International Telecommunications Infrastructure and Bandwidth: Market Data and Analysis
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The Submarine Cable Industry at a Crossroads: A Macroeconomic Evaluation of the Industry's Future - May, 2010
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I. The Submarine Cable Market in 2010 and Beyond
As of 2010, more than $50 billion and one million kilometers of fiber optic submarine cable systems have been deployed. Over half of this deployment entered service during the "Great Bubble" of 1999-2002. Since that time, investment has been modest, averaging only $1 billion per year; nevertheless, the submarine cable market has sustained itself through the development of new routes and business models.
Terabit Consulting's analysis of the current state of the submarine cable market focuses on "terabit-capable" inter-regional systems, of which there are 44 (including under-construction systems expected to enter service by year-end 2011). Eight of these systems serve South Asia and the Middle East, and seven serve sub-Saharan Africa, marking a significant geographic shift in investment away from traditional transoceanic routes. The ownership of these systems has changed as well; a pro-rata analysis from Terabit Consulting's Undersea Cable Report reveals that consortia control three-eighths of the terabit-capable networks, while Tata Communications, Pacnet, Global Crossing, Southern Cross, Reliance Communications, Brasil Telecom, Telefonica, NTT, Telstra, and Columbia Ventures are the largest private operators of terabit-capable submarine cable networks.
Expanding upon Terabit Consulting's theory that the true nature of the submarine cable market can be determined by focusing on these "terabit-capable" submarine cable systems, it can be concluded that the perceived threat of the reorganized cable operators, with their significantly lower cost bases, is overstated. Of the 44 terabit-capable systems, only 14.5 either belonged to owners that fell into bankruptcy, were owned by failed ventures that were written down, or were sold at significant discounts. Consequently, projects with explicit new cost bases account for only one-third of all terabit-capable systems. Further, most of these are older systems approaching ten years of age with rising opex; many suffer from major flaws in their business cases, and the theoretical design capacities of these systems is not guaranteed (many IRU-based systems were hastily conceived and developed in an effort to be first-to-market). In conclusion, the reorganization of financially-distressed submarine cables was the industry's worst event ever, but its impact is fading, and submarine capacity markets have returned to price levels that reflect the actual cost of inventory plus margin.
II. Deconstructing and Forecasting the Submarine Cable Market: A Macroeconomic Approach
In order to deconstruct and forecast the submarine cable market, Terabit Consulting drew upon its global analysis of international Internet bandwidth per capita, separating each market into one of three classes (A, B, and C).
III. Class A International Bandwidth and Capacity Markets
Class A markets, with greater than 10 Kbps of international Internet bandwidth per capita, comprise 55 countries: the United States, Canada, Europe, Japan, Australia, New Zealand, the Asian Tigers, Israel, the United Arab Emirates, and Panama. The total international bandwidth serving these markets exceeded 40 Tbps as of year-end 2009. The Class A markets drive submarine cable deployment on five submarine cable routes: transatlantic, transpacific, pan-East Asia, Australia/New Zealand intercontinental, and North Sea/Mediterranean/English Channel/Irish Sea.
In Class A markets, international capacity is rarely a constraint, with 10+ Kbps of trans-border Internet bandwidth per inhabitant. DSL is the broadband technology of choice, with later versions such as ADSL2+ offering downstream bandwidth of 24 Mbps. Cable modem service has shown significant penetration in the US, Canada, Benelux countries, and South Korea. Fiber to the Home (FTTH) has made great inroads in Japan and South Korea, where the majority of broadband subscribers are connected via fiber. In most markets, 3G and 4G mobile deployment has not lived up to expectations, with the average recorded iPhone speed in the United States coming in at well below 1 Mbps. Although broadband technologies have shown a wide range of penetration rates in OECD member nations, from as high as 38 broadband subscriptions per 100 inhabitants in the Netherlands to less than ten in Turkey and Mexico, statistical analysis reveals that penetration tends to level off at around 30 to 35 subscriptions per 100 inhabitants in mature markets.
Going forward, Terabit Consulting expects uneven growth in broadband demand in the Class A markets. In the short-term, the economic crisis has led many consumers to consider broadband as a luxury good that can be done away with during times of financial austerity (and replaced, for example, with access at terminals in public libraries or public WLANs). In the long-term, penetration rates have leveled off in many markets, but a step-change adjustment in demand levels can be expected as higher-speed access services, particularly fiber-based technologies, are deployed.
