. in Lexington, SC, says, "It`s a worldwide problem; Pirelli has relationships with optical fiber vendors around the world, and as far as I know, there`s no fiber to be had." Lemrow does not foresee the cable shortage ending within this year. "Manufacturers are trying to improve output, but it`s going to take at least a year before conditions turn around."
Siecor Corp. in Hickory, NC, initiated industry pricing upswings in April by increasing its optical-fiber cable list price by 12%. This move appears to be part of an industrywide trend to higher prices. Derek O. Lawrence, vice president and general manager of Siecor`s cable division, explains. "Costs of plastics and other raw materials have risen significantly over the past several years. This, combined with increased transportation and labor costs, more stringent technical standards and new customer service demands, make the price hikes necessary." This is the first Siecor price increase for fiber-optic cable. The 12% hike is somewhat offset by the company, which does not anticipate additional increases and which is also honoring current contracts.
Lemrow agrees with Lawrence`s assessment. "Demand for cable is still hot; increased prices are a direct reflection of increased costs for raw materials," Lemrow says. Pirelli is also keeping its fiber-cable prices in line with industry changes.
Industry analysts provide additional insights about the factors involved behind the headlines of fiber-cable price hikes. Jack Kessler, president at Kessler Marketing Intelligence in Newport, RI, says the price increases are justifiable, based on increased demand, which has jumped more than 20% in only one year. "Cable companies are also raising prices because of the increases in fiber costs," Kessler says. He also points out that cable list prices are not the same as long-term negotiated contract prices.
John Aronsohn, senior analyst of consumer communications at the Yankee Group consulting company in Boston, also examines the motivating forces behind the increase in fiber-optic cable prices. Agreeing with Kessler`s view that cable prices are increasing with demand, he adds that telephone companies are demanding more fiber in their networks. "Fiber to the curb is creating new demands for fiber cable," Aronsohn says.
A third analyst`s point of view on what`s behind price hikes comes from J. Stephen Montgomery, vice president and chief operating officer at San Mateo, CA-based Electronicast Corp. He thinks the recent and near-term increase in fiber prices will not necessarily reflect a higher long-term North American--including the United States, Canada and Mexico--fiber-optic cable price.
According to Montgomery, "Multiyear fiber-optic cable deployment contracts, established one to two years ago, will keep average long-term prices flat to decreasing. Near-term bids for value-added fiber-optic cable may show a slight increase, based on increased fiber cost."
He also notes telecommunications is the dominant application for North American fiber-optic cable consumption, followed by premises data networks and cable TV. By the year 2004, telecommunications will still dominate fiber-optic cable use with more than 60% share of a forecasted $5 billion total consumption market.
"The forecasted plateau in new cable-TV fiber-optic cable installations from 1998 to 2003 is due to the increasing absorption of cable TV into telephone systems, using the telephone network for partial or total distribution," Montgomery says.
Alcatel Telecommunications Cable in Claremont, NC, has also recently increased its prices. Mike Frailey, Alcatel`s director of sales and marketing, notes his company`s increases are "somewhat in line" with Siecor`s. Frailey, who has been in the fiber-optics cable business for 12 years, does not remember previous fiber-cable price increases. "Our raw materials costs have increased, and our transportation costs have increased," Frailey says. "Price changes are necessary to counteract those increases."
Frailey also agrees with industry analysts who see demand for fiber cable spurring an increase in prices. He says that demand for fiber cable has increased 10% to 15% during this past year. "Cable growth is at an all-time high because there are so many users demanding fiber cable for their networks."
Similar pricing strategy changes have been expressed by AT&T Network Cable Systems in Norcross, GA. Bob Mohalley, vice president for international marketing and strategic planning, notes that costs have risen dramatically for raw materials and germanium used to make fiber-optic cable, necessitating the first price increase in at least 10 years. "As a general statement, we are looking at a price increase based on increased costs," Mohalley says. "Basic raw material costs have gotten to the point where they have significantly affected our cost structure."
This upward swing in prices is also permeating the fiber-optic glass market. Corning Inc., Corning, NY, has raised prices of its SMF-28 and Corning Titan singlemode optical fiber products by up to 8% for its North American customers, according to a company spokesperson. He notes that this is the first time that Corning has raised these prices, which result from stringent fiber specifications and increasing costs for raw material. q