Blips on the Radar Screen: The Case for Sustained Stability in New - - PowerPoint PPT Presentation

Blips on the Radar Screen:

The Case for Sustained Stability in New Subsea Systems Development Market Thomas A. Soja, John Manock, S. Hansen Long

T Soja & Associates, Inc. Boston, MA USA

Presenter Profile

Tom Soja is an international telecoms infrastructure analyst and consultant and is founder and president of T Soja & Associates, Inc. (TSA). TSA is a global research and market advisory firm specializing in demand forecasting, bandwidth usage, network infrastructure planning, and capacity price

• analysis. TSA has provided consulting and feasibility

studies for more than 70 submarine cable and fiberoptic infrastructure projects worldwide. TSA’s clients include service providers, investors, governments, infrastructure developers and equipment manufacturers for which it provides analyses, syndicated reports, databases, and news services including the TSA NewsFeed TM, now in it’s 10 year of daily publication.

Tom Soja

President tsoja@tsoja.com +1 (617) 787-0100 (ofc) +1 (617) 283-7362 (mob)

Resurgence in Systems Demand

Potential for spike – Boom-Bust redux? Suppliers’ dilemma Mitigating factors – Investment / payback timing

– Consolidation of interests – Availability of resources – New Entrants?

Thesis:

– Sustainable ‘normality’

Introduction

Makings of Potential Spike

(1) Systems Under Contract as of 2007 67,000 Potential Contracts (2) Expected Contract Awards in 2007 131,000 (3) Positive Movement in 2006, Expected Future Contract Award 85,000 (4) Potential Long-Term Projects 72,000 TOTAL 354,000 Future Potential Systems Sub-Total (3's & 4's): 157,000

Source: TSA Radar Screen Report

TM 2007

Funding Sources

Wall Street debt & quick IPOs Eastern shift Strategic builds – less about raw demand

Players

A duck is a duck Consolidation Consortiums Fewer pure carriers’ carriers

Products

The wave trend Ring shift to mesh

What’s the Same / What’s Not

Niches Broaden Out

Lead by less intensely competitive markets Some government initiatives Feeder cables

Return of Transoceanic Systems

Major driver today Focus on filling global gaps ‘Late bloomer’ markets

Evolution of Market Drivers

4,000 156,000 102,000 55,000 38,000

20,000 40,000 60,000 80,000 100,000 120,000 140,000 160,000 180,000

N o v - 0 5 J a n - 0 6 M a r- 0 6 M a y - 0 6 J u l- 0 6 S e p - 0 6 N o v - 0 6 J a n - 0 7 M a r- 0 7 M a y - 0 7 J u l- 0 7 S e p - 0 7 N o v - 0 7 J a n - 0 8 M a r- 0 8 M a y - 0 8 J u l- 0 8 S e p - 0 8 N o v - 0 8 J a n - 0 9 M a r- 0 9 M a y - 0 9 J u l- 0 9 S e p - 0 9 N o v - 0 9 J a n - 1 0 M a r- 1 0 M a y - 1 0 J u l- 1 0 S e p - 1 0 N o v - 1 0 J a n - 1 1 M a r- 1 1 M a y - 1 1 J u l- 1 1 S e p - 1 1 N o v - 1 1 Annualized Cable by RFS 355,000 Monthly RFSs 354,000 Radar Screen 261,000 Announced 229,000 (1) Systems Contracted in 2007 67,000 (2) Expected Contract Awards in 2007 131,000 Future Potential Systems (3's & 4's) 157,000

Blips, Announcements, Contracts, RFS

Single System Example: 15,000

1,154 5,000 10,000 15,000 20,000 25,000

Nov-05 Jan-06 Mar-06 May-06 Jul-06 Sep-06 Nov-06 Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09 Jul-09

Method: Projected Cable Manufacturing

$ !