At the wholesale capacity level, purchasers of capacity and bandwidth (e.g. operators, ISPs, and large corporate customers) have shown inelastic demand for primary bandwidth but elastic demand for redundant paths. That is, economic hardship has shown little effect on the amount of primary-path bandwidth purchased by capacity and bandwidth customers; instead, these customers are more likely to cut back on the purchase of restoration (back-up) capacity.
IV. Class B International Bandwidth and Capacity Markets
There are an equal number of Class B markets, with between 1 and 10 Kbps of international Internet bandwidth per capita, as there are Class A markets, i.e. 55; the list includes much of Latin America and the Caribbean, Russia, North Africa, South Africa, Turkey, Saudi Arabia, Thailand, and Malaysia. However, the total international Internet bandwidth shared by these countries is approximately 3 Tbps, or less than one-tenth that of the Class A markets. The Class B markets drive deployment in six submarine cable routes: South American intercontinental, South African intercontinental, East Asian regional, Caribbean regional, Baltic Sea, North Africa/Red Sea/Gulf, and Black Sea.
DSL has been the broadband technology of choice in Class B markets, but subscribership has fallen in some countries. There have been notable missteps in the deployment of broadband services in some Class B markets, for example in Mexico where the unit cost of broadband service had been among the most expensive in the world. Most of the growth in demand for bandwidth and capacity in Class B markets is now being driven by 3G deployment.
Overall, the submarine cable routes serving Class B markets have fared comparatively well due to steadier demand growth and a more limited supply of submarine cable capacity; much of the speculative, investor-led buildout of submarine cable infrastructure and uncontrolled price erosion was confined to Class A markets.
V. Class C International Bandwidth and Capacity Markets
A total of 115 countries fall into the Class C category, characterized by international Internet bandwidth of less than 1 Kbps per capita. Collectively these countries were served by only 1.5 Tbps of international Internet capacity as of year-end 2009, of which approximately 1 Tbps served China and 200 Gbps was earmarked to India. The remaining 113 countries were served by a total of 300 Gbps. Six submarine cable markets are driven by demand in Class C countries: South Asian intercontinental/Europe-Asia, China (transpacific and pan-East Asian), Sub-Saharan Africa (excluding South Africa), Indonesian domestic, Pacific Islands, and the Caspian Sea.
The Class C countries are characterized by widespread poverty and low Human Development Indices. Mobile networks have formed the core of the countries' telecommunications and Internet infrastructure, and fixed-line infrastructure is generally weak; mobile broadband is emerging as the countries' access technology of choice.
Class C markets face a number of constraints. Accessible Internet content is not well-developed in some countries because of linguistic issues and a lack of media. Widespread poverty afflicts many of the Class C countries, and illiteracy and a lack of electrification prevent many from meaningfully adopting the Internet. Also, the Class C markets are subjected to higher levels of economic volatility than Class A and B markets, particularly those countries such as Chad, Congo, Nigeria, Yemen, Angola, Azerbaijan, and Sudan, which are strongly reliant upon commodity prices and often count upon commodity revenues to fund telecommunications development plans.
VI. Driving Bandwidth and Submarine Cable Growth: the BIC Countries
Terabit Consulting believes that much of the growth in international bandwidth demand and the global submarine cable industry will be driven by Brazil, India, and China. China, with its international Internet demand having eclipsed 1 Tbps in the third quarter of 2010, counted 384 million Internet users as of year-end 2009. There is much room for growth, with 86 million new users added in 2009 and less than 60 percent of the demographic aged 10 to 29 classified as Internet users. The country's demand patterns have been heavily influenced by a shift from a manufacturing-based economy to one more focused on research and development. By year-end 2010, China's international Internet bandwidth will exceed Japan's.
China's international Internet bandwidth is served primarily by three Internet service providers: China Telecom, which had 517 Gbps as of year-end 2009; China Unicom, which had 299 Gbps, and China Mobile, which had 31 Gbps. The country's primary submarine cable link is Trans Pacific Express, with a reported design capacity of 5 Tbps. [Please view the presentation for a submarine cable map showing deployment across the Pacific between 2008 and 2010.]
India's economic growth proved to be among the most organic and resilient during the global economic crisis, proving that the country had moved beyond the "outsourcing" phase that had driven much of its expansion over the last decade. The country's large volume of English-language IP demand makes it unique among emerging markets, and accounts for greater growth in external demand (as opposed to China, where Internet demand is still largely domestic). Terabit Consulting believes that there is a disconnect between India's international bandwidth and its domestic networks, necessitating greater investment in domestic long-haul, metropolitan, and access infrastructure.
