The Submarine Cable Industry at a Crossroads: A Macroeconomic - - PowerPoint PPT Presentation

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The Submarine Cable Industry at a Crossroads:

A Macroeconomic Evaluation

• f the Industry’s Future

Michael Ruddy

Terabit Consulting

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Presenter Profile

Michael Ruddy is the author of Terabit’s 1,500-page Undersea Cable Report and has completed feasibility studies for dozens of undersea networks including Hibernia, Australia-Japan Cable, and EASSy. Prior to co-founding Terabit in 2000, he was responsible for undersea cable research at Pioneer Consulting, where he created the Worldwide Submarine Fiber Optic Systems

• report. He was also an analyst at Kessler

Marketing Intelligence and a Foreign Service Officer at the U.S. Department of State. Michael Ruddy Director of International Research mruddy@terabitconsulting.com Tel: (+1) 617 444 8605

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Evaluating and Analyzing the Submarine Cable Market

(around the world in 15 minutes)

• 1. Overview of current subnet market scenario
• 2. Market forecasting methodology based on

macro- and microeconomic criteria

• 3. Geographic markets: special considerations
• 4. Market Outlook

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Part I.

Where Are We Now?

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The Submarine Cable Market in 2010

 $51 billion, 1.1 million km of fiber optic deployment  More than half entered service in 1999-2002  Since then, new routes, business models to stimulate the market

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Terabit-Capable Systems

Geographic Distribution of Terabit-Capable, Inter-Regional Systems, as of YE2011 (Includes Highly-Probable Systems)

• 44 systems
• 8 serving South Asia/Middle East, 7 in Africa

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Terabit-Capable Systems: Ownership

Pro-Rata Share of Terabit-Capable, Interregional Systems, as of YE 2011 Route Km % World Consortia 208,553 37% Tata Communications 41,185 7% Pacnet 40,500 7% Global Crossing 35,480 6% Southern Cross Cables 28,847 5% Reliance Comm. 27,425 5% Brasil Telecom 22,000 4% Telefonica 22,000 4% NTT 21,000 4% Telstra 18,525 3% Columbia Ventures 11,700 2%

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Economic Nature of the Terabit-Capable Systems

• The threat of reorganized operators with lower cost bases is

somewhat overstated

• Of the 44 terabit-capable systems, 19 were constructed prior

to 2003

• Of these, 12 systems (pro-rata) belonged to owners that fell

into bankruptcy or to failed ventures that were written down

• Another 2.5 were sold at (near-fire-sale) discounts
• Projects with explicit new cost bases = 33% of total
• Mostly older systems, some with flaws in business case;

design capacities are not guaranteed; Opex

• Conclusion: The reorganization of cables was the industry’s

worst event ever, but its impact is fading

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Part II.

Deconstructing and Forecasting the Market: A Macroeconomic Approach

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Three Tiers of Bandwidth Demand

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Class A Markets (>10 Kbps per capita)

• 55 countries, all with high HDI; mature mkts.
• US/Canada, Europe, Japan, Australia/NZ,

Asian Tigers, Israel, UAE, Panama

• Total int’l. bandwidth 

40 Tbps

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Class A Submarine Routes

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Class A Markets: Considerations

• Markets where international capacity is rarely a constraint:

– 10+ kbps per inhabitant

• Fixed broadband

– DSL = technology of choice

• ADSL2+ maximum speed = 24 Mbps down, 3.5 Mbps up

– Cable modem = significant penetration in US, Canada, Benelux, and South Korea

• FTTH

– Japan, South Korea = >50% of broadband subs on fiber

• 3G/4G

– Avg. iPhone speed on US 3G network = 700-800 Kbps

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Class A Markets: Considerations

• OECD markets have leveled off at 30-35

broadband subscriptions per 100 inhabitants

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Class A Markets: Expectations

• Expect uneven growth in broadband

demand

– Short-term: mortgage crisis has some considering broadband as a luxury good – Long-term: penetration has leveled off, but expect a step-change adjustment to access infrastructure (beyond DSL)

• In Class A markets, purchasers of capacity

have shown inelastic demand for primary bandwidth, but elastic demand for redundant paths

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Class B Markets

(1-10 Kbps per capita)

• 55 countries
• Much of Latin America/Caribbean, Russia,

North Africa, South Africa, Saudi Arabia, Thailand, Malaysia

• Total int’l. bandwidth 

3 Tbps

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Class B Submarine Routes

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Class B Markets: Considerations

• DSL has been the broadband technology of

choice

• However, DSL subscribership has fallen in

some Class B markets

• Some missteps

– High per-Mbps broadband costs in Mexico

• Demand growth in Class B countries is now

coming from 3G deployment

• Class B Capacity mkts. fared well

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Class C Markets

(<1 Kbps per capita)

• 115 countries
• Low Human Development Index, widespread

poverty

• Total int’l. bandwidth: China 

1 Tbps, India 0.2 Tbps, all others 0.3 Tbps

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Class C Submarine Cable Routes

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Class C Markets: Considerations

• Mobile networks have formed the core of

infrastructure in less-developed countries

• Weak fixed-line infrastructure
• Mobile broadband is emerging as the

access technology of choice

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Class C Markets: Concerns

• Linguistic issues / lack of content
• Little progress in the fight against poverty

means that long-term market growth will be constricted

– Also: literacy, electrification

• Volatility: many LDCs were hit hard by

commodity crisis in 2nd half of 2008

– examples: Chad, Congo, Nigeria, Yemen, Angola, Azerbaijan, Sudan – Many were using commodity revenues to fund telecom development plans

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Part III.

Driving Growth: The BIC Countries

(*apologies to Goldman Sachs)

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China

• 384m Internet users @ YE09 (29% penetration)
• 232m between ages 10-29 (59% penetration)
• = Much room for growth (86m new users in ‘09)
• Bandwidth demand heavily influenced by shift

from “world’s factory” to “world’s laboratory”

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China’s Internet Bandwidth

• 866 Gbps as of YE09 (‘09 growth: 35%; ‘05-’09 CAGR: 59%)
• By next year, China’s Int’l. Internet bandwidth

will exceed Japan’s

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China’s ISP Bandwidth Share

TPE Design Capacity: 5 Tbps

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Transpac: Fighting Commoditization

• Pacific: Three very different market segments

– TPE = China and North Asia – AAG = First direct transpacific link to Southeast Asia – Unity/EAC Pacific = Japan-US data- center cable

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India

• Beyond “outsourcing” phase of economic

growth – supporting itself with resilient domestic economy insulated from global crisis

• 231 Gbps Internet bandwidth as of YE2009
• For the time being, a disconnect between

infrastructure and carriers’ bandwidth

– Abundance of international capacity potential has taken time to reach the users

• Large English-language demand makes IP

capacity market unique

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Brazil

• Brazil’s economy has consistently

underperformed, but the 2010s may be different

– Moving beyond “world’s farmer” – Progress in wealth distribution has led to an emerging middle class – Growth this time has been internally supported – 2016 Olympics

• Design capacity of existing Brazilian

systems: 4.5 Tbps

– Concentrated system ownership: Global Crossing, Telefonica, Oi

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Emerging Markets to Watch

• Indonesia
• Egypt
• Mexico
• Turkey

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Geopolitical and Macroeconomic Phenomena: Their Effect on Submarine Cable Deployment

Phenomenon Effect Example Polar ice melt and rush for Arctic Resources Proposals for trans-polar cables becoming more and more credible Arctic Link (seeking government subsidy for Alaskan segments) Geopolitical struggle for African influence (France, US, China) Realignment of development funds to the continent International sponsorship of African fiber networks American rapprochement in Eastern Europe Russia seeks routes that avoid NATO territory East coast cables; Rumors of submarine cable along Nord Stream pipeline route Continued political uncertainty in Middle East Promotion of diverse Europe- Asia routing Proliferation of terrestrial networks (e.g. via Russia; Turkey) US Gov’t. relaxing hard-line stance against Cuba Multinationals becoming less fearful of participating in Cuban projects Cable & Wireless participation in Venezuela-Cuba-Jamaica project

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Part IV.

Market Outlook

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The Submarine Cable Market Outlook

• Supply of capacity on Class A routes may

be exhausted sooner than expected

– Step changes from broadband, applications – Upgradeability not guaranteed

• Well before its exhaustion, expect the

consortia to construct their own capacity

– Margin-based capacity sales model of private systems has always been most attractive to smaller capacity purchasers

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Submarine Cable Market Outlook (2)

• Class B routes may show the greatest
• pportunity

– Reliable, demonstrated demand – Higher capacity prices – Lower competition (exception: S. Africa)

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Submarine Cable Market Outlook (3)

• Class C routes are the most unpredictable

– China, India: Potential for enormous bandwidth requirements; India’s cables may suffice for near-term, but China will need more – Sub-Saharan Africa: risk of overbuild

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