The artificial intelligence boom isn't just reshaping technology—it's rewriting the playbook for India's telecom equipment manufacturers. As hyperscalers pour billions into data center infrastructure, indigenous players are strategically pivoting from traditional telco-driven connectivity to AI-driven hyperscale solutions. This transformation isn't optional; it's existential.
Tata Communications is fundamentally reimagining its business model. The company has already achieved a remarkable shift—data revenue now constitutes over 80% of total revenue, reaching ₹19,513 crore in FY25 with 13.7% year-on-year growth. But the real story lies ahead.
This isn't just about revenue mix—it's about margin transformation. The company targets operating margins of 23-25% by FY27, significantly up from 20.2% in FY24.
The strategic lever? A 26% stake in STT GDC India, which is investing US$3.2 billion to triple capacity by adding 550 MW of data center capacity over 5-6 years. Plus, a potential US$6.5 billion collaboration with TCS for 1 GW of new data center capacity in India, where Tata Communications focuses on network and cloud/AI infrastructure rather than building ownership.
The company's wholly-owned subsea cable network and data center-to-data center connectivity platform creates a sustainable competitive advantage against new entrants who would need years to replicate this global infrastructure. AnnualReports
HFCL is making the most aggressive bet on data center interconnect solutions. Through subsidiary HTL Limited, the company is substantially expanding manufacturing capacity for data center interconnect solutions, expecting ₹400 crore additional revenue in FY26-27 and ₹800 crore in FY27-28.
What's driving this? Record-breaking data center construction fueled by AI computing requirements and data residency demands. HFCL has developed high fiber count cables up to 6,912 fibres through in-house R&D specifically for data center applications. Gen AI clients require large-scale inter-processor communication, while hyperscalers demand ultra-high speed ports. Transcripts +1
The margin story is compelling.
This compares favorably to conventional telecom fiber business margins, which typically range 15-20% due to commodity pricing and competitive government contracts.
HFCL's competitive advantage stems from a landmark $1.1 billion long-term global optical fiber contract—the highest-ever single contract secured by any Indian telecom company. This provides visibility and economies of scale against international cable manufacturers.
Tejas Networks faces the classic challenge of cyclicality in government contracts. The company delivered record revenue of ₹8,923 crore and net profit of ₹447 crore in FY25 from the BSNL 4G/5G project. But FY26 was described as a "year of consolidation and transformation" with revenue shortfall due to delayed customer projects. Transcripts
The offset strategy? High-capacity optical solutions for AI infrastructure. Tejas has developed 400G/800G coherent DWDM systems and terabit-scale Data Center Interconnect products. AI traffic is predicted to exceed 60% of total network traffic by 2033, with over 100 million physical AI machines expected to be connected by 2035. Transcripts +3
The TCS partnership remains crucial. The ₹7,492 crore BSNL order demonstrated the power of consortium-based approaches. Now, strategic partnerships with NEC Corporation and Rakuten Symphony are enhancing Tejas's ability to capture international 5G and Open RAN opportunities beyond the domestic market.
The company faces trade-offs between investing in indigenous router deployments for BharatNet Phase-3 versus scaling optical capacity for terabit-scale data center connectivity. But with 525+ global patents and successful POCs for 5G private networks, Tejas is positioning itself as a technology leader rather than just a hardware vendor.
Sterlite Technologies has emerged as the innovation leader in AI-era data center connectivity. The company launched its Neuralis Portfolio—purpose-built AI-DC solutions featuring pre-terminated fiber trunks, high-density arrays, Celesta IBR cable scaling up to 7,000 fibers, and intelligent enclosures for massive GPU clustering. Transcripts +1
The financial trajectory is clear. Enterprise and Data Centers contributed 19% of revenue in FY26, with management targeting 30% by FY27. A ~USD 1.11 billion (₹10,000 crore) optical connectivity supply deal for AI data center infrastructure in the US for a hyperscaler provides multi-year visibility. Transcripts
The company also achieved India's first quantum-secured network breakthrough with C-DoT using Multi-Core Fibre, differentiating its offerings for hyperscale data center customers with security requirements. InvestorPresentations +1
The margin profile is attractive. While optical fiber business faces competitive pricing pressure, the Enterprise and Data Center segment commands premium pricing for AI-specific solutions. The attach rate for Optical Connectivity segment reached ~23% in Q1 FY26.
The regulatory environment is creating unprecedented opportunities. The Centre's 20-year tax holiday for multinational companies providing cloud services through India-based data centers strengthens the business case for global expansion. The Atmanirbhar Bharat initiative and domestic industry alignment create preferential procurement opportunities for indigenous manufacturers in government-led infrastructure projects.
BharatNet Phase-3, with a $2.5 billion outlay representing a 238% year-over-year increase, provides order book visibility. State-level initiatives like Andhra Pradesh clearing 800 acres for Reliance's AI data center create ecosystem opportunities for equipment suppliers.
The Vikshit Bharat 2047 vision and technology-backed roadmap provide long-term demand visibility.
Reliance Jio and Adani Group's $210 billion AI data center commitments are creating demand for optical and router products.
The expected 95% of data center capacity increase coming from leased facilities in the next five years impacts colocation and managed infrastructure services revenue growth. Feedback loops between Google, Bharti Airtel, and Adani's $15 billion AI Hub investment in Vizag are driving demand for digital infrastructure and energy storage solutions.
The path isn't without obstacles. HFCL faces operational risks in scaling manufacturing capacity for data center interconnect solutions, which could impact FY28 revenue targets. Tejas Networks' dependence on BSNL's 4G rollout timing creates execution risk for its planned deployment of 60,000 routers under BharatNet Phase-3.
STL's demerger of its services business as Invenia affects operational focus and ability to execute on data center infrastructure contracts. Tata Communications faces integration challenges in combining its global subsea cable network with expanding AI-optimized data center capabilities.
The capital intensity is significant. STL plans approximately ₹500 crore capex investment to upgrade asset base for high-value data center portfolio offerings. HFCL is investing ₹580 crore in a preform manufacturing facility for backward integration. Transcripts +1
The transition from traditional telco-driven connectivity to AI-driven hyperscale data center solutions represents a fundamental transformation for India's telecom equipment manufacturers. Companies that successfully navigate this shift—through technology innovation, strategic partnerships, and operational excellence—will emerge as global leaders in the AI infrastructure era.
The common theme across all players is recognition of AI as a major driver for network infrastructure investment. The opportunities in data center connectivity, edge computing, and high-speed optical solutions are substantial. But execution will separate winners from also-rans in this high-stakes game.