The Brazilian market has also undergone significant transformation, moving beyond its status as "the world's farmer" through internally-supported and increasingly equitable growth that has led to a burgeoning middle class. The 2016 Olympics in Rio de Janeiro are expected to spur an increase in Latin American submarine capacity deployment similar to the patterns seen leading up to the 2008 Beijing Olympics and the 2010 World Cup in South Africa. The collective design capacity of existing Brazilian submarine cable systems is 4.5 Tbps, but ownership is highly concentrated among three submarine cable operators: Global Crossing, Telefonica, and Oi.
VII. Other Submarine Cable Market Trends
Based on its analysis and forecasts, Terabit Consulting believes that other emerging markets expected to influence submarine cable deployment are Indonesia, Egypt, Mexico, and Turkey.
Terabit Consulting's forecasts are based on a thorough analysis of geopolitical and macroeconomic phenomena and their effect on submarine cable deployment. [Please view the presentation for a matrix of submarine cable deployment expected as a result of these factors.] For example, polar ice melt and the rush to control Arctic resources has led to increasing credibility among proposals for trans-polar cables, including Arctic Link. The geopolitical struggle for influence in Sub-Saharan Africa, particularly between France, the United States, and China, has led to a realignment of development funds to the continent and international sponsorship of several new Sub-Saharan submarine cable systems. American rapprochement in Eastern Europe has led Russia to seek international submarine cable routes that avoid NATO territory, including a rumored submarine cable along part of the Nord Stream pipeline route and submarine cables from the country's east coast. Continued political uncertainty in the Middle East has caused many operators to seek greater diversity along the Europe-Asia route, for example via terrestrial networks through Russia or Turkey. The American government's relaxing of its historically hard-line stance against Cuba has made many investors (particularly multinationals) less fearful of participating in Cuban projects; to that end, Cable & Wireless announced its participation in a submarine cable project linking Venezuela, Cuba, and Jamaica.
VIII. Conclusion: Submarine Cable Market Outlook
Based on its analysis and forecasts, Terabit Consulting believes that the supply of capacity on the Class A submarine cable routes (transatlantic, transpacific, Australian intercontinental, pan-East Asia, and western European regional) will be exhausted sooner than expected. On the demand side, step changes are expected from the deployment of new higher-speed broadband technologies as well as more bandwidth-intense applications. On the supply side, the multiple terabits of design capacity reported by submarine cable operators should, in some cases, be taken with a grain of salt, as the long-term technological reliability of some older systems may be called into question. Regardless, well before the exhaustion of submarine cable capacity, Terabit Consulting expects consortia to construct their own new submarine capacity; the margin-based capacity sales model of private systems has always been most attractive to smaller capacity purchasers and has been eschewed by many larger operators who have been hesitant to fuel a wholesale capacity market.
Class B submarine cable routes, including South American intercontinental, South African intercontinental, East Asian regional, Caribbean regional, Baltic Sea, North Africa/Red Sea/Gulf, and Black Sea, may show the greatest opportunities for the submarine cable industry going forward, due to their reliable, demonstrated bandwidth demand, higher capacity prices, and lower competition. The one exception to this may prove to be South Africa, served by a bevy of new projects as well as several additional proposed ones.
Class C submarine cable routes, including South Asian intercontinental/Europe-Asia, China (transpacific and pan-East Asian), Sub-Saharan Africa (excluding South Africa), Indonesian domestic, Pacific Islands, and Caspian Sea, are the most unpredictable. In China and India, there is a potential for enormous bandwidth requirements. Recent investment in Indian submarine cable projects mean that bandwidth there may suffice for the near-term, but the Chinese market will definitely require additional systems. In Sub-Saharan Africa, meanwhile, there is risk of an overbuild.
International Capacity Markets in Asia: Submarine Cables and Terrestrial Fiber Optic Networks - March, 2010
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Summary: The transpacific submarine cable market was the target of $1.7 billion worth of new investment between 2008 and 2010. Three new transpacific cables (Trans Pacific Express, Asia America Gateway, and Unity) entered service [submarine cable maps and information from Terabit Consulting's Undersea Cable Report are presented for each of these systems]. Although the new investment may seem poised to drown the market in new capacity, it is important to note that each system targets a very different market segment. TPE serves the China and North Asia market, AAG is the first direct transpacific link to Southeast Asia, and Unity has positioned itself as a Japan-US "data center" cable. The new investment increased total design transpacific submarine cable capacity to 25 Tbps, and Terabit Consulting forecasts that as of year-end 2010 more than half of this capacity will be lit.
