Submarine Telecoms Industry Report Issue 7

SUBMARINE TELECOMS INDUSTRY REPORT

SUBMARINE TELECOMS

ISSUE 7 | 2018/2019

INDUSTRY REPORT

SUBMARINE TELECOMS INDUSTRY REPORT

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TABLE OF CONTENTS EXORDIUM......................................................... 4

3.1.2 Future Systems........................................ 31

FOREWORD........................................................ 6

3.2 Upgraders................................................... 34

INDUSTRY REPORT METHODOLOGY............... 7

3.2.1 Current Upgrades.................................... 34

1 GLOBAL OVERVIEW....................................8

3.2.2 Regional Upgrade Activity....................... 35

1.1 History of Submarine Telecoms.................. 10

3.2.3 Market Activity......................................... 35

1.1.1 Historical Perspective.............................. 11

3.3 Installers...................................................... 36

1.1.2 The Optical Age...................................... 12

3.3.1 Regional Capabilities............................... 36

1.2 Capacity...................................................... 12

3.3.2 Current Installations................................. 36

1.2.1 Global Capacity........................................ 12

3.3.3 Regional Activity...................................... 37

1.2.2 Lit Capacity.............................................. 13

3.4 Surveyors..................................................... 42

1.2.3 Capacity Pricing....................................... 16

3.4.1 Current Surveys........................................ 42

1.3 System Growth........................................... 17

3.4.2 Planned Surveys....................................... 42

1.4 Evolution of System Ownership and Customer Base........................................... 19

3.5 Recent Mergers, Acquisitions and Industry Activities...................................... 42

2 OWNERSHIP FINANCING ANALYSIS.........20 2.1 Historic Financing Perspective................... 22 2.2 Regional Distribution of Financing...............24 2.2.1 Multilateral Development Banks............. 24 2.2.2 Consortia.................................................. 24 2.2.3 Private...................................................... 24

3.5.1 Airtel......................................................... 42 3.5.2 General Cable.......................................... 42 3.5.3 Telecom Egypt......................................... 43 3.5.4 TE SubCom.............................................. 43 3.5.5 Vodafone.................................................. 43 3.5.6 Xtera......................................................... 43

2.3 Current Financing....................................... 25

4 SYSTEM MAINTENANCE...........................44

2.4 Future Planned Systems Financing............. 26

4.1 Publicity....................................................... 46

3 SUPPLIER ANALYSIS..................................28 3.1 System Suppliers......................................... 30 3.1.1 Current Systems....................................... 30

4.2 Reporting Trends and Repair Times........... 48 4.3 Club Versus Private Agreements................ 49 4.3.1 Traditional Club Agreements................... 49 4.3.2 Private Maintenance Agreements........... 51

5 CABLE SHIPS..............................................52

7.3.1 Current Systems....................................... 88

5.1 Current Cable Ships.................................... 54

7.3.2 Future Systems........................................ 89

5.1.1 Fleet Distribution..................................... 54

7.4 AustralAsia Regional Market...................... 92

5.1.2 Growth and Age of Cable Ship Fleet..... 55

7.4.1 Current Systems....................................... 94

5.1.3 Future Cable Ships................................... 56

7.4.2 Future Systems........................................ 96

5.2 Shore-End Activity...................................... 56

7.5 EMEA Regional Market............................... 98

5.2.1 Current Shore-End Activity...................... 56

7.5.1 Current Systems..................................... 100

5.2.2 Future Shore-End Activity........................ 57

7.5.2 Future Systems...................................... 101

6 SYSTEM DRIVERS AND SPECIAL MARKETS.......................................60 6.1 Datacenter and Over-The-Top Providers.... 62 6.1.1 Current Systems Impacted...................... 62 6.1.2 Future Systems Impacted........................ 63 6.2 Offshore Energy.......................................... 66 6.2.1 Oil Price History....................................... 66 6.2.2 System Growth........................................ 66 7 REGIONAL MARKET ANALYSIS AND CAPACITY OUTLOOK...........................70 7.1 Transatlantic Regional Market.................... 72

7.6 Indian Ocean Pan-East Asian Regional Market.................................... 104 7.6.1 Current Systems..................................... 106 7.6.2 Future Systems...................................... 107 7.7 Arctic Systems........................................... 108 7.7.1 Current Systems..................................... 110 7.7.2 Future Systems...................................... 110 AFTERWORD.................................................. 112 WORKS CITED................................................ 113 LIST OF FIGURES............................................ 114 LIST OF TABLES.............................................. 116

7.1.1 Current Systems....................................... 74 7.1.2 Future Systems........................................ 75 7.2 Transpacific Regional Market...................... 80 7.2.1 Current Systems....................................... 82 7.2.2 Future Systems........................................ 83 7.3 Americas Regional Market.......................... 86

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EXORDIUM FROM THE PUBLISHER W

elcome to the 7th edition of SubTel Forum’s annual “Submarine Telecoms Industry Report,” which was authored by the analysts at STF Analytics, without whom this report would not be possible.

As always, the annual Industry Report serves as an analytic resource within a trilogy of products including the Submarine Cable Map published every January, and the Submarine Cable Almanac published quarterly thereafter. The Submarine Telecoms Industry Report features in-depth analysis and prognoses of the submarine cable industry and serves as an invaluable resource for those seeking to comprehend the health of the submarine industry. It examines both the worldwide and regional submarine cable markets, including issues such as the new-system and upgrade supply environments, ownership, financing, market drivers, and geopolitical/economic events that may impact the market in the future.

The format of the annual Industry Report has been updated once again, adding sections related to capacity pricing. As such we have attempted to make a more encompassing view of the submarine fiber industry available to you, our readers, and for the third time, have produced this report entirely in house with the assistance of STF Analytics, our industry research and data analysis arm.

Last year’s report was downloaded over 500,000 times or so and was quoted by numerous business journals and periodicals. We are optimistic, yet confident that this year’s edition stands up to the same scrutiny. We hope you’ll agree.

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SUBMARINE TELECOMS INDUSTRY REPORT

As always, SubOptic is supporting not only with an introduction of the annual Industry Report, but with a collective association vision for the future of our industry. Through our sister company, STF Events, we are engaged with SubOptic Association in the management of SubOptic 2019 in New Orleans, Louisiana USA that April.

SubOptic 2019 promises to be a very special conference indeed.

In the annual Industry Report, we have identified $8 billion in new projects that are being actively pursued by their developers. Of those, $3.7 billion worth are executed contract-in-force, and $1.3 billion of those new, contract-in-force systems are slated for 2019 alone.

We did something a little different this year and utilized insights from a number of articles from previous issues of Submarine Telecoms Forum Magazine, allowing us to better discuss various industry topics. Thanks to this year’s many magazine contributors for their insights and opinions, including those used specifically herein: • Alan McCurdy, OFS • Alice Shelton, Ciena • Bill Burns, atlantic-cable • Chris Bayly, Aqua Comms • Eric Handa, APTelecom • Glenn Gerstell • Jean-Marie Fontaine, Borden Ladner Gervais LLP • Jukka-Pekka Joensuu, Cinia • Laure Duvernay, Alcatel Submarine Networks • Robert Lingle, OFS • Stewart Ash

SUBMARINE TELECOMS INDUSTRY REPORT

We would also like to say a special “thank you” to our sponsors who helped make the annual Industry Report possible: • • • • • • • • • •

APTelecom EXFO GlobeNet Hexatronic Huawei O&G Report STF Analytics SubOptic 2019 SubTel Forum WFN Strategies

While the crystal ball will rarely be completely clear, one fact remains – that our 170-year-old international enterprise continues to be a thriving, exciting and ever-evolving industry.

In the coming months, we will continue to strive to make available as much new data as possible in a timely and useful fashion. As we say, an informed industry is a productive industry.

Thank you as always in honoring us with your interest in SubTel Forum’s 7th annual “Submarine Telecoms Industry Report.”

Wayne Nielsen Publisher

Submarine Telecoms Forum, Inc. 21495 Ridgetop Circle, Suite 201 Sterling, Virginia 20166, USA Tel: [+1] 703.444.0845 Fax: [+1] 703.349.5562 www.stf-inc.com ISSN: Applied For BISAC: Technology & Engineering / Fiber Optics PRESIDENT & PUBLISHER:

Wayne Nielsen | wnielsen@subtelforum.com

VICE PRESIDENT:

Kristian Nielsen | knielsen@subtelforum.com

SUBOPTIC 2019 CONFERENCE DIRECTOR:

Christopher Noyes | cnoyes@subtelforum.com

LEAD ANALYST:

Kieran Clark | kclark@subtelforum.com

JOURNALIST & COPY EDITOR:

Stephen Nielsen | snielsen@subtelforum.com

LAYOUT & DESIGN

Weswen Design | wendy@weswendesign.com

NEXT ISSUE: OCTOBER 2019

Contributions are welcomed, and should be forwarded to: pressroom@subtelforum.com.

The Submarine Telecoms Industry Report is published annually by Submarine Telecoms Forum, Inc., and is an independent commercial publication, serving as a freely accessible resource for professionals in industries connected with submarine optical fiber technologies and techniques. The Submarine Telecoms Industry Report may not be reproduced or transmitted in any form, in whole or in part, without the permission of the publisher.

Liability: While every care is taken in preparation of this publication, the publisher cannot be held responsible for the accuracy of the information herein, or any errors which may occur during advertising or editorial content, or any consequence arising from any errors or omissions, and the editor reserves the right to edit any advertising or editorial material submitted for publication.

Copyright © 2018 Submarine Telecoms Forum, Inc. V O I C E O F T H E I N D U S T RY

SUBMARINE TELECOMS INDUSTRY REPORT

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FORWARD

YVES RUGGERI

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he subsea community, like every sector, needs to distill the growing output of industry data into ideas and insights for solving business problems. Each year, SubTel Forum’s annual Industry Report can be counted on to apply analytics to this changing data landscape, delivering readable and relevant highlights of emerging trends across the entire life cycle of subsea systems: sources of finance, technology selection, route survey, manufacture, installation and maintenance.

This year’s report takes a wide angle view of the submarine fiber industry encompassing the oil and gas sector; the contribution of online content and cloud service giants; the integration of data center firms as major partners in new cable systems; and the shift to a more open world in which innovative technology rather than mere bandwidth growth has become the hallmark of industry change, bringing flexibility and fluidity to the interfaces with terrestrial networks.

It is no coincidence that at SubOptic 2019, our 10th triennial conference, SubOptic Association will probe into these and other developments with its theme “To The Beach and Beyond: Rethinking Global Networks”. Under Dr. Stuart Barnes’ leadership, our 2019 Program Committee has attracted a record number and variety of abstract submissions. Dozens of volunteer reviewers are now selecting the best papers and posters for New Orleans, where SubOptic 2019 takes the stage next April 8. I look forward to seeing many of you there.

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SUBMARINE TELECOMS INDUSTRY REPORT

I also encourage you to join over 50 leading organizations in becoming an Association member.

Since adopting a new constitution and opening membership last year we have been working to make our vision of a continuously active and effective subsea trade body a practical reality.

After hosting well-attended networking events at PTC and ITW we have just launched two new working groups, on Professional Opportunities / Diversity / Inclusion; and Open Cables / Evolving Optical Standards, each led by a leading young industry personality.

To join in our work or for more information, please visit our website.

With this expanded seventh edition of its Industry Report, SubTel Forum has once again provided a genuine service to the industry and the wider business world, earning it a deserved place as an essential resource for organizations in the submarine cable sector.

Yves Ruggeri President, SubOptic Executive Committee

SUBMARINE TELECOMS INDUSTRY REPORT

INDUSTRY REPORT

METHODOLOGY

S

ubTel Forum’s 7th edition of Submarine Telecoms Industry Report was authored by the analysts of STF Analytics, which is a Division of Submarine Telecoms Forum, Inc., and provides submarine cable system analysis for SubTel Forum’s Submarine Cable Almanac, Cable Map, Industry Report and Industry Newsfeed. STF Analytics utilizes its proprietary Submarine Cable Database, which was initially developed in 2013 and modified with real-time data thereafter, and tracks some 400+ current and planned domestic and international cable systems, including project information suitable for querying by client, year, project, region, system length, capacity, landing points, owners, installers, etc.

financiers, 477 cable owners, 22 system suppliers, 12 upgraders, 15 system surveyors and 25 system installers. In addition, it manages data for some 400+ projects, across 7 regions and 840+ landing points.

To accomplish the annual Industry Report in line with SubTel Forum requirements, STF Analytics conducted continuous data gathering throughout the year. Data assimilation and consolidation in its Submarine Cable Database was accomplished in parallel with data gathering efforts.

Trending is accomplished using known data with linear growth estimates for out years 1, 2 and 3. STF Analytics then accomplished an initial Industry Report review, marrying journalistic commentary with the applicable report sections.

STF Analytics collected and analyzed data from deriving from a variety of public, commercial and scientific sources to best analyze and project market conditions.

