Carrying well over 95 per cent of the international telecom traffic, undersea cable networks have become vital for global commerce. As trade rises as a share of global GDP ?? it is now over 30 per cent ?? reliable connectivity has become a critical ingredient for growth.
Bucking the downward trend whereby most other industries are taking a severe beating in the current economic climate, this industry has been witnessing strong growth. In fact, according to telecom research firm TeleGeography, the longhaul bandwidth business is witnessing its biggest boom since 2001. New cable projects are being commissioned, bandwidth demand is at its peak and new routes are being sourced and planned.
However, most of these new cables cover shorter distances and employ simpler designs than their predecessors, thereby keeping investments in check. The total spending on subsea cable construction in 2009 is projected to reach only $2.6 billion vis-? -vis $13.5 billion in 2001. But these investments marked a sharp increase over the period 2004-07 when cable investments totalled less than $2 billion.
The major driver for the cable investments has been the significant growth in bandwidth demand that started accelerating in 2007. Last year, international capacity usage grew by 64 per cent. In 2009, more than 60 per cent of US network operators surveyed by TeleGeography plan to light new fibre on their networks. And 16 new subsea cables are being planned, thereby exceeding the number of cables laid in 2001 at the peak of the submarine cable investment bubble.
The 18,000 km Trans-Pacific Express (TPE) cable network, which connects the US to mainland China, South Korea and Taiwan, was ready by September 2008. The TPE cable network is one of the most aggressive submarine cable builds and is the largest cable ever built directly between the US and mainland China, South Korea and Taiwan. It has an operating capacity of 3.2 Tbps. With a minimum of 80 wavelengths per fibre, TPE has the highest wave density of any submarine cable of this length in the world. The next planned phase of the TPE system, which will see the addition of NTT Communications to the consortium, will provide new connections from Japan to China, Taiwan and South Korea.
Meanwhile, Asia has witnessed rapid growth in demand for international capacity in recent years, driven mainly by consumer internet demand. Investment in new Asian cables was dormant between 2002 and 2006 with the glut in capacity being slowly used up. However, during 2007 a number of new trans-Pacific and intraAsian cable investments were announced. These cable systems are scheduled to come online during the period 2008-10, adding significant new capacity.
Recently, NEC Corporation has won a contract to build a submarine fibre optic cable linking Indonesia to Hong Kong. The Submarine Cable Asia Network will connect Indonesia’s capital Jakarta and its second largest city, Surabaya, to Hong Kong and from there on to other cable networks. The 4,300 km cable system will have an initial transmission capacity of 40 Gbps with upgrades possible to 1.92 Tbps.
The strong demand in this region can be attributed to the rising prices for IP bandwidth in certain markets and the growing demand for additional routes following the disruption of networks during the Taiwan earthquake in December 2006. Moreover, operators are also securing capacity to support future broadband growth and a small number of large carriers aspiring to create global networks that reach most major markets are also investing in new cable systems. Finally, the demand for new cable systems is being fuelled by a wave of telecom companies in newly deregulated and emerging markets like India that are selling internet and mobile telephony services as well as incumbents that are responding to the rising competition.
For instance, in India, over the past few years, a number of enterprises have gone global while many multinationals have set up shop in the country. This has led to an exponential increase in the demand for international voice and data transmission. To meet this demand, Indian long distance operators like Bharti Airtel, Tata Communications and Reliance Communications (RCOM) have joined several international consortiums that are involved in developing submarine cables linking various regions.
The most recent is Tata Communications joining an international consortium to build the $600 million West African Cable System (WACS), which will link countries in southern and western Africa and Europe. The 14,000 km long cable is expected to be ready for service by 2011. Other consortium partners of WACS include Angola Telecom, Broadband Infraco, Cable & Wireless, MTN, Portugal Telecom and Vodacom. AlcatelLucent Submarine Networks has won the contract to supply the system with all associated landing points.
This is not the first such deal signed by Tata Communications. The company already has a stake in various cable projects like the TGN Intra-Asia Cable, TGN Eurasia Cable System, I-ME-WE and SEA-ME-WE4. Similarly, Bharti Airtel has joined a 16-member consortium to double the capacity of the SEaME-WE4 project. This increase in capacity will also be beneficial to India as the cable system is one of the major bandwidth providers to the country. The upgradation contract has been awarded to Alcatel-Lucent and Japanese company Fujitsu. SEA-ME-WE4 spans nearly 20,000 km, linking 14 countries from France to Singapore, including Italy, Algeria, Tunisia, Egypt, Saudi Arabia, the UAE, Pakistan, India and Sri Lanka. It has 16 landing stations, including one each in Mumbai and Chennai.
RCOM is ramping up its submarine cable operations. However, unlike Tata Communications and Bharti Airtel, RCOM is involved in projects such as FLAG NGN and Trans-Pacific IP-enabled cable through its subsidiary FLAG Telecom and has not joined any consortium.
Similarly in Africa, while South Africa is currently connected to Europe and Spain through a single fibre optic cable, the South Atlantic 3/West Africa Submarine Cable (SAT-3/Safe) that runs up to West Africa, East Africa is a blank canvas. But this is set to change. From having no undersea cable links to the rest of the world, East Africa is now poised to have three. The privately funded SEACOM cable, which is expected to be fully operational by June 2009, will be the first to be launched, followed by the East African Marine Cable System (EASSy), which is being funded by the private sector arm of the World Bank as well as by regional telecom companies. It is expected to be ready in time for the FIFA World Cup in 2010 in South Africa. The third cable being laid is the East African Marine System. It is being spearheaded by the Kenyan government as a response to the EASSy cable.
All in all, these projects mean that by next year the African countries on the east coast, will be well connected to economic hotspots in the Middle East as well as to South Africa, India and Europe.
However, even as new routes are being planned and cable systems being laid, industry observers are concerned about the possibility of a price crash in light of the large amount of new capacity being added. According to analysts at Ovum, the disruption may be prevented if a prudent approach to investment is adopted and new submarine cable operators emphasise on provisioning for future domestic demand and not on competing for market share in the international business. Second, established international operators should also avoid triggering a price war by pre-emptively dropping prices.
While this industry is clearly on an upswing, telecom companies need to assess the bandwidth demand before making sizeable investments in submarine cable systems to avoid a repeat of the capacity glut in 2001.