In the Intra-Asia submarine cable market, the last major round of investment came into service in 2001 and 2002, with the activation of APCN-2, East Asia Crossing, C2C, and FNAL/Tiger (now FNAL/Reach). Investment in these submarine cables totaled $4.4 billion. However, within two to three years most of the systems were under financial distress, with Asia Global Crossing and FLAG declaring bankruptcy in 2002, Reach being written down by its investors in 2003, and C2C being placed into receivership in 2004. The market is now controlled by a new set of players, as EAC and C2C were purchased by Connect Holdings (now Pacnet), which consequently assumed control of 10 Tbps of protected intra-Asia submarine cable capacity and announced plans to construct data centers at all landing points. FLAG, meanwhile, was purchased by Reliance Group. In 2009, the intra-Asia submarine cable market's first new cable, TGN Intra-Asia, came into service, led by four investors: Tata, PCCW, Globe Telecom, and EVN Telecom. Two other projects are planned: the Southeast Asia-Japan Cable and Asia-Pacific Gateway.
Although most of the region's investment in international networks has been directed toward submarine cables, terrestrial networks are becoming increasingly important as restoration paths to counter "choke points" such as the Taiwan earthquake zones and the Strait of Malacca, which has often been the location of anchor damage to cables. Terrestrial fiber optic networks serve not only Southeast Asian international capacity markets, but the growing market for Indian transit capacity as well. Within the last two years, the Indian operators Reliance, Tata Communications, and Bharti have each partnered with China Telecom to construct terrestrial fiber optic networks between eastern India and China. A fiber optic link between India and Myanmar was also constructed.
Other terrestrial networks of note in Southeast Asia include trans-border fiber networks within the Greater Mekong Subregion (Cambodia, Laos, Myanmar, Thailand, and Vietnam), and peninsular networks between Thailand, Malaysia, and Singapore.
Submarine Capacity Markets in Africa, the Caribbean, and the Middle East: Understanding the Fundamentals - September, 2009
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Contents: i. The new dynamics of submarine cable deployment in less-developed markets; ii. Three keys to understanding submarine cable market opportunities in global capacity markets; iii. Broadband penetration; iv. Who are the major players (telecommunications operators); v. What is the government’s relationship to the international gateway (submarine cable and satellite); vi. Sub-Saharan Africa submarine cable market; vii. Challenges of Africa; vii. African opportunities; viii. Who controls the international telecommunications traffic in Sub-Saharan Africa; ix. African west coast submarine cable fiber optic connectivity: history; x. SAT-3/SAFE: Sub-Saharan Africa’s primary submarine cable link, as of mid-2009 (submarine cable map); xi. West coast submarine cable connectivity; xii. African east coast submarine cable fiber connectivity: history; xiii. East coast submarine cable connectivity; xiv. South African international telecommunications traffic is the key; xv. Caribbean; xvi. Arcos-1 (submarine cable map); xvii. Global Caribbean Network (submarine cable map); xviii. Caribbean submarine cable capacity markets; xix. Middle East submarine cable market; xx. Middle East submarine cable capacity markets; xxi. Conclusions.
Submarine Cable Map - New Pacific Submarine Cables, 2008-2011
Description: Submarine cable map showing planned and under-construction submarine cables in the Pacific region according to planned configurations as of 2008.
Submarine Cable Markets and Infrastructure: Supply and Demand Economics, Asia-Pacific and Elsewhere - August, 2008
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Contents: i. Analysis of historical submarine cable investment and deployment; ii. Submarine cable investment; iii. Submarine cable deployment; iv. Regional submarine cable investment: the industry hotspots (North Pacific, South Pacific, Africa); v. Transpacific submarine cable investment and deployment (submarine cable map); vi. North Pacific deployment (submarine cable map); vii. March, 2008: Cooperation in the North Pacific submarine cable market; viii. North Pacific submarine cable supply-and-demand dynamics; ix. Economics of transpacific submarine cable deployment; x. South Pacific submarine cable deployment (submarine cable map); xi. Sub-Saharan Africa submarine cable market: another industry hotspot; xii. Submarine cable markets and investment in other regions; xiii. Financing and ownership of submarine cables; xiv. Submarine cable financing by type; xv. Trends in submarine cable financing; xvi. Suppliers of submarine cables; xvii. Historical "Big 5" submarine cable manufacturers; xviii. Submarine cable manufacturers' market shares; xix. Other submarine cable manufacturers; xx. Submarine cable market forecast; xxi. Submarine cable market trends.
The Worldwide Submarine Cable Market and the State of African Submarine Communications - November, 2007
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Contents: i. Historical submarine cable investment; ii. Submarine cable investment by region; iii. Trends in geographic deployment; iv. Financing and ownership of submarine cables; v. Largest submarine cable system owners (global networks and regional operators); vi. Suppliers of submarine cable systems; vii. Suppliers' market shares; vii. Turnkey suppliers and specialist suppliers; viii. International capacity infrastructure in sub-Saharan Africa; ix. Investment in sub-Saharan African submarine cables; x. Proposed African east coast submarine cables; xi. Proposed African west coast submarine cables; xii. Proposed pan-African submarine cables; xiii. Smaller regional African submarine cables; xiv. Conclusions (global submarine cable market); xv. Conclusions (African submarine cable market).
International Capacity Infrastructure in Kenya, Nigeria, and South Africa - September, 2007
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Contents: i. International capacity infrastructure in sub-Saharan Africa; ii. Historical undersea cable investment (milestones); iii. Investment in sub-Saharan undersea cables; iv. Planned and proposed undersea cables serving Kenya; v. Planned and proposed undersea cables serving South Africa; vi. Planned and proposed undersea cables serving Nigeria; vii. Nationalization of submarine cable landing rights in South Africa.
Undersea Cable Markets and the Developing World - May 15, 2007
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Contents: i. Description of world population without access to fiber optic connectivity (32 of the world's 53 poorest nations, 461 million people); ii. Historical rejection of "long, thin" routes by cable developers; iii. Growth of mobile networks and Internet infrastructure in less-developed countries (LDCs); iv. Growth of "digital industries" in LDCs; v. Inability of satellite capacity to cope with LDCs' demand; vi. Deployment of fiber optic networks in some parts of the developing world (South America, West Africa, south Asia); vii. Incentives for investors in infrastructure vs. desire for open access; viii. Explosion in mobile telephone usage (over 250 million subscribers in the world's poorest 53 nations); ix. "Stranded" mobile networks linked internationally only by satellite; x. Emergence of LDC's Internet service providers as viable competitors to mobile operators; xi. Use of wireless technology to overcome shortcomings of fixed infrastructure; xii. Outsourcing of "digital industries" to LDCs; xiii. Role of wage pressure in shift of digital jobs to least-developed countries; xiv. Regional cooperation and increased trans-border traffic flows making routing of traffic between neighboring countries via intercontinental hubs impractical; xv. Foreign investment and the sale of profitable telecommunications assets to foreign investors as required by international financial institutions; xvi. Emergence of pan-regional telecommunications giants; xvii. The developing world finally benefits from submarine cable investment trends; xviii. Likelihood that submarine cable investment in the developing world will be driven by telecommunications operators rather than entrepreneurial or speculative investors; xix. Hybrid financial modifications and the role of international financial institutions; xx. Nullifying the satellite capacity proposition; xxi. West Africa regional analysis: SAT-2 and the unfulfilled promise of SAT-3 as well as new proposed undersea cable systems; xxii. East Africa regional analysis: the East African Submarine Cable System (EASSy) and the East African Marine System (TEAMS) as well as new proposed systems from KDN and FLAG Telecom; xxiii. Middle East regional analysis; xxiv. South Asian regional analysis and the emergence of Tata Group and Reliance as major global submarine cable network operators; xxv. Southeast Asia regional analysis and the construction of the China-Southeast Asia Cable System and the Greater Mekong Sub-Regional Backbone System; xxvi. The example of cable re-deployment in Papua New Guinea; xxvii. South Pacific regional analysis and the United States Department of Defense's desire for better connectivity in the region; xxviii. Latin American regional analysis; xxix. Caribbean regional analysis; xxx. Obstacles and threats preventing the deployment of fiber in the developing world (including literacy rates, linguistic concerns, lack of electrification, and poverty); xxxi. Delicate balance between investment incentives and capacity management including the issues of open access and the classification of international fiber optic bandwidth as a "national resource"; xxxii. Conclusion and a presentation of the opportunity for fiber deployment in the developing world.
Executive Telecom Briefings Presentation, Boston University School of Management, Boston, University, December 2006
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CANTO (Caribbean Association of National Telecommunications Organizations) 2006 Annual Conference, Punta Cana, Dominican Republic, June, 2006
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Submarine Communications Presentation, Lisbon, Portugal, March, 2006
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