• Cable production begins within 2 months of contract
• Completing cable mfg 4 months prior to RFS at latest

2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000

N o v - 0 5 J a n -0 6 M a r -0 6 M a y -0 6 J u l-0 6 S e p -0 6 N o v - 0 6 J a n -0 7 M a r -0 7 M a y -0 7 J u l-0 7 S e p -0 7 N o v - 0 7 J a n -0 8 M a r -0 8 M a y -0 8 J u l-0 8 S e p -0 8 N o v - 0 8 J a n -0 9 M a r -0 9 M a y -0 9 J u l-0 9 S e p -0 9 N o v - 0 9 J a n -1 0 M a r -1 0 M a y -1 0 J u l-1 0 S e p -1 0 N o v - 1 0 J a n -1 1 M a r -1 1 M a y -1 1 J u l-1 1 S e p -1 1 N o v - 1 1

(4) Potential Long-Term Projects (3) Positive Movement in 2006, Expected Future Contract Award (2) Expected Contract Awards in 2007 (1) Systems Contracted in 2007 *

Resulting Production Horizon

Supplier Choices

Adding capacity – cable production, cable ships, repeaters New Entrants Investment vs. Payback

Cable Customer Choices

Priority premium Wait it out Near-term buyer

Managing Boom / Mitigating the Risk

Overlapping Projects

Transpacific

75,000 rt-km Asia - America Gateway Trans-Pacific Express CN FLAG-NGN Transpacific EAC Transpacific

West Africa

30,000 rt-km Glo-1 WAFS Infinity West Africa SAT-4

East Africa

40,000 rt-km TEAMS EASSy SEACOM FLAG-NGN Africa

Med-ME-India

45,000 rt-km I-ME-WE SEA-ME-WE-5 Orascom FLAG-NGN Med MTL

India - Asia

40,000 rt-km MTL VSNL Intra-Asia Cable FLAG-NGN System 1: Asia AAG Indian Ocean Extension

4,000 114,000 75,000 63,000 38,000

20,000 40,000 60,000 80,000 100,000 120,000 140,000 160,000 180,000

N o v - 0 5 J a n - 0 6 M a r- 0 6 M a y - 0 6 J u l- 0 6 S e p - 0 6 N o v - 0 6 J a n - 0 7 M a r- 0 7 M a y - 0 7 J u l- 0 7 S e p - 0 7 N o v - 0 7 J a n - 0 8 M a r- 0 8 M a y - 0 8 J u l- 0 8 S e p - 0 8 N o v - 0 8 J a n - 0 9 M a r- 0 9 M a y - 0 9 J u l- 0 9 S e p - 0 9 N o v - 0 9 J a n - 1 0 M a r- 1 0 M a y - 1 0 J u l- 1 0 S e p - 1 0 N o v - 1 0 J a n - 1 1 M a r- 1 1 M a y - 1 1 J u l- 1 1 S e p - 1 1 N o v - 1 1 Annualized Cable by RFS 294,000 Monthly RFSs 294,000 Radar Screen 200,000 Announced 176,000 (1) Systems Contracted in 2007 67,000 (2) Expected Contract Awards in 2007 69,000 Future Potential Systems (3's & 4's) 150,000

Net Near-Term Consolidated Networks

Avoiding Stranded Investment

Supplier mfg upgrades / New plant & equipment Investments payback in 2-3 yr range Subject to next market lull Competing markets for limited resources

New Entrant Hurdles

Experience (specific track record) Intellectual property Financial backing (warrantee) Long-term reliability

Managing Boom / Mitigating the Risk

Netted Cable Production Horizon

2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000

N o v - 0 5 J a n - 0 6 M a r- 0 6 M a y - 0 6 J u l- 0 6 S e p - 0 6 N o v - 0 6 J a n - 0 7 M a r- 0 7 M a y - 0 7 J u l- 0 7 S e p - 0 7 N o v - 0 7 J a n - 0 8 M a r- 0 8 M a y - 0 8 J u l- 0 8 S e p - 0 8 N o v - 0 8 J a n - 0 9 M a r- 0 9 M a y - 0 9 J u l- 0 9 S e p - 0 9 N o v - 0 9 J a n - 1 0 M a r- 1 0 M a y - 1 0 J u l- 1 0 S e p - 1 0 N o v - 1 0 J a n - 1 1 M a r- 1 1 M a y - 1 1 J u l- 1 1 S e p - 1 1 N o v - 1 1

(4) Potential Long-Term Projects (3) Positive Movement in 2006, Expected Future Contract Award (2) Expected Contract Awards in 2007 (1) Systems Contracted in 2007 *

Industry is right-sized for long term Incremental production increases more likely Relationships to work through temporary boomlet Large CapEx in P&E difficult to justify Customer need for express networks Ultimately gated by ability to install Sustainable price / margin levels

Conclusions