The Submarine Cable Database is purpose-built

by STF Analytics’ database administration team, which is powered by My SQL and retained on a Microsoft Azure platform. Data is collected from the public domain, as well as industry interviews, and is the most accurate, comprehensive and centralized source of information in the industry. At present, STF Analytics’ Submarine Cable Database is chronicling the work of some 18

STF Analytics collected and analyzed data from deriving from a variety of public, commercial and scientific sources to best analyze and project market conditions. While every care is taken in preparation of the Submarine Telecoms Industry Report, these are our best estimates based on information provided and discussed in this industry.

SUBMARINE TELECOMS INDUSTRY REPORT

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SUBMARINE TELECOMS

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GLOBAL OVERVIEW

SUBMARINE TELECOMS INDUSTRY REPORT

INDUSTRY REPORT 2018

SUBMARINE TELECOMS INDUSTRY REPORT

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T

he cloud is everywhere.

The average computer user, whether Apple or Windows, has standard cloud storage with their operating system – a terabit with the free Windows download. The United States government has consulted with Amazon in the transition from dedicated servers, to cloud storage of digital properties. The more than 75 data centers in Loudoun County, Virginia, a growing hub of internet, that weren’t there ten years ago, have 10M sq. ft. of operating datacenter capacity, with more on the way.

The Internet of Things is on its way and the growing use of Datacenters and Cloud services is heralding its arrival.

This new age of the Cloud, where all devices sync and talk, is nothing without an infrastructure capable of supporting a previously unimaginable level of data traffic. “To enable users to have access to content stored in remote datacenters necessitates high-speed network connectivity, which drives new submarine cable builds and extensions of existing systems,” said Chris Bayly in his SubTel Forum article, “Building Global and Delivering Local.”

According to Bayly, Cisco has predicted that by 2020, 68 percent of all cloud workloads will be in public cloud datacenters, 32 percent of the cloud workloads will be in private cloud datacenters and annual global cloud IP traffic will reach approximately 14.1 ZB. To meet this growing demand the industry has seen consistent increases in Capacity. New systems, while not always on the scale of large, trans-oceanic routes, fill the gaps in increased demand for interconnected datacenters – as opposed to the traditional point-to-point systems. This has created a solid, if quieter market that is driving business, despite not always including the largest names in the industry.

“While subsea cables are massive pipes, the selection of the datacenter provider or providers to host the system at both ends of the cable is critical,” said Bayly. “The capacity available on a given cable system is of no utility to anyone without these gateways (Bayly, 2018)

1.1 HISTORY OF SUBMARINE TELECOMS “At the other end of the cable the station was on Valentia Island. Although this was a small rural community on the far West Coast of Ireland, it had a hotel and other facilities to provide support to the cable workers and was in easy reach of England by ship. But the Newfoundland station was situated in a sheltered corner of Trinity Bay about a hundred miles from the capital of the territory, St John’s, and the staff of twelve mostly young men had to be largely self-sufficient.

A reporter from New York visited Newfoundland shortly after the cable was landed and

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SUBMARINE TELECOMS INDUSTRY REPORT

wrote a humorous description of the somewhat chaotic domestic life at the station. On a more interesting subject, he also described the operating room shown in this watercolor painting: “There is one particular part of the building which has not yet been alluded to, but which is, after all, the most important.

This is the electricians’ office, in which all the telegraphic instruments have been put up. There are the batteries, which bear the same relation to the wire conductor that the boilers bear to the steam engine; and there the delicate apparatus by means of which the weight or force of the electrical current is told to a nicety; there, too, the needle, which tells whether the continuity or insulation is perfect.

GLOBAL OVERVIEW Figure 1: Henry Ash Lithograph of Cableship Faraday laying an Atlantic cable in 1884 from Nova Scotia to Ireland, and on to England and France

There, in a word, are all the instruments which were put on board the Niagara, and which, having served their purpose well, have been transferred to the telegraph station at Trinity Bay. The office is also furnished with a clock which keeps Greenwich time, and in the event of its running down there are half a dozen chronometers by which to set it right again. Take it altogether, the electricians’ office is the best arranged part of the whole establishment.”

1.1.1 HISTORICAL PERSPECTIVE The first submarine cable in the world was laid in the English Channel in 1850 by the stream tug Goliath. It was a revolutionary event that communication beyond the ocean became possible, although the communication method was telegraph. In 1866, the first commercially successful transatlantic submarine cable was completed between Valentia, Ireland and Heart’s Content, Newfoundland, and submarine cable Figure 2: networks in the world Cableship Goliath were gradually expanded. (Ash, 2014) In 1876, the telephone was invented, and communication was expanded dramatically, and in 1891, the world’s first submarine cable for telephone was built in

the English Channel. In 1901, transatlantic radio communication was successfully demonstrated

by Marconi, but it was not until 1923 that two transoceanic communication methods were realized - submarine cable communication and radio communication.

The first attempt at laying a transatlantic telegraph cable was promoted by Cyrus West Field, who persuaded British industrialists to fund and lay one in 1858. However, the technology of the day was not capable of supporting the project; it was plagued with problems from the outset and was in operation for only a month. Subsequent attempts in 1865 and 1866 with the world’s largest steamship, the SS Great Eastern, used a more advanced technology and produced the first successful transatlantic cable.

The first transpacific submarine telegraph

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cable was completed in 1902. It ran between Australia, New Zealand, and Canada via Norfolk Island, Fiji and Fanning Island. In 1906, the submarine cable between Tokyo and Guam was opened to traffic, and telegraph service with US was inaugurated. However, after that, telegraph and telephone traffic using radio communication increased because of the installation and operating costs.

Antarctica remains the only continent yet to be reached by submarine telecoms cable. In 2017, the Arctic received its first significant submarine cable system. Future such systems, both regional and transoceanic, are in the planning stages.

The goal of a northwest or northeast Arctic passage seems within reach.

In recent years, many submarine cable projects have been progressing in the world. Communication infrastructure with higher speed and larger capacity is required to support the rapid growth of the Internet and, video transmission, and so demand for new submarine cables is increasing. This trend is expected to continue for the foreseeable future.

The first transoceanic coaxial submarine cable, including repeaters, was TAT-1 laid across the Atlantic Ocean, and went into service in 1956. In 1963, the first transpacific coaxial cable (COMPAC) connecting Australia and New Zealand with Canada via Fiji went into service. It was followed in 1964, by TPC-1 which connected the US with Japan via Guam and Hawaii. In 1967, INTELSAT-II was launched over the Atlantic Ocean, and satellite communication was inaugurated.

1.2 CAPACITY

1.1.2 THE OPTICAL AGE

1.2.1 GLOBAL CAPACITY

In the 1980s, optical submarine cable systems were developed. The first transoceanic fiber optic system was the transatlantic, TAT-8, which was ready for service in 1988. Telecommunications with high quality and high capacity became possible, and optical submarine cable networks were extended all over the world. The first generation of optical systems regenerated the optical signal within the submerged repeaters. In the mid-90s regenerators were replaced by optical amplifiers, which allowed the simultaneous transmission of more than 2000 one wavelength. Currently, the main method for inter1500 national telecommunications is the use of subma1000 rine cables; 99 percent of international telecommu500 nications is carried over submarine cables.

0

The world continues to consume ever increasing amounts of data, with bandwidth demand projected to almost double every two years for the foreseeable future. This demand – largely driven by a continued shift towards cloud services and the continued explosion of mobile device usage – provides numerous opportunities for the submarine fiber industry. Over The Top (OTT) service providers continue to post strong earnings reports and grow at a rapid pace, which

Transpacific

Tbps

Transatlantic

2014

Intra-Asia Americas

2015

2016

2017

2018

Figure 3: Global Capacity Growth on Major Routes, 2014-2018

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SUBMARINE TELECOMS INDUSTRY REPORT

GLOBAL OVERVIEW

indicates that this bandwidth demand won’t be tapering off any time soon.

Tbps

70 60 50 40 30 20

2014

2015

2016

2017

2018

Figure 4: Average System Capacity, 2014-2018

6000 5000 Tbps

Over the last five years, the submarine fiber industry has added an average of 26 percent capacity annually on major submarine cable routes, including upgrades and new system builds.

(Figure 3) This is down from a year ago, when the industry was adding an average of 32 percent capacity per year along major routes. With global demand increasing at such a rapid pace, this infrastructure growth rate will not be sustainable for very long, potentially causing demand to far exceed supply. So far, the industry has been able to keep up — but it will have to increase activity to stay ahead of demand.

80

4000 3000

A further sign of evidence the subma2000 rine fiber industry is up to the task of meeting global capacity demands is 1000 that the average new system capacity 0 over the last five years has skyrock2018 2019 2020 2021 2022 eted. Averaging at just over 25 Tbps in 2014, new systems now average at Figure 5: Global Planned Capacity Growth, 2019-2023 60 Tbps. (Figure 4) With future systems being able to take advantage of higher wavelength capacities and potentially mind – with several in the next year utilizing more fiber pairs, this average should continue to 150G and 200G technology – so expect to see increase at a steady rate. an even more drastic increase as new wavelength technology begins to see widespread Based on reported data and future capacity escommercial use. timates, global capacity is estimated to increase up to 118 percent by the end of 2022. (Figure 1.2.2 LIT CAPACITY 5) Multiple systems slated for the next two years will have design capacities of more than 100 Since 2013, major submarine cable routes have terabits per second, with many others boasting averaged around 15 percent lit capacity. While bandwidth between 30 and 70 terabits per secthis seems low, a large capacity buffer is reond. Looking ahead even further, 2020 already quired on cable systems to deal with sudden shows another strong increase in global capacity spikes in demand, such as handling rerouted even with only a handful of systems announced traffic due to a cable fault. so far. Nearly all the systems currently planned are being designed with 100G technology in

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1.2.2.1 TRANSATLANTIC REGION

The Transatlantic region should expect to increase its levels of capacity growth through 2022. (Figure 7) New routes being explored across the South and Mid Atlantic are the primary motivators for this extra growth.

Additionally, with OTT providers rapidly building new infrastructure, there is a possibility that growth will increase much more dramatically than currently predicted.

600

Total

500

Lit

Tbps

400 300 200 100 0

2014

2016

2017

2018

2000

Total Lit

1500

Sponge effect = planned solid = current

1000 500 0

2018

2019

2020

2021

2022

Figure 7: Transatlantic Capacity Growth, 2019-2022

500

Tbps

400

1.2.2.2 TRANSPACIFIC REGION

2015

Figure 6: Transatlantic Capacity Growth, 2014-2018

Tbps

The Transatlantic region has seen steady capacity growth over the last 5 years due to regular upgrades and a new system each year for the period 2015-2018. (Figure 6) On average, the Transatlantic route has maintained a lit capacity at 18 percent of total, slightly above the global average of 15 percent for the period 2014-2018. The last two years have seen 20 and 15 percent, respectively, indicating rapid capacity growth along in this region that is keeping ahead of demand.

Total Lit

300

Like the Transatlantic region, the 200 Transpacific has enjoyed steady 100 growth since 2011. The region has maintained an average of 13 per0 2014 2015 2016 2017 2018 cent lit capacity, which is below global averages. (Figure 8) In recent Figure 8: Transpacific Capacity Growth, 2014-2018 years, capacity growth has fallen as low as 12 percent lit, possibly indicating a capacity overbuild in this As one of the more competitive regions in the region. However, like the Transatlantic region, world, the Transpacific should expect to mainOTT providers are looking to expand their tain its current levels of capacity growth. (Figure infrastructure in this region — especially with 9) New, high capacity systems are beginning to recently announced systems.

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SUBMARINE TELECOMS INDUSTRY REPORT

GLOBAL OVERVIEW

2000

Total Lit

1500 Tbps

come into service, and lit capacity seems to be back on track with global trends. If OTT providers continue to focus on this region, expect lit capacity growth to accelerate to the levels seen in the Transatlantic region.

1000 500

1.2.2.3 AMERICAS REGION

2018

2019

2020

2021

2022

Figure 9: Transpacific Capacity Growth, 2019-2022

Tbps

The Americas region has seen tremendous growth in the last few years, nearly doubling in total capacity along major routes since 2014. (Figure 10) The region has maintained an average yearly lit capacity of 15 percent, in line with global trends. Much of this growth has been spurred on by growing markets in Latin America, with new systems and upgrades increasing flow of traffic between these countries and the United States. OTT providers have been especially interested in the Brazil-US route, adding several high capacity systems in 2017 that have increased the total capacity along this route by over 50 percent.

0

400 350 300 250 200 150 100 50 0

Total Lit

2014

2015

2016

2017

2018

Figure 10: Americas Capacity Growth, 2014-2018

1200

Total

Based on publicly announced information for planned systems, the Americas region is not expected to continue its surge of recent growth and return to a much steadier rate of growth. (Figure 11) Total capacity in the region is projected to increase by 74 percent through 2020, with lit capacity keeping steady at 14 percent. Growth in this region is ueled by growing markets in Latin America, helped by the expansion of OTT providers in these countries. However, past 2018 there are only two significant new cables planned for this route.

