IS THERE ANY LIGHT AT THE END OF THE TUNNEL?
THERE IS continuing doom and gloom with respect to sub-sea cable systems and lit capacity. One needs only look at the
A personal overview of the current subsea marketplace by Steven R Wells, Director of PwC Submarine Cable Networks
equity prices of sub-sea cable systems operators over the last twelve months to gain a basic understanding of the markets’ view of this sector, with share prices of some sub-sea cable operators falling over 60% in the last twelve months. Although the markets process numerous individual pieces of information in determining equity prices, foremost in their minds would no doubt be falling global capacity prices, dropping on average over 50% in the past, with price declines in certain geographical regions being even greater than this. One thing for sure though, no one is
forecasting that global capacity demand is shrinking. Are the declining capacity prices a result of simple demand and supply economics? To a point, the financial characteristics of subsea cable systems are such that economies of scale rule. For the relatively commoditized service they provide there are significant upfront build costs and massively expensive upgrade costs. But other factors are involved. For example: technological development, in particular DWDM, which allows for significant capacity increases over previous systems; liberalisation of telecoms markets; and the advent of new players – all with aggressive build out plans. These economics, combined with, and partly due to, a period of relatively cheap capital, resulted in the yesterday’s building frenzy that is today’s capacity glut. As the scenario that significant capacity build gets put back on the agenda is unlikely in the near future, it will require some form
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