Tbps

1000

Lit

800 600 400 200 0

2018

2019

2020

2021

2022

Figure 11: Americas Capacity Growth, 2019-2022

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Departing from the route’s historical trends, expect steady growth along the Intra-Asia route through 2018. With over 600 Tbps already available along this route, the 235 Tbps to be added over the next 2 years will add a sizeable increase. (Figure 13) There is no indication that demand trends along the routes are changing in any meaningful way, so expect the annual average of 15 percent lit capacity to continue.

1.2.3 CAPACITY PRICING

800 700 600 500 400 300 200 100 0

Total Lit

2014

2015

2016

2017

2018

Figure 12: Intra-Asia Capacity Growth, 2014-2018

1200

Total

1000 Tbps

The Intra-Asia route has maintained muted growth since 2014. (Figure 12) Growth along this route largely depends on huge infrastructure builds, something that does not happen every year. Lit capacity stays in line with global trends at 15 percent of total annually.

Tbps

1.2.2.4 INTRA-ASIA REGION

Lit

800 600 400 200 0

2018

2019

2020

2021

2022

The capacity wholesale market is always looking for a way to lower prices. Figure 13: Intra-Asia Capacity Growth, 2019-2022 Between reducing system install costs, more efficient operations & maintenance strategies, additional competition from nor is it expected to in the near future. Still, new systems and increased capacity from should these providers open their circuits to the upgrades, prices will almost always trend market at large, it could potentially flood the downwards over time. While prices along a given market and decrease prices significantly. For route are cer-tainly impacted by a new cable, the now, the OTT providers seem content to sit on price decline usually begins with existing systems. their infrastructure for private use.

A prime ex-ample of this is Southern Cross – for years when-ever a new system was proposed There are some indications that pricing in the along the direct United States to Sydney route Atlantic is bottoming out. Based on pricing data capacity would be added, and prices would be from APTelecom and others, the New York to lowered.

London route sees hefty competition between both older systems such as Apollo and TGN Currently, there is a cloud of uncertainty in the Atlantic and recently installed systems such as capacity pricing market – especially for TransatAEC-1 and GTT Express. A 100Gbps IRU belantic routes – resulting from OTT providers and tween the two cities costs $825,000. With future their new cable builds. There is a lingering ques- system builds the additional capacity could tion about what would happen to circuit prices if continue to decrease prices. Those who are inthese OTT providers decide to sell their circuits terested in the newly created Virginia – Europe on the open market. This has not yet happened

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GLOBAL OVERVIEW

The future of the Atlantic remains uncertain. Some industry experts express the possibility of prices either stabilizing or increasing rather than continue to trend downwards. On the other hand, future technological advancements could potentially lower the average unit cost and provide for better economics on younger systems.

$2,000,000

USD

$1,500,000 $1,000,000 $500,000 0

New York London

Ashburn Paris

Los Angeles Tokyo

Los Angeles Sydney

U.S. Fortaleza

Figure 14: 100Gbps IRU Prices, 2018 Source: APTelecom and others

$120,000 $100,000 $80,000 USD

route will see a small premium on the IRU’s currently being sold. A 100Gbps IRU connection from Ashburn to Paris is currently $1.1 million. However, the popularity of this route – and additional cable systems – will bring the price down over time. IRU’s are mostly sold on newer systems while older systems rely more on leases.

Pricing in the spot market for leases varies, from $1,000 for 10Gbps to sub-$10,000 for 100Gbps. With older systems selling less IRU’s the region is a step closer to the possible shutdown of one or more cables.

$60,000 $40,000 $20,000 $0

New York – London

Los Angeles – Tokyo

Los Angeles – Sydney

Capacity on Transpacific routes remains high by comparison – owing Figure 15: 10G and 100G Lease Prices, 2018 to the lower traffic demand and lonSource: APTelecom and others ger cable system length. Even with multiple competitive cables landing in Japan, a tions between the United States and Australia.

100Gbps IRU on the United States to Tokyo route Currently a 100Gbps IRU along this route costs costs $1.5 million. However, over the years prices $1.85 million. (Figure 14) (Figure 15). came down faster compared to the Atlantic. This price erosion is expected to continue and as with the Transatlantic region additional cable systems 1.3 SYSTEM GROWTH planned along these routes should increase competition and lower prices over time.

Prior to 2017, the world experienced nearly anemic growth in new system development due The Pacific region is more complex with more to economic uncertainty and the prevalence of diverse landing points, internet hubs and routes system upgrades. With a greater demand in new to choose from such as Los Angeles to Sydney markets and route diversity, system implementaand Singapore to Hong Kong. Prices for capacity tion has experienced a boom since the beginning between Los Angeles and Sydney have come of 2017. In all, 32 new systems will have been down over the years but remain more expenadded to the global network in 2017 and 2018 — sive, largely due to only 2 current direct connec- nearly double that of 2014-2016. (Figure 16)

SUBMARINE TELECOMS INDUSTRY REPORT

17

Going against recent trends, a significant amount of system growth through 2021 will take place in the Transatlantic region. This growth is spurred on by the infrastructure demands of OTTs, and the desire for routes in the South Atlantic and from Europe to Virginia Beach to provide direct access to Ashburn, VA datacenters. These new routes will provide both traffic diversity and connect growing markets in South America and Africa directly.

20

Transpacific

15

Transatlantic

10

EMEA

Indian Ocean

AustralAsia

5 0

Arctic

2014

2015

2016

2017

2018

Americas

Figure 16: New System Count by Region, 2014-2018

100,000

Transpacific

80,000 KMS

The period 2014-2016 saw an average of under 30,000 kilometers added annually, with 2015 adding only 15,800 kilometers. As a further positive sign for the industry at large, 2017 added over 100,000 kilometers of cable and 2018 has added well over 60,000. (Figure 17) These past two years have raised the industry out of its recent downturn, largely helped by the new trend of OTT providers wanting more direct control over their own infrastructure. The next two years will potentially add over 70,000 and 180,000 kilometers of additional cable – a potential indicator of continued healthy growth.

Transatlantic Indian Ocean

60,000

EMEA

40,000

AustralAsia

20,000 0

Arctic

2014

2015

2016

2017

2018

Americas

Figure 17: KMS Added by region, 2014-2018

Transpacific 15%

21%

Transatlantic

Indian Ocean Growth in the Pacific Ocean has start3% ed to slow down, with only 18 percent EMEA 23% of future systems taking place in the 18% AustralAsia region and 15 percent in AustralAsia the Transpacific. Growth along Trans5% 15% Arctic pacific routes has been spurred by a significant interest in lower latency and Americas increased capacity between Asia, Australia and the United States but several Figure 18: Planned Systems by Region, 2019-2021 new systems coming into service in 2017 and 2018 have met much of the recent demand for this region already.

Growth in AustralAsia has started to show signs of was published in 2016. This region will continue slowing down, with a near 50 percent reduction in to trend downwards, as nearly all Pacific Island planned systems as compared to when this report nations have now been connected. (Figure 18)

18

SUBMARINE TELECOMS INDUSTRY REPORT

GLOBAL OVERVIEW

The Europe, Middle East and Africa (EMEA) and Indian Ocean Pan-East Asian regions maintain muted growth as compared to historical trends, largely due to sustained political and economic insta-bility in the Middle East and the saturation of African telecommunications markets. Growth in the Americas region stems from replacing older systems in the Caribbean and increased demand for connectivity between the United States and South America.

Accomplishing CIF is the first real milestone and indicator of whether a system will enter service.

CIF rates are reasonably healthy, with 38 percent of the 47 planned systems for the period 20182019 having achieved this milestone. (Figure 19) This is a marginal increase over last year’s rate of 37 percent, indicating little change in financing and investment availability. For 2019, 53 percent of planned systems are already CIF – a positive sign.

1.4 EVOLUTION OF SYSTEM OWNERSHIP AND CUSTOMER BASE In recent years the way people use and access data has changed dramatically. This has led to some shifts in ownership paradigms in the submarine fiber industry.

A recent trend towards private ownership has been observed compared to historical trends of primarily consortia ownership. (Figure 20) Business cases for smaller systems have been prevalent, and the demand driving these systems has differed from years past. Globe-spanning infrastructure cables that require consortium ownership have fallen out of favor, contributing to this trend shift. Additionally, OTT companies need the flexibility and development speed advantages that come with being a private cable owner.

The boom of private ownership will continue to extend well into the future, as more niche

62%

38%

No Yes

Figure 19: Global Contract in Force Rate, 2019-2021

57%

43%

Private Consortium

Figure 20: Ownership Type, 2014-2018

53%

47%

Private Consortium

Figure 21: Ownership Type, 2019-2021

and point-to-point systems are implemented.

Much of this is driven by OTT infrastructure needs — private companies that need to implement cables quickly and with more control over the process than has been typical in the past. (Figure 21)

SUBMARINE TELECOMS INDUSTRY REPORT

19

SUBMARINE TELECOMS

2 20

OWNERSHIP FINANCING ANALYSIS

SUBMARINE TELECOMS INDUSTRY REPORT

INDUSTRY REPORT 2018

SUBMARINE TELECOMS INDUSTRY REPORT

21

O

ne of the greatest challenges in implementing a new system has always been money.

In an industry that provides one of the most important infrastructures of the 21st century, the role and importance of ongoing development of the international network of cables goes largely unknown. People say satellites make cell phones connect.

A Japanese website loading on a British computer in seconds is an inexplicable science that defines the internet.

As Laure Duvernay said in her March 2018 STF article, “For the financial community, absence of visibility indeed often translates into higher perceived risks and longer due diligence... Consequently, when raising money, considerable time is spent educating on the ins and outs of the undersea industry before actually getting into the deeper structuring discussions.” (Duvernay, 2018) As a result, financing new projects with support from a loan, a common method in other industries, is next to impossible. This has left many companies finding money where they can, and many new projects in the past have been funded by forming consortiums or relying on presales by clients interested in the service the new system would provide. The process of financing a new system can be lengthy and has been one of main reasons some projects never reach the Contract in Force phase.

However, in the last year the submarine telecoms industry has seen a continued trend of decreasing reliance on consortiums, with large companies laying dedicated cables and privately financing the project.

New systems like Google’s Monet and Dunant, or Facebook’s Marea are just some of the privately funded cables by these large, and relatively new, players in the industry. Conversely, consortium funded systems have dwindled. These and similar companies joining the industry has been one of the driving forces in the current climate, shaping the areas of greatest demand and profit.

As new companies join the industry and expectations for dedicated systems change, the submarine telecoms industry could see a continue shift in the common trends in financing new projects.

2.1 HISTORIC FINANCING PERSPECTIVE Multilateral Development Banks (MDB), such as the World Bank and its affiliates are increasingly willing to promote communications infrastructure and to lend in high-risk circumstances where commercial banks will not. MDB interest rates are typically lower than commercial financings and

22

5%

have a more lenient approach to waivers and default scenarios. However, social policy and development goals of those institutions can often impose additional reporting and compliance costs. (Gerstell, 2008)

5% Private MDB

90%

Figure 22: Financing of System, 1987-2018

SUBMARINE TELECOMS INDUSTRY REPORT

Consortium

Traditional cable consortia use the prospective system for their own traffic, diversifying risk generally through Self-Finance among its members and affording a range of expertise. Private cable owners generally raise a system’s capital for construction

OWNERSHIP FINANCING ANALYSIS

Pre-Sales Post-Sales Performance-Sales

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SUBMARINE TELECOMS INDUSTRY REPORT

23

and operation of the network, though the securing of such funding can be a challenge. Private owners also typically rely on sales to third parties and private systems tend to require outside equity investment more than traditional consortia systems.

The industry has invested more than $48 billion in submarine telecoms cables since 1987. Over 90 percent of this total investment has been financed by traditional consortia, while private owners and MDBs have accounted for 5 percent of total investment, each. (Figure 22)

2.2 REGIONAL DISTRIBUTION OF FINANCING

2%

15% 17% 11% 55%

Transatlantic Indian Ocean EMEA AustralAsia Americas

Figure 23: Distribution of MDB Investment, 2004-2018

12% 14% 19%

18%

Transpacific Transatlantic Indian Ocean

EMEA 2.2.1 MULTILATERAL DEVELOPMENT BANKS AustralAsia 15% 22% The regional distribution of MDB investAmericas ment for 2004 to present is presented below. MDBs have invested more than Figure 24: Distribution of Consortia Investment, 1987-2018 $3.2 billion in submarine telecoms cables. Most of this total investment — 55 percent — has been invested in EMEA projects has received 15 percent of consortia investment, with a focus on systems located primarily in the Americas have received 14 percent and the Africa. Only 11 percent of total MDB investment Transpacific has received 12 percent. (Figure 24) has been made in AustralAsia, with 17 percent invested in the Americas, 15 percent in the 2.2.3 PRIVATE Transatlantic and 2 percent in the Indian Ocean Pan-East Asian region. (Figure 23) The regional distribution of Private investment for 1987 to present is presented below. Private financiers have invested more than $2.6 billion 2.2.2 CONSORTIA in submarine telecoms cables. Most of this total The regional distribution of consortia investment investment — 49 percent — has been invested for 1987 to present is presented below. Consorin Americas projects. Similarly, 22 percent of tia have invested $43 billion in submarine teletotal private investment has been made in the coms cables. The largest portions of this total Transpacific region, followed by 21 percent in investment — 22 percent — has been invested the Transatlantic, and 8 percent in the Australin EMEA projects. Similarly, 19 and 18 percent Asia region. (Figure 25) of total consortia investment has been made in Transatlantic and AustralAsia systems, respectively. The Indian Ocean Pan-East Asian region

24

SUBMARINE TELECOMS INDUSTRY REPORT

OWNERSHIP FINANCING ANALYSIS

2.3 CURRENT FINANCING Since 1990, the industry has invested nearly $48 billion in submarine telecoms cables — comprising more than 1.34 million route kilometers — annually averaging $1.65 billion worth of investment and 46,000 kilometers of deployed systems. (Figure 26) (Figure 27)

In the recent 2014 to 2018 period, the industry has invested nearly $8 billion in submarine telecoms cables. Traditional consortia have financed 66 percent of total investment, while private owners have invested 26 percent and MDBs have accounted for 8 percent over the period.

The rates of Consortia, Private and MDB financing realized in the recent 2014-2018 period are different to those since 1987.

Private and Multilateral Development Bank financing have seen a noticeable increase in recent times. (Figure 29)

49%

Transatlantic AustralAsia

21% 8%

Americas

$8 $7 $6 $5 $4 $3 $2 $1 $0

9 19 0 9 19 1 9 19 2 9 19 3 9 19 4 9 19 5 9 19 6 9 19 7 9 19 8 9 20 9 0 20 0 0 20 1 0 20 2 0 20 3 0 20 4 0 20 5 0 20 6 0 20 7 0 20 8 0 20 9 1 20 0 1 20 1 1 20 2 1 20 3 1 20 4 1 20 5 1 20 6 1 20 7 18

Billions USD

Figure 25: Distribution of Private Investment, 1987-2018

19

From 2014 to present, submarine system financings accomplished by MDBs include the following:

Transpacific

Figure 26: System Investment, 1990-2018

25 20 15 10 5 0

19 9 19 0 9 19 1 9 19 2 9 19 3 9 19 4 9 19 5 9 19 6 9 19 7 9 19 8 9 20 9 0 20 0 0 20 1 0 20 2 0 20 3 0 20 4 0 20 5 0 20 6 0 20 7 0 20 8 0 20 9 1 20 0 1 20 1 1 20 2 1 20 3 1 20 4 1 20 5 1 20 6 1 20 7 18

From 2014 to present, nearly $8 billion was invested in submarine cable projects, or an average of $1.6 billion and 48,000 route kilometers per year. Over the period, 26 percent billion was invested in Americas systems, 17 percent in EMEA systems (predominately in Africa and the Middle East), 14 percent in Indian Ocean Pan-East Asian systems (largely due to SEA-ME-WE 5 and AAE-1), 12 percent in AustralAsia systems, 14 percent in Transatlantic systems, 10 percent Transpacific systems and 7 percent in Arctic systems. (Figure 28)

22%

Figure 27: System Deployment, 1990-2018

SUBMARINE TELECOMS INDUSTRY REPORT

25

2.4 FUTURE PLANNED SYSTEMS FINANCING For the period 2019-2021, $7.2 billion has been proposed to be invested in more than 50 submarine cable projects, or an average of $2.4 billion per year. Over the period, $10 percent has been proposed to be invested in 7 Americas systems, 7 percent in EMEA systems (predominately in Africa), 17 percent in Indian Ocean Pan-East Asian systems, 9 percent in AustralAsia systems, 21 percent in Transatlantic systems, 30 percent in Transpacific systems and 6 percent in Arctic systems. (Figure 30) The rates of Consortia, Private and MDB financing for the period 2018-2019 are different to those from the previous 5 years. Private financing has seen a noticeable increase in recent times, while MDB financing is project to stay the same. However, privately financed cables tend to have the most difficulty securing funding so expect this distribution to change significantly.

(Figure 31)

26%

Private

66%

8%

MDB Consortium

Figure 29: Financing of Systems, 2014-2018

TranspaciďŹ c

10%

9%

30%

6% 7%

21%

17%

Transatlantic Indian Ocean EMEA Arctic AustralAsia Americas

Figure 30: Regional Investment in Submarine Fiber Systems, 2019-2021

TranspaciďŹ c

10% 26%

14%

Transatlantic Indian Ocean

44%

EMEA

14%

12% 17%

7%

AustralAsia

Figure 28: Regional Investment in Submarine Fiber Systems, 2014-2018

SUBMARINE TELECOMS INDUSTRY REPORT

Private MDB

Arctic

Americas

26

47%

Consortium

9% Figure 31: Financing of Planned Systems, 2019-2021

OWNERSHIP FINANCING ANALYSIS

TABLE 1: RECENT MULTILATERAL DEVELOPMENT BANK PROJECTS 2014 – SEABRAS-1 | INTERNATIONAL FINANCE CORPORATION $4 million in Seaborn Networks Holding, which is building the 40Tbps subsea fiber optic cable.

This will link Brazil (landing in Sao Paulo) directly with New Jersey in the United States. The total project cost over the next two years will be $509 million.

2015 – TUI-SAMOA | Asian Development Bank and others $25 million in partnership with an Australian Grant of $1.5 million and World Bank of $16 million combined to promote a submarine cable system connecting Samoa to regional and global communications infrastructure and improving international broadband connectivity of Samoa.

2015 - EGABON | World Bank $56 million which facilitated financing of the introduction of the ACE submarine cable and the construction of more than 1,000 kilometers of terrestrial fiber optic — a Libreville to Franceville section that runs along the Trans-Gabon railway line; the Koulamoutou/Lastourville and Franceville/Bongoville/Lekoni road sections, as well as the Franceville/Moanda and Moanda/Bakumba/Lekoko sections going toward the border and connecting with the Congo fiber optic project.

2016 - CENTRAL AFRICAN BACKBONE | African Development Bank $51 million loan to countries in the Central African Economic and Monetary Community (CEMAC) as part of the Central African Backbone (CAB) project, enabling the effective interconnection of the Cameroon fiber optic network with that of Chad and Equatorial Guinea through the submarine cable NCSCS (Nigeria and Cameroon Submarine Cable System); Gabon and Congo are also to be connected.

2016 – SEA-ME-WE 5 | European Bank for Reconstruction and Development $50 million loan to Türk Telekom Group, Turkey’s largest telecommunications company, for a branching unit in Marmaris on the Mediterranean coast, in south-western Turkey.

2016 - SAMOA SUBMARINE CABLE PROJECT | Asian Development Fund $25; World Bank $16; Gov. of Australia $1.5 million $32.5 million project for a submarine cable system connecting Samoa to regional and global communications infrastructure.

2016 – PALAU-GUAM | Asian Development Bank $8.53 ADB has approved two loans amounting to $25 million for a submarine cable project which will support the development of a fiber-optic cable system linking Palau to the Internet cable hub in Guam.

2016 - WIOCC | International Finance Corporation IFC will be providing a financial package of up to $20 million to fund the ongoing regional expansion of the Company through the acquisition of additional capacity in Africa, increase connectivity to other fiber optic systems, upgrade its capacity on the EASSy cable and purchase network equipment.

PENDING – COOK ISLANDS TO SAMOA | Asian Development Bank $10; Gov. of New Zealand $20; Gov. of Cook Islands $2 million The Government of Cook Islands has requested the ADB to support a $37 million submarine internet cable project, which will link the islands of Rarotonga and Aitutaki in the Cook Islands to Samoa, where interconnection to the international internet hubs in Fiji and Hawaii will occur.

PENDING - IMPROVING INTERNET CONNECTIVITY FOR MICRONESIA PROJECT | Asian Development Bank The ADB Board of Directors has approved a total of $36.6 million in grants to help fund the delivery of the Improving Internet Connectivity for Micronesia Project. This project will help install a submarine cable connection between Micronesia and a proposed transpacific cable system.

SUBMARINE TELECOMS INDUSTRY REPORT

27

SUBMARINE TELECOMS

3 28

SUPPLIER ANALYSIS

SUBMARINE TELECOMS INDUSTRY REPORT

INDUSTRY REPORT 2018

SUBMARINE TELECOMS INDUSTRY REPORT

29

A

s seen by the Submarine Telecoms Industry so often over the years, with time comes change. Specifically, a change in the significant, driving technology. The industry saw the rise of inter-continental telecommunications with the first cable, installed by Great Eastern in 1866. The creation of coaxial cabld and the advancement of greater complex communication. Its replacement with cutting-edge fiber-optic cable. And, of course, upgrade technology that could take a 10G bandwidth cable up to 100G. However, the latest change – one becoming more apparent this year – is in some ways a bit of a step back, not forward.

Roughly 10 years ago, upgrade technology took the industry by storm. It provided a way for companies with systems that no longer met the still growing demand, yet still only halfway into their lifespan, grow in bandwidth. It created a new market of suppliers and gave a much-needed option for companies, besides planning a whole new system.

But now the industry is reaching the cap, and upgrades are slowing down. There’s a limit to upgrading a system, and a finite number of systems to be upgraded, and that point is nearing. The industry is shifting to alternative ways to grow capacity: cable with additional fiber pairs, more systems on the same route. And the sales in the supplier market is shifting with it.

Upgrades are not done however. According to Alice Shelton, in the November 2017 issue of SubTel Forum, pointed out that with new cables, new opportunities for more advanced upgrade technology becomes possible.

Shelton said, “’New’ systems designed from the start for coherent technology (without in-line chromatic dispersion compensation) are upgradeable with each new generation of coherent technology.

They will be able to take full benefit from the new technology in development today and will reach a point in the next couple of years where the ultimate capacities achievable approach the Shannon limit. For these systems we consider the new technologies in development that will take their capacities to a theoretical design limit.” (Shelton, 2017) As the new systems are added, new coherent technology will continue to develop, and the upgrade market will return to the forefront.

3.1 SYSTEM SUPPLIERS 3.1.1 CURRENT SYSTEMS Based on each supplier’s reported activity by region for the period 2014-2018, companies are keeping in line with overall global economic trends, with heavy focus on the developing Americas, Transatlantic and Transpacific. TE SubCom, was the busiest supplier over this 5-year period, while Alcatel Submarine Networks (ASN) was active in every region of the world except the Transatlantic and Transpacific. Most of the smaller to mid-size companies almost exclusively focus on their “home” regions — such as NEC being the most active in the Transpacific and

30

SUBMARINE TELECOMS INDUSTRY REPORT

AustralAsia regions. Huawei Marine, however, bucks the trend by being the most active in the EMEA region, specifically Africa.

ASN Hexatronic Huawei NEC PadTec Nexans NSW TE SubCom Xtera

0

2

4

6

8

Figure 32: Number of Systems by Supplier, 2014-2018

10

SUPPLIER ANALYSIS

Certain companies seem to be winding down their production, or even pulling out of the submarine fiber market entirely. Huawei Marine, Nexans and NSW all seem to be keeping overall output low.

Over the last couple of years, there has been a renewed interest in Transpacific routes and routes connecting Asia and South America directly to Europe. This will involve vast systems, requiring thousands of kilometers of cable. Moving forward, the industry will have to rely on only three companies to tackle large projects.

south Transatlantic regions as well.

OTTs are becoming increasingly responsible for new system demand; especially for the Americas, Transatlantic and Transpacific regions. These companies, specifically Facebook, Google, Microsoft and Amazon, are consuming bandwidth at an increasingly rapid pace. Rather than buying bandwidth on existing cables, these companies have found it easier and increasingly necessary to build and own international telecoms infrastructure.

While this trend has remained strong through

80,000 70,000 60,000 KMS

According to announced information on the amount of cable each company has supplied over the last 5 years, TE SubCom takes the lead — with almost 80,000 kilometers of cable produced. NEC produced the next most at 57,000 kilometers, with ASN rounding out the 3 busiest companies at 39,000 kilometers produced.

These 3 companies have been very dominant in recent years, being some of the few companies that can produce cable at a high enough volume to meet demand for large systems. So, while some companies had a relatively high amount of activity, they were not always supplying large systems. (Figure 32) (Figure 33)

50,000 40,000 30,000 20,000 10,000 0

ASN

Hexatronic Huawei

NEC

PadTec

Nexans

NSW

TE SubCom Xtera

Figure 33: KMS of Cable Produced by Supplier, 2014-2018

ASN

3.1.2 FUTURE SYSTEMS

Huawei

Regional plans will differ slightly compared to recent years. The AustralAsia region is no longer driving the bulk of new system demand as the Pacific island nations are nearly all connected. In contrast, there is renewed focus on crossing the Atlantic – albeit taking slightly different routes than the historically dominant London to New York. As more owners and service providers look to circumvent the tumultuous Middle East, expect activity there to persist in its decline. The Oil & Gas industry will maintain demand off the coasts of Africa and Australia if oil prices cooperate and expect emerging markets in South America to increase activity in the Americas and

Nexans NEC TE SubCom 0

1

2

3

4

5

6

7

8

Figure 34: Future Systems by Supplier

2018, there are signs that a sharp drop off in demand from these OTT providers is coming after 2019. However, there is an increasing possibility that other OTT providers will begin building their own infrastructure to compete with the larger

SUBMARINE TELECOMS INDUSTRY REPORT

31

Commission and turn submarine networks Over 80% of new submarine cables deployed in the last 12 months were tested—and continue to be tested—using EXFO solutions.

SWEDEN

FINLAND

SPAIN

MARTINIQUE

FRENCH GUANA

ANGOLA

NEW ZEALAND

Location of landing stations featuring new cable installations (last 12 months) equipped with EXFO test solutions.

SUBMARINE TELECOMS INDUSTRY REPORT

up high speed New speeds, new challenges Today’s challenges call for physical layer tests and when it comes to high-speed transoceanic transmission, assessing fiber quality is a must. In addition, system turn-up tests (e.g., OSNR measurements), end-to-end qualification of the network (e.g., SONET/SDH, OTN and Ethernet) and associated tests such as bit error rate, RFC 2544, latency and survivability are now critical.

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SUBMARINE TELECOMS INDUSTRY REPORT

companies. This could provide a much-needed boost to the submarine fiber market after 2019.

Unfortunately, as of the time of this writing such a boost has not yet been observed.

Overall, TE SubCom will continue to be a strong leader in the supply industry. They have been the most active and can supply the largest volume of cable and equipment. Looking forward, Huawei may be ramping up production again while NEC will fade a bit with no major projects currently on the docket. However, with more and more systems announced every year, there will always be room for a savvy supplier to take on a promising opportunity. (Figure 34) Every one of these system suppliers are composed of industry veterans with many years of experience in the submarine fiber industry. Their innovative technologies and reliable production are what continue to drive the telecommunications industry forward into the future. With robust competition between numerous companies, continue to expect a healthy cable supplier industry through 2018.

3.2 UPGRADERS 3.2.1 CURRENT UPGRADES Upgrades have given system owners a way to stay competitive at a fraction of the cost of entirely new systems. Being able to upgrade capacity by simply swapping out easily accessible hardware has allowed many aging systems to stay competitive and keep up with capacity demands. The cost effectiveness of upgradeable capacity has even resulted in making brand new systems fiscally impractical, allowing owners to stay on top of their respective markets. In short, upgrades have been a smart and effective way to keep a system relevant, even years after its saturation date. This is one of the primary reasons the Transatlantic region experienced a decade of inactivity.

34

SUBMARINE TELECOMS INDUSTRY REPORT

12 10 8 6 4 2

2014

2015

2016

2017

2018

Figure 35: Wavelength Upgrades by Year, 2014-2018

However, in the last few years, wavelength upgrade activity has observed a dramatic downturn. (Figure 35) While upgrades give system owners a cost-effective way to stay competitive, at some point systems can only be upgraded so much further. The clear majority of systems along high traffic routes are already on the latest and greatest technology, there has simply been nowhere to go in recent times. Indeed, some systems have upgraded capacity so heavily that they run the risk of affecting their revenue because of massive amounts of cheap bandwidth.

There was a slight bump in upgrade activity in 2016, but it was not the start of a new trend as upgrade activity for 2017 was down once again.

There is little reason to suspect a return of 2010 to 2014 levels of activity. Tests continue on the almost mythical 400G wavelength upgrade, while some systems are implementing 150G and 200g wavelengths in commercial use. Every new system coming into service this year or planned for 2018 and beyond will be using 100G wavelength technology or better. Furthermore, these new systems are entering service with nearly the maximum number of wavelengths possible per fiber pair, leaving no room for even adding additional channels.

SUPPLIER ANALYSIS

3.2.2 REGIONAL UPGRADE ACTIVITY

nearly as critical; network expertise and familiarity with upgrade equipment is much more important, allowing for terminal equipment companies to be competitive with older telecoms firms.

Shore-end expertise is a plus when selecting an upgrader, but with the wide selection of consultants and subcontractors, even that specialty can be acquired. (Figure 38)

While nearly every region has seen at least some upgrade activity, the AustralAsia and EMEA regions have seen the most since 2014. This should come as little surprise, as these are two of the biggest regions in the world. A capacity upgrade can allow more customers to be served, and potentially drive out new systems by meeting or exceeding current capacity demands. Because of owners trying to stay on top of the competition, 11 sys15% 17% tems in AustralAsia have been upgraded, 8% with 17 in the EMEA region. Out of all systems upgraded since 2014, these two 21% 8% regions account for half of all upgrades by themselves.

31% Of all the systems that have been upgraded, 55 percent have been upgraded to 100G or better. A single system across the Atlantic has made use of the 150G wavelength for the first time in industry history. While 100G is the industry standard, many older systems may not be able to use higher than 10G or 40G. Additionally, there are many systems that serve low traffic routes and would not benefit from an additional system upgrade. Combined with new systems for the last several years starting with 100G, the bulk of submarine fiber systems around the world have not received a wavelength capacity upgrade. (Figure 36) (Figure 37)

TranspaciďŹ c Transatlantic Indian Ocean Pan-East Asian EMEA AustralAsia Americas

Figure 36: Upgrades by Region, 2014-2018

100%

150G

80%

100G

60%

40G 20G

40%

10G

20% 0%

Not Upgraded Americas

AustralAsia

EMEA

Indian Ocean Transatlantic TranspaciďŹ c

Figure 37: Wavelength Upgrades by Region, 2018

3.2.3 MARKET ACTIVITY Based on public announcements, Ciena, ASN and Xtera have upgrade experience in every part of the world. Infinera, Mitsubishi Electric, Fujitsd and Huawei Marine have proven themselves in several different regions, while the rest of the companies exhibit regional specialties. In contrast to other realms of the submarine telecoms industry, regional work experience is not

Since they joined the market some years ago, Ciena, Infinera and, more recently, Xtera have managed to carve out their own niche in the submarine telecoms industry by focusing heavily on upgrades. In general, upgrades have given traditional cable and shore end equipment manufacturers a new way to generate revenue, rather than relying on producing entirely new systems. While the money brought in from performing an upgrade is much less than building an entirely new system, it is perhaps a more consistent form of income.

SUBMARINE TELECOMS INDUSTRY REPORT

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With upgrade activity slowing down, expect these companies to realize fewer system upgrades in the coming years.

Indeed, Infinera has already noticeably reduced their activity and only Xtera has shown any sort of meaningful growth in this part of the industry. More concerning, the new 150G, 200G and future 400G wavelength technologies may not even be compatible with newer systems, let alone older systems. In short, the upgrade market looks to be very uncertain for the next few years. Expect more companies to reduce their market activity, or even pull out entirely.

Xtera

6%

TE SubCom

13%

NEC

9%

2% 4%

Mitsubishi

43%

Huawei Marine Fujitsu

6% 2%

Infinera

15%

Ciena ASN

Figure 38: Reported Upgrade Activity by Company, 2014-2018

fiber industry. With several companies being able to serve each region, a prospective cable owner can be sure that an experienced installer will be available regardless of their system’s timeline. This allows a cable owner a great deal of flexibility when planning their new system.

3.3 INSTALLERS 3.3.1 REGIONAL CAPABILITIES

Reported information indicates ASN, TE SubCom and Global Marine Systems Limited (GMSL) 3.3.2 CURRENT INSTALLATIONS own the largest portion of the global cable ship fleet. ASN owns 7 cable ships, while TE SubBased on announced systems installed for the Com and GMSL own 7 each. Combined, these 3 period 2014-2018, ASN is shown to be the busicompanies account for nearly half of the global est overall by a significant margin. TE SubCom is fleet. E-Marine owns the next most at 5 ships, the next busiest with Huawei Marine, NTT, NEC followed by Orange with 4. ASEAN, NTT WEM and S.B. Submarine Systems not far behind with and S.B. Submarine Systems all have 3 cable the rest of the companies being about equal in installation ships to their name. Elettra, Intersystem activity. This compares well with regionnational Telecom (ITd and Kokusai Cable Ship al capability, as those who can serve the most (KCS) own 2 each. While these numbers illustrate the part of the fleet that is exclusively owned and 6% operated by each installer, they can also make use of “vessels of IT Telekom Malaysia 14% 32% opportunity”. This allows for a Huawei TE SubCom high degree of flexibility to take 6% GMSL S.B.S.S. on any type of project around the Elettra Orange 9% globe.

9%

Many of these companies overlap in their regional capability. This provides comprehensive installation experience to the submarine

36

3%

9%

9%

Nexans

3% Figure 39: Systems Installed by Company, 2014-2018

SUBMARINE TELECOMS INDUSTRY REPORT

ASN

SUPPLIER ANALYSIS

regions tend to be the busiest. However, the number of cable ships owned clearly does not correspond to the amount of system installations performed per company. (Figure 39)

The amount of cable installed by region for the period 2014-2018 shows the Americas region as the busiest by far.

Except for the Arctic region, all regions around the world saw a health amount of new cable added – owing largely to the industry success of 2017 and the continued momentum of 2018. The Americas have benefitted from emerging markets in South America, the continued desire for more bandwidth and redundancy on the United States to Brazil route — especially when driven by demand from OTT providers — and the fact that it is one of the largest regions in the world. The Indian Ocean Pan-East Asian region has benefitted from multiple large systems put into place within the last year.

70,000 60,000 KMS

50,000 40,000 30,000 20,000 10,000 0

Americas

Arctic

AustralAsia

EMEA

Indian Ocean

Transatlantic

Transpacific

Indian Ocean

Transatlantic

Transpacific

Figure 40: KMS Installed by Region, 2014-2018

100,000 80,000 KMS

3.3.3 REGIONAL ACTIVITY

80,000

60,000 40,000 20,000 0

Americas

Arctic

AustralAsia

EMEA

The EMEA region has experienced a downward trend in recent years, as Figure 41: Planned KMS by Region, 2019-2021 economic and political instability in the region have caused prospective cable owners to seek alternative routes – though it both regions to connect major economic and maintains a moderate level of growth. The Trans- data center hubs in the United States, Europe pacific and Transatlantic regions slightly overand Asia. The Americas region will see modertake the EMEA region due to renewed interest ate growth, as OTT providers complete their for new routes and improving route diversity, infrastructure builds to the Caribbean and South while AustralAsia continues with more moderate America. The AustralAsia region is expected to growth compared to years past. Lastly, a new see a marked decrease in activity as the region system was installed in the Arctic region for the gets closer to being fully connected. By contrast, first time in 2017. (Figure 40) the EMEA and Indian Ocean Pan-East Asian regions are expected to see reduced activity Projections for the next 2 years indicate a new compared to years past in part due to economtrend differing from that of the previous 5 years. ic uncertainty in Europe and sustained political The Transatlantic and Transpacific regions are instability in the Middle East and surrounding expected to see the most activity, as several areas. There are early plans for new Arctic syslarge systems are set to be installed throughout tems, but they are the most uncertain – owing to

SUBMARINE TELECOMS INDUSTRY REPORT

37

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41

the technical challenges and expenses incurred from dealing with ice. (Figure 41)

3.4 SURVEYORS 3.4.1 CURRENT SURVEYS Based on announced activity, EGS and Fugro have survey experience in nearly every region of the world.

Gardline and Elettra are also quite diverse, while smaller companies focus more on specific regions.

16% 9%

International Telecom

48%

7%

Gardline Fugro Elettra

13% 7%

EGS

Figure 42: Systems Surveyed by Company, 2014-2018

When looking at the big picture, many of these companies overlap – providing comprehensive global survey capability for the industry at large. While completing a survey is generally the first crucial step for an upcoming system, a surveyor should always be available regardless of the system’s timeline. This allows a cable owner a great deal of flexibility when planning their new system.

Of systems surveyed for the period 2014-2018, reported activity shows that EGS has been the busiest surveyor by a large margin and accounts for more than half of all survey activity by itself.

Fugro has performed the next most amount of surveys with Elettra and International Telecom about equal. This compares well with regional capability, as those that can serve the most regions tend to be the busiest. (Figure 42)

3.4.2 PLANNED SURVEYS Completing a survey is one of the first real hurdles on the way to system implementation and only 25 percent of planned systems for the period 2019-2021 have performed this task.

However, 47 percent of all systems planned for 2019 have completed a survey. This means that a good number of systems planned for 2019 are on track. This time last year, only 35 percent of

42

Other

SUBMARINE TELECOMS INDUSTRY REPORT

systems planned for the following year had completed their survey. (Figure 43)

3.5 RECENT MERGERS, ACQUISITIONS AND INDUSTRY ACTIVITIES 3.5.1 AIRTEL In August of 2018 Airtel announced plans to create a separate B2B company to develop optical fiber cable infrastructure and lease to other telcos. The new entity will fill Telesonic Networks Ltd, an Airtel subsidiary formed in 2009.

In a single sale, Airtel will sell off a major portion of its quarter-millionskilometers of fibre to Telesonic.

3.5.2 GENERAL CABLE In May of 2018, the European Union approved thenacquisition of US-based General Cable by Italian firm Prysmian.

Both companies are globally active in the development, manufacturing and supply of cables used in the energy and telecommunications industries.

The EU investigated the companies’ overlap-

SUPPLIER ANALYSIS

ping activities in opticalsfibers, general wiring and power cables of different voltages, both for submarine and underground use.

In August of 2018, TPG Telecom announced that it is in discussions with Vodafone Hutchison Australia (VHA) regarding a potential merger.

Transpacifi c

te ple

EA EM

America s

3.5.5 VODAFONE

a lAsi stra Au

The transaction is subject to customary closing conditions and is expected to close in the fourth quarter of 2018.

Inc om

On September 17, 2018 Cerberus Capital Management announced an agreement with TE Connectivity to acquire TE’s Subsea Communications business,mSubCom. Headquartered in Eatontown, New Jersey, SubCom is a leading global supplier of subsea communications systems with approximately $700 million in revenue, based on fiscal year 2018 expectations.

Indian …

3.5.4 TE SUBCOM

Am

Arc tic

On September 24, 2018 Telecom Egypt announced that its board of directors approved the acquisition of 50 percent of its subsidiary Egyptian International Submarine Cable Company at a value of $15 million USD.

Co m

sia tralA Aus

On September 17, 2018 Telecom Egypt announced the conclusion of the acquisition of Middle East and North Africa Submarine Cable from Orascom Investment Holding through its subsidiary Egyptian International Submarine Cable Company. The total enterprise value of the MENA cable is $90 million USD.

Transpacific

ntic tla sa an r T

s ica er

3.5.3 TELECOM EGYPT (MENA AND EISCC)

Transatlantic

ete pl

It concluded the proposed acquisition would raise no competition concerns as a number of strong competitors will remain in the market after the transaction.

Indian Ocean

Figure 43: Survey Status of Planned Systems, 2019-2021

3.5.6 XTERA On January 2, 2018, Xteradinitiated legal action against Nokia Corporation, including Alcatel-Lucent, and NEC Corporation in order to halt infringement of its intellectual property in subsea telecommunications systems. Xtera filed a complaint with the U.S. International Trade Commission alleging that Nokia and NEC are using its technology illegally and without permission and is seeking to prevent the companies from importing and selling in the U.S. products that infringe on Xtera’s patents.

Xtera has asked the ITC to issue a permanent, limited exclusion order that would prevent entry into the U.S. of products that infringe on Xtera’s patents. The company also seeks a permanent cease and desist order that prohibits Nokia and NEC from importing, selling, distributing, marketing and/or advertisind and transferring any products within the U.S. that infringe on Xtera’s asserted U.S. patents.

SUBMARINE TELECOMS INDUSTRY REPORT

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SUBMARINE TELECOMS

4

SYSTEM MAINTENANCE

44

SUBMARINE TELECOMS INDUSTRY REPORT

INDUSTRY REPORT 2018

SUBMARINE TELECOMS INDUSTRY REPORT

45

T

he industry’s ability to maintain and repair its many cable systems is better today than it has ever been. This isn’t particularly surprising, given that since the inception of the industry, a company’s ability to maintain their customer’s connection has been one of the chief standards for quality and companies invest in new ships and other technology to be the best, or work with someone who does.

To achieve the best response to a cut cable, many companies ban together in Maintenance Agreements, pooling assets to reach the break and repair it as quickly as possible. Others higher private coverage companies who specialize in finding and repairing breaks. And thanks to the continued progress of technology, repairs to breaks are of a better quality than ever before. Additionally, thanks to the advancement in fields like Oceanography, a science that is more than a small consideration in the submarine telecoms industry, issues that cause breaks or may ruin repairs are now more easily avoided.

Maybe best of all, however, is that for the most part customers never realize there was any kind of problem, and their service continues uninterrupted. While this may not be true in areas that lack the necessary system redundancy, thanks to fiberoptic cable, companies have been able to shift the load of a cut cable onto another of their systems or form redundancy agreement with other companies to use their system.

The continued improvement in system maintenance hasn’t all come from the industry companies.

The global recognition of the importance of the cable infrastructure to this digital age is still ongoing, and some countries have acted. In the March 2018 issue of SubTel Forum, Jean-Marie Fontaine pointed out the recent changes made in Canadian maritime law.

“Canadian Courts have not been very forgiving of vessel owners and operators, whether they be large and sophisticated commercial cargo ships or smaller fishing vessels, in circumstances where they damage underwater communication cables,” said Fontaine. “A recent decision of the Supreme Court of Canada in Société TELUS Communications v. Peracomo Inc., which involved a fishing vessel whose owner cut a telecommunication cable in the Gulf of the St. Lawrence, illustrates well the obligations of vessel operators, the corresponding obligations of cable operators and the circumstances in which limitations of liability would apply.” (Fontaine, 2018) As it has for the length of the industry’s existence, it can be expected that the methods for maintaining and repairing cable systems will only continue improving with time.

4.1 PUBLICITY Unsurprisingly, the two largest regions in the world generate the most media stories about cable faults. The Americas and EMEA regions are not only expansive, but several of the landing stations contained within each region are also in high traffic shipping areas. The AustralAsia region has the next greatest number of stories.

This region contains a slew of cables crisscrossing major shipping lanes in a region that is also geologically active. Historically, this region has had poor reporting but has enjoyed greatly in-

46

SUBMARINE TELECOMS INDUSTRY REPORT

creased coverage since 2017. (Figure 44) The remaining Indian Ocean Pan-East Asian and Transatlantic regions have had no reported cable faults within the period 2010 to 2018. While the former region simply has fewer cables to manage — in a relatively cable safe region — the latter is one of the most established regions in the world. It is again likely that many faults in these regions go unreported. Specifically, in the case of the Transatlantic region, there is almost always a cable repair ship nearby to quickly restore any damage within days or hours – likely preventing many faults from even being noticed.

SYSTEM MAINTENANCE

Due to reporting and general awareness of cable faults being on the rise, the time between a fault occurring and a cable owner or operator announcing said fault decreased dramatically and found an equilibrium at an average of 11 days. (Figure 46) The increase in media coverage has put more pressure on cable owners and operators to become increasingly transparent with cable faults. As internet connectivity becomes ever more essential to daily life, customers demand such transparency to help ensure service providers work diligently to address their needs.

TransPacific EMEA

35%

40%

AustralAsia Americas

26% Figure 44: Total Cable Fault Stories, 2010-2018

35 30 Story Count

With the average customer becoming more technologically savvy— and quicker to complain to service providers – this has contributed to an increase in media coverage for cable faults. As more people are connected to the global submarine fiber network every year, the rise in reported faults by the media is expected to continue. This provides much needed transparency and accountability for the submarine fiber industry.

6%

25 20 15 10 5

2010

2011

2013

2014

2015

2016

2017

2018

Figure 45: Total Cable Fault Stories, 2010-2018

25 20 DAYS

A sharp rise in the volume of media coverage for cable faults has been observed - especially since 2013. This is likely due to an increase in reporting, rather than an increase in cable faults, and almost certainly tied to the rapid rise of internet media reporting.

Our global society is more interconnected than ever, with people sharing news faster than at any point in history. Since 2015, there have been between 26 and 32 stories each year. (Figure 45)

15 10 5

2010

2011

2012

2013

2014

2015

2016

2017

2018

Figure 46: Average Time Between Fault and Announcement, 2010-2018

SUBMARINE TELECOMS INDUSTRY REPORT

47

4.2 REPORTING TRENDS AND REPAIR TIMES

people and informs them faster than ever before.

As media coverage of cable faults extends to a wider audience and provides additional transparency, this correlation can be expected to continue.

With progressively faster reporting time, it is very likely that announcement times will average under 10 days in the near future. This not only helps to hold cable owners and operators more accountable, but also provides reassurance to customers that cable faults are being addressed in a timely fashion. More accurate and transparent reporting of cable faults also helps maintenance agreement zones and private contractors more reliably predict where to distribute assets.

However, another spike in average repair time was observed in 2016.

Many of the faults reported in 2016 occurred in the Pacific Ocean, where the longest and hardest to reach systems are located. Even so, this region saw a nearly 50 percent reduction in average repair time from the year before — indicating average repair times are still on a downward trend.

There has been a rising correlation observed between frequency and speed of cable fault reporting and a decrease in average repair time.

Internet news media reaches more

48

25 20 DAYS

After the spike in 2013, the trend for average time to repair has continued to hold steady alongside media coverage for the period 20132018. As reporting of cable faults consistently increases in frequency and speed, this should continue to decrease the average repair time even further. The recent downward trend in cable fault repair time could easily lead to the average time to repair falling under 20 days over the next few years. (Figure 47)

Raising awareness of cable faults will also put pressure on government agencies in charge of issuing permits for cable repair work. Many times, this is the largest hindrance for a repair operation. This increased awareness will have a net positive effect on permit turnaround time, and further decrease the average time to repair for a given fault.

15 10 5

2010

2011

2012

2013

2014

2015

2016

2017

2018

Figure 47: Average Reported Repair Time in Days, 2010-2018

10% 25%

13% 16%

TransPaciďŹ c EMEA AustralAsia Americas

Figure 48: Average Estimated Repair Time by Region, 2010-2018

SUBMARINE TELECOMS INDUSTRY REPORT

SYSTEM MAINTENANCE

Figure 49: Traditional Club Agreements Map

While the Americas, AustralAsia and EMEA regions all have a relatively short average time to repair, the Transpacific regional average is longer than all the others combined. With Transpacific systems containing some of the longest uninterrupted route segments in the world, this comes as no surprise. The longer a route segment is, the longer it takes to find and diagnose a fault for proper repair. Most systems in the other regions are broken up into smaller segments, and cable faults can be located and diagnosed much faster. (Figure 48) As reporting accuracy of cable faults continues to increase, this will help bring down the Transpacific’s average time to repair. With repair crews getting better information on where faults are likely to occur, their ability to locate and diagnose a cable fault improves dramatically.

Accountability and transparency of this sort is healthy for cable owners and operators.

4.3 CLUB VERSUS PRIVATE AGREEMENTS Marine maintenance is a shared service where several cable owners share the service of resources within a defined operational area. The agreement can either be private where the contractor and cable owner agree prices and conditions on a bilateral basis, nothing except for the sharing and priority rules are linked to any of the other cable owners. For the club agreement conditions and prices are linked with all the other participating cable owners.

4.3.1 TRADITIONAL CLUB AGREEMENTS The way that the Maintenance Zone operates is that each owner nominates a representative to act as the main point of contact between itself and the marine service provider and the depot operator. This representative is called the Maintenance Authority for the system and will provide instructions to the ship during the repair and the depot operator before and after the repair. The Maintenance Authority will also retain

SUBMARINE TELECOMS INDUSTRY REPORT

49

Figure 50: Private Maintenance Agreements Map

the detailed as laid records for the system and update them after each repair.

4.3.1.1 2 OCEANS CABLE MAINTENANCE AGREEMENT 2 Oceans Cable Maintenance Agreement (2OCMA) operates in the South of Atlantic and Indian oceans from Cape Town (South Africa) using the facilities of Telkom SA depot. 2OCMA is supported by vessels and facilities from Orange, and possesses base ports in Cape Town, South Africa.

4.3.1.2 ATLANTIC CABLE MAINTENANCE AGREEMENT The benchmark for all maintenance services and the most popular worldwide is the Maintenance Zone. The first Maintenance Zone was set up in the North Atlantic in 1965 and is called Atlantic Cable Maintenance Agreement (ACMA). ACMA defined and continues to set the standards for structure and operating procedures that all other Maintenance Zones around the world now follow.

50

SUBMARINE TELECOMS INDUSTRY REPORT

ACMA operates in the Atlantic Marine Base of Brest (Northern France) in the Atlantic and Northern Europe zone.

4.3.1.3 MEDITERRANEAN CABLE MAINTENANCE AGREEMENT Mediterranean Cable Maintenance Agreement (MECMA) operates from the Mediterranean Marine Base of La Seyne-sur-Mer (Southern France) on 71,000 km of cables in the Mediterranean zone including the Black and Red seas. MECMA is supported by vessels and facilities from Orange and Elettra, and possesses base ports in Le Seyne Sur Mer, France and Catania, Italy.

4.3.1.4 NORTH AMERICAN ZONE CABLE MAINTENANCE AGREEMENT North American Zone Cable Maintenance Agreement (NAZ) covers an area from the Bering Sea and Alaska in the North to the Equator in the South and from the Americas to approximately 167ยบ West Longitude. NAZ is supported by vessels and facilities from Global Marine Systems Limited, and possesses base ports in Victoria, Canada.

SYSTEM MAINTENANCE

4.3.1.5 SOUTH EAST ASIA/INDIAN OCEAN CABLE MAINTENANCE AGREEMENT

4.3.2.2 ASIA PACIFIC MARINE MAINTENANCE SERVICE AGREEMENT

South East Asia / Indian Ocean Cable Maintenance Agreement (SEAIOCMA) stretches from Djibouti to Guam and from Taiwan to Australia and covers an area of approximately one-third of the earth’s oceans. SEAIOCMA is supported by vessels and facilities from ACPL, IOCPL and Global Marine Systems Limited, and possesses base ports in Singapore; Colombo, Sri Lanka; and Manila, Philippines.

APMMSA is supported by vessels and facilities from TE SubCom, and possesses base ports in Taichung, Taiwan.

4.3.1.6 YOKOHAMA ZONE CABLE MAINTENANCE AGREEMENT The Yokohama Zone has been one of the major cable maintenance zones in the Asia-Pacific region, covering cables in Northern Asia and Northwest region of the Pacific, and adjacent to the NAZ and SEAIOCMA zones. Yokohama Zone is supported by vessels and facilities from KCS, KTS and SBSS, and possesses base ports in Yokohama, Japan; Keoje, Korea; and Wujing, China.

4.3.2 PRIVATE MAINTENANCE AGREEMENTS There are several types of contracts in place for providing private marine maintenance services globally. Private agreements are typically offered by the ship operators and are usually tailored (within the limits of the overall economic model) to the needs of the individual system owner.

4.3.2.3 E-MARINE E-marine covers the maintenance of cables primarily in the Arabian Gulf, Red Sea, Indian Ocean and Arabian Sea. E-marine possesses base ports in Hamriya, UAE and Salalah, Oman.

4.3.2.4 NORTHERN PACIFIC MARINE MAINTENANCE SERVICE AGREEMENT NPMMSA is supported by vessels and facilities from TE SubCom, and possesses base ports in Portland, Oregon USA.

4.3.2.5 SOUTH PACIFIC MAINTENANCE AGREEMENT The South Pacific Maintenance Agreement (SPMA) covers the southern Pacific region eastward to the Hawaiian Islands. SPMA is supported by vessels and facilities from ASN and TE SubCom, and possesses a base port in Nouméa, New Caledonia.

4.3.2.1 ATLANTIC PRIVATE MAINTENANCE AGREEMENT The Atlantic Private Maintenance Agreement (APMA) covers an area encompassing the Atlantic and Mediterranean. APMA is supported by vessels and facilities from ASN and TE SubCom, and possesses base ports in Calais, France and Cape, Verde, Curacao.

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SUBMARINE TELECOMS

5 52

CABLESHIPS AND LANDINGS

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INDUSTRY REPORT 2018

SUBMARINE TELECOMS INDUSTRY REPORT

53

T

he SS Great Eastern, a massive 22,500-ton steam ship crossed the Atlantic Ocean in 1866. In its wake, the six-mast behemoth unspooled 4,300 km of cable, creating the first trans-continental connection and forever changing the world’s communications.

The ship was a monster of its time (almost 700 feet in length). It had been originally christened Leviathan a year earlier and was designed as a passenger and cargo ship. After a failed launch due to structural issues, the owners were forced into bankruptcy and sold the ship at auction. Instead, it was loaded with cable and became one of the earliest ships of its kind.

More than 150 years later, fleets of cable ships are the workhorses of the still-evolving submarine telecoms industry. While technology has changed and ships are driven by diesel instead of steam and wind, still do the job in basically the same way, if with incomparably greater precision and forethought. The shipside of the industry is also a diverse field, with some providers owning dedicated ships, or hiring other companies that only lay cable – not design systems.

The cable ships are employed in a variety of ways. Some models are dedicated and outfitted for laying cable. Others, usually smaller and more maneuverable, only repair breaks. Many today are design to serve duel purpose. The ships service laying large, trans-continental systems, small regional connections, or to reach out to oil platforms.

The cable ships are an inseparable part of the submarine telecoms industry – without which, the dream of a global network would be impossible.

5.1 CURRENT CABLESHIPS

a diverse global presence, while the rest of the above companies cater to a regional focus.

(Figure 51)

5.1.1 FLEET DISTRIBUTION ASN, TE SubCom and GMSL own the largest portions of the global submarine cableship fleet.

Combined, they account for over one-third of the entire fleet. This has allowed each of them to implement projects around the globe, and to handle nearly every challenge that arises.

E-marine and Orange enjoy the next largest percentage of the global cableship fleet. ASEAN Cableship (ASEAN), S.B. Submarine Systems (S.B.S.S.), Elettra, KCS and NTT World Engineering Marine (NTT WEM) all share a similar percentage of the fleet. Several other companies, listed as Various, own 1 cableship each. ASN, TE SubCom, GMSL and Orange all have

54

6% 6%

As the Atlantic and Pacific oceans are the busiest and highest traffic maritime regions in the world, most of the global cableship fleet is stationed in these two regions. (Figure 52) Many of the world’s most important telecommunications routes cross these two oceans, requiring multiple maintenance vessels to be on hand and

4% 4% 14% 14%

6% 8% 10%

14% 14%

Figure 51: Cableship Fleet Distribution by Company

SUBMARINE TELECOMS INDUSTRY REPORT

KCS

E-marine

Elettra

Various

S.B.S.S.

TE SubCom

NTT WEM

GMSL

ASEAN

ASN

Orange

CABLESHIPS AND LANDINGS

installation vessels available for new routes. The Indian Ocean and Mediterranean regions are slightly-less busy and have a smaller coverage footprint. Therefore, fewer ships are necessary to handle the workload required by these regions, resulting in a significantly smaller portion of the fleet stationed there.

The overall distribution of cableships dedicated to maintenance agreements versus those available for installation jobs is almost even. Of the global fleet, 21 are dedicated to club and private maintenance zones, 26 are dedicated towards installation work. The remaining 4 are not dedicated to a sole purpose. (Figure 53)

4% 6%

Atlantic PaciďŹ c

12%

41%

Indian Ocean Worldwide

37%

Mediterranean

Figure 52: Cableship Fleet Distribution by Region

4 Neither

Cableships are stationed around the world in strategic locations to be able to cover all parts of the world easily.

Maintenance

26

21

Installation

5.1.2 GROWTH AND AGE OF CABLESHIP FLEET

18

17

20

16

20

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20

13

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96

8 7 6 5 4 3 2 1 0

19

Most of the cableship fleet is between 25 and 30 years old, with the average age being 23. All but 3 cableships are 14 years or older, and 2 are as old as 46. This indicates that there is room for modernization and calls into question the capability of an aging fleet

Figure 53: Dedicated Cableship Purpose

19

While an average of 1 cableship has been added per year since 1995, there has been a clear downward trend in new ships being commissioned. The large spike in additional cableships from 2001-2003 was in anticipation of explosive market growth that failed to materialize. Because of a far less busy industry, no cableships were added to the global fleet until 2014. (Figure 54)

Figure 54: Cableships Added by Year, 1996, 2018

SUBMARINE TELECOMS INDUSTRY REPORT

55

being able to handle the flurry of installation activity planned over the next 18 months. (Figure 55)

Age Distribution of Cableship Fleet

In September of 2017, KDDI Corporation announced plans to construct a new submarine cable-laying ship. It is scheduled for launch in fiscal year 2019.

By utilizing the expertise accumulated through experience in laying and repairing communications cables, the new submarine cable-laying ship will be Japan’s first ship capable of supporting electric power cable installation, in addition to the cables used in communications, observatiod and resource exploration.

In addition, by improving the sailing distance and speed over those of previous KDDI ships, the marine area covered by the ship will expand beyond the current Asia-Pacific region to span the entire globe. Furthermore, the use of retractable azimuth thrusters will improve the weather resistance in adverse conditions, as well as the performance of stationary maintenance operations.

Number of Cableships

5.1.3 FUTURE CABLESHIPS

Age Figure 55: Age Distribution of Cableship Fleet

5%

Arctic

37%

25%

Indian Ocean Americas

28%

EMEA AustralAsia

Figure 56: Landing Distribution by Region, 2014-2018

2% 1%

5.2.1 CURRENT SHORE-END ACTIVITY

56

Transpacific Transatlantic

5.2 SHORE-END ACTIVITY

The amount of shore-end installations by region for the period 2014-2018 correlates closely to the number of systems per region over the period. The EMEA, AustralAsia and Americas regions are characterized by numerous systems that connect 3 or more landing points. The Indian Ocean Pan-East Asian, Transat-

3% 1%

Transpacific Transatlantic

9% 35%

25%

Arctic Indian Ocean EMEA

27%

AustralAsia Americas

Figure 57: Landing Distribution by Region, 2019-2021

SUBMARINE TELECOMS INDUSTRY REPORT

CABLESHIPS AND LANDINGS

lantic and Transpacific are typically characterized by systems taking more direct routes between fewer landing points. (Figure 56)

5.2.2 FUTURE SHORE-END ACTIVITY The amount of shore-end installations by region for the period 2019-2021 diverges compared to the number of systems per region over the period. Systems in AustralAsia will continue with historical trends, providing numerous shoreend installation opportunities. New Transpacific systems will, on average, connect more landing points than normally observed. New systems in the Americas will, on average, connect fewer.

However, the overall distribution will stay about the same as compared to the last five years.

(Figure 57) TABLE 2: KDDI PLANNED CABLESHIP SPECIFICATIONS CABLESHIP SPECIFICATIONS Gross Tonnage

9,500 tons

Length

113 meters

Breadth

21.5 meters

Ship Complement

80 persons

Service Speed

13 knots

Pulling Power

80 tons

SUBMARINE TELECOMS INDUSTRY REPORT

57

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58

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6 60

SYSTEM DRIVER AND SPECIAL MARKE

SUBMARINE TELECOMS INDUSTRY REPORT

INDUSTRY REPORT 2018

RS

ETS SUBMARINE TELECOMS INDUSTRY REPORT

61

D

atacenters are everything. This is not hyperbole, but a description of the centers’ role in global internet traffic. They are an indispensable part of the flow of data throughout the internet – a part of the system which transfers, houses and safeguards the information that makes up every facet of modern life. And this role has grown even more important with the onset of the cloud.

In the November 2017 issue of SubTel Forum, Alan McCurdy and Robert Lingle, Jr. examined the boom in cloud services and pointed out the growing need for local data storage. They said, “Changes in consortium cable ownership, open cables and the entrance of the new Cloud & Content Providers (CCPs) have dramatically changed the business environment.”

“Many companies now want secure, redundant transmission paths across the oceans to connect hyperscale datacenters on every continent,” said McCurdy and Lingle. “Growth of data in the cloud is a key factor in pushing data traffic over submarine links. This has driven an uptick in cable builds over the last few years with ever increasing expectations on performance.” (Alan Mccurdy and Robert Lingle, 2017) As the cloud is in many ways synonymous with datacenters, this increased demand hasn’t only effected system growth.

In recent years, new areas have been garnering attention as companies search for the most cost-effective places to set up new datacenters to meet the growing demand. In America, suburbs in areas like Northern Virginia, Northern California, Dallas and Ft. Worth, Chicago, Phoenix and Northern New Jersey have seen a consistent growth in new datacenters. Companies search for qualities like real estate value, energy cost, business tax and, of course, access to cable systems. Even better if they are near the coast and landing point for international systems.

Dependency on cloud services are only growing, both privately and publicly, so the ever-growing need for secure storage will only continue shining increasing the importance of these areas to the submarine telecoms industry.

6.1 DATACENTER AND OVER-THE-TOP PROVIDERS 6.1.1 CURRENT SYSTEMS IMPACTED A new paradigm emerged in 2016, with datacenter and OTT providers stepping into the world of submarine cable ownership. Many of these companies have such large and complex infrastructure requirements that it has become more valuable for them to own their own cable systems rather than buy capacity from a carrier.

Since 1999, Equinix, for instance, has spent some $17 billion in capital on building capacity and server infrastructure to store data, and connect with partners, cloud providers and networks. (CNBC, 2017) Datacenter providers,

62

SUBMARINE TELECOMS INDUSTRY REPORT

Equinix, Digital Realty Trust and Interxion, will continue to benefit from submarine cable construction activity.

The dramatic growth in demand is creating significant challenges for telecommunications companies, Internet Service Providers (ISPs) and OTT Providers. The top segment of many markets is becoming dominated by large OTT players, such as Google, Amazon, Microsoft and Facebook who have become key stakeholders and require large amounts of bandwidth between their datacenters in various continents.

Datacenter and OTT providers were the driving force behind 43 percent of systems that went into service for the period 2016-2018.

(Figure 58)

SYSTEM DRIVERS AND SPECIAL MARKETS

6.1.2 FUTURE SYSTEMS IMPACTED Not Impacted Impacted

Figure 58: Systems Driven by Datacenter and OTT Providers, 2016-2018

60%

40%

Not Impacted Impacted

Figure 59: Systems Driven by Datacenter and OTT Providers, 2019-2021

$120

Brent

$100

WTI

$80 $60 $40 n13 pr -1 3 Ju l-1 3 O ct -1 3 Ja n14 A pr -1 4 Ju l-1 4 O ct -1 4 Ja n15 A pr -1 5 Ju l-1 5 O ct -1 5 Ja n16 A pr -1 6 Ju l-1 6 O ct -1 6 Ja n17 A pr -1 7 Ju l-1 7 O ct -1 7 Ja n18 A pr -1 8

$20

Ja

While the top tier datacenter and OTT providers are continuing to develop new systems, there are numerous other companies in this part of the Information Technology sector. A second wave of these companies may decide they need similar infrastructure plans and follow in the footsteps of their respective market leaders. This could trigger a second wave of datacenter and OTT driven systems and allow the submarine fiber market to continue enjoying its current level of activity even after the top tier providers begin to reach the end of their infrastructure buildout plans.

57%

43%

A

For the period 2019-2021, 40 percent of planned systems are being driven by datacenter and OTT providers. (Figure 59) This indicates that currently observed levels of datacenter and OTT driven systems will continue. As systems driven by major datacenter and OTT providers have a much greater chance of being implemented – due to the high financing threshold of these companies – expect this percentage to increase as new cables are announced and other projects die off. Without these kinds of backers, future systems will have a much harder time proving their business case and securing funding.

Figure 60: WTI and Brent Crude Combined 5-Year Price History, 2013-2018

SUBMARINE TELECOMS INDUSTRY REPORT

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SYSTEM DRIVERS AND SPECIAL MARKETS

6.2 OFFSHORE ENERGY The offshore energy industry provides its own and separate sub-section of the global submarine fiber industry. Offshore Energy Telecoms is a niche market, but it has become increasingly important as offshore platform operators have started to require higher capacity and more reliable telecommunications systems. This market space is primarily driven by the offshore oil & gas markets and is very closely tied to the price of oil.

12

6.2.1 OIL PRICE HISTORY

Overall, the recovery of the offshore energy market has led to an increase in platform construction activity. In addition, platform owners and operators are greatly increasing their data requirements as they move towards more automation and remote monitoring. Submarine fiber cables are the only realistic option to meet both the bandwidth and reliability demands brought on by this new paradigm shift and offers a great opportunity for submarine fiber suppliers.

10 8

Looking at the average quarterly 6 price of a barrel of oil via the West 4 Texas Intermediate benchmark, oil 2 prices reached their peak between 0 2013 and the first half of 2014.

2016 2017 2018 2019 2020 2021 2022 Prices soared to well over $105 per barrel during this time. After that, Figure 61: Offshore Oil & Gas Systems per Year, 2016-2022 prices sharply declined and finally bottomed out at just over $30 per barrel in Q1 2016. (Figure 60) This steep decline — which started in the latter half of 2014 — is the primary reason 2015 saw few new systems implemented. Many systems either died outright or were pushed back to 2019 and beyond.

6.2.2 SYSTEM GROWTH The offshore energy industry recovered from the rapid price decline in 2014, and growth has begun to accelerate as a result. A huge spike in system activity is observed starting in 2019, with and healthy growth should continue through 2022. With oil prices now above $80 per barrel and steadily rising, this will continue to drive new system growth. (Figure 61)

66

SUBMARINE TELECOMS INDUSTRY REPORT

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SUBMARINE TELECOMS

7 70

REGIONAL MARKET ANALYS AND CAPACITY OUTLOOK

SUBMARINE TELECOMS INDUSTRY REPORT

INDUSTRY REPORT 2018

SIS

R

egional systems present a unique challenge within the submarine cable industry. Between varying markets, and sometimes varying countries, regional systems can be harder bringing a number of different complexities than any point-to-point system.

Regional systems are designed to support a specific population, creating stable customer base. In the case of smaller systems, this may also mean a smaller customer base that caters to a more limited capacity need. . This also means that the system is inexorably tied to the regional economy, where demand grows as local business flourishes.

Among the difficulties of a regional market, one of the foremost is the politics. Within a given region, the system may have multiple landing points in just as many countries. In each of these countries are varying social norms, service needs and laws. A company interest in landing points in the region will require a separate permit for each of them.

The challenges aren’t limited to the countries, however.

With larger regional systems, its common for a consortium of owners to be installing the system. In some cases, there may be a different owner for each country with a landing point.

The impact of regional systems isn’t limited to the region itself. A regional system, and its success, may affect the regions role in the larger cable net. Jukka-Pekka Joensuu, in the July issue of SubTel Forum, talked about the significance Finland plays in the larger European region.

“Finland has a unique position in the European Union with a central position in the Baltic Sea and also geographically connecting northeastern Europe with Eurasia and Asia,” Joensuu said. “This has been very true in relation to telecommunications and data networks. Traditionally due to close relations in business and building of business links Finland has been connected to Sweden through various networks. This has been the way for the Finnish companies establishing pan- Nordic business and also creating data connectivity towards central Europe.”

“In the late 90´s due to rapid increase of telecommunications traffic this also became a highway connecting east to west and today most of the internet and telecommunications traffic is carried through Finland and Sweden towards main European internet hubs and serving the demands of the capacity needs of Russian, Asian and international carriers and businesses. Also, connectivity to the Baltic states and routes through Baltic Sea countries were created in early 2000.” (Joensuu, 2018) Each regional system holds a unique place in the larger network and an effect therein. By examining these regions analysts can gain a sense for trends for the industry as a whole.

SUBMARINE TELECOMS INDUSTRY REPORT

71

7.1 Transatlantic Regional Market REGIONAL SNAPSHOT:  Current Systems: 16  Capacity: 514 Tbps  Planned Systems: 10  Planned Capacity: 374 Tbps

72

SUBMARINE TELECOMS INDUSTRY REPORT

73

7.1.1 CURRENT SYSTEMS

30

Growth on the Transatlantic route skyrocketed from the late 1990s through 2003. But after that, the market saw a decade-long break from new development.

After a 12-year drought, the Transatlantic region has seen a new cable every year for the last 3 years. (Figure 62)

25 20 15

TABLE 3: TRANSATLANTIC SYSTEMS, 2001-PRESENT

74

RFS YEAR

SYSTEM

CAPACITY (TBPS)

LENGTH (KMS)

2001

FA-1 North/South

24

12820

2001

GTT North/South

25

12111

2001

TAT 14

9.38

15453

2001

TGN Atlantic

50

12670

2003

Apollo

64

12700

2015

GTT Express

53

4600

2016

AEC-1

78

5536

2017

MAREA

160

6600

2018

SACS

40

6300

SUBMARINE TELECOMS INDUSTRY REPORT

21

20

20

19

20

18

20

17

20

16

20

15

20

14

20

13

20

12

20

11

20

10

20

09

20

08

20

07

20

06

20

05

20

20

20

04

Two major causes of the development 10 slowdown were a glut of bandwidth — which remains largely unlit — and the Figure 62: Systems in Service -Transatlantic financial crash of the early 2000s which was brought on by overinvestment in the submarine cable industry. With in100% vestment on the rise again, and systems 100G 80% aging out in the Transatlantic route, new 40G 60% systems are beginning to come on line.

20G 40% The MAREA system installed last year 10G Not Upgraded tapped in to the exploding demand from 20% OTT providers, with one of the key selling 0% 2014 2015 2016 2017 2018 points being massive bandwidth available — 160 Tbps potential — on a modern submarine fiber system on a route full of Figure 63: Systems Upgraded - Transatlantic aging cables. Additionally, this new cable seeks to explore alternative paths to increase route diversity, and more directly connect Virginia. The SACS cable – which was installed Europe to important data centers in Ashburn, this year – continues this new push for alternative

REGIONAL MARKET ANALYSIS: TRANSATLANTIC

routes and connects South America and Africa directly.

250,000 200,000

21

20

20

19

20

18

20

17

20

16

20

15

20

14

20

13

20

12

20

11

20

10

20

09

20

08

20

07

20

06

20

20

100,000

05

150,000

20

KMS

Due to increasing capacity demands along the north Transatlantic between the New York and Europe, and the desire for new connections to the Mid-Atlantic of the United States and across the South Atlantic, the Transatlantic route has enjoyed steady growth.

To cover the steady rise in demand for Figure 64: KMS Added - Transatlantic new capacity during the down period of the submarine cable industry, 7.1.2 PLANNED SYSTEMS upgrading existing systems became the norm starting in 2010. Today, all but 1 existing TransDuring the last boom of Transatlantic system deatlantic system is on at least 100G technology. velopment, the average system length was rough(Figure 63) As with other markets, upgrades have ly 12,000 kms with most systems taking similar been a reliable and cost-effective measure in routes between Europe and the US. extending the life of a system – a new upgrade costs a fraction of what a new system can cost With the rise in demand for low latency systems, and increases the available regional bandwidth planned systems for 2019 and beyond average reversely proportionate. In short, upgrades to the roughly 8,000 kms based on their announced existing transatlantic systems answered the grow- routes. (Figure 64) The change in customer reing demand adequately at the time. However, as quirements from purely bandwidth to bandwidth the need for more infrastructure is on the rise by and low latency has driven developers to plan OTT providers, upgrades to existing systems no routes averaging 33 percent shorter than previlonger adequately meets demand. New systems ous systems from the early 200s, with proposed are required to meet demand are being built at systems claiming to drop latencies dramatically in an increased pace. addition to providing much needed infrastructure.

However, some of the proposed South Atlantic TABLE 4: TRANSATLANTIC PLANNED SYSTEMS RFS YEAR

SYSTEM

CAPACITY (TBPS)

LENGTH (KMS)

2019

HAVFRUE/AEC-2

108

8179

2019

SAIL

32

5900

2020

Dunant

2020

EllaLink

2020

Midgardsormen

2020

SABR

60

6200

2021

Quintillion Subsea Phase 3

30

5000

2021

SAEx1

72

14720

6400 72

10119 7848

SUBMARINE TELECOMS INDUSTRY REPORT

75

REGIONAL MARKET ANALYSIS: TRANSATLANTIC

systems are considerably larger than the more traditional Transatlantic systems and will address different needs than the region is used to.

There are currently 8 planned systems set to be ready for service for the period 2019-2021 in the Transatlantic region. Only 3 of the 8 planned systems are along the northern route between Europe and the United States, further illustrating the desire to move away from traditional Transatlantic routes. There are 2 systems Figure 65: Contract in Force - Transatlantic planned between Brazil and Africa, 1 planned between Brazil and Europe, 1 planned for Europe to the mid-Atlantic of the United States and 1 system planned between the United States and South Africa. Brazil continues to work on getting its own international connections without going through the United States, while tech giants such as Microsoft and Facebook want connections between Europe and the Ashburn, Virginia data centers.

50%

Half of planned Transatlantic systems have achieved the all-important CIF milestone. (Figure 65) This indicates healthy growth in the region and solidifies the idea that new cables and new routes are highly desired. However, some of these planned systems will compete directly against each other, so this CIF rate may change moving forward.

76

SUBMARINE TELECOMS INDUSTRY REPORT

50%

No Yes

SUBMARINE TELECOMS INDUSTRY REPORT

77

ISO 9001:2015 certified designer and impl for commercial, governmen

THROUGHOUT

lementer of submarine fiber cable systems ntal and oil & gas companies

T THE WORLD.

SUBMARINE TELECOMS INDUSTRY REPORT

7.2 Transpacific Regional Market REGIONAL SNAPSHOT:  Current Systems: 13  Capacity: 460 Tbps  Planned Systems: 8  Planned Capacity: 592 Tbps

80

SUBMARINE TELECOMS INDUSTRY REPORT

81

7.2.1 CURRENT SYSTEMS

25

The Transpacific market has been like that of the Transatlantic in recent years, showing relatively little growth year-upon-year. New systems have been added sporadically, however most of the capacity increases have been from upgrades. Lately, OTT providers and those seeking route diversity have been driving new system growth.

Since 2007, 7 systems have been added to the region. (Figure 66) The industry crash of the early 2000s certainly played a large part in this limited growth, but the fact that there had been no new systems on the Transpacific routes from 2010-2016 is largely due to existing systems being able to upgrade their capacity for relatively little cost and push potential competitors out of the market.

20 15

20

5

0 20 4 0 20 5 0 20 6 0 20 7 0 20 8 0 20 9 1 20 0 1 20 1 1 20 2 1 20 3 1 20 4 1 20 5 1 20 6 1 20 7 1 20 8 1 20 9 2 20 0 21

10

Figure 66: Systems in Service - Transpacific

100% 80%

100G

60%

40G 20G

40%

10G

20% 0%

Not Upgraded

2014

2015

2016

2017

2018

As with the Transatlantic market, Figure 67: Systems Upgraded - Transpacific until very recently the Transpacific has been almost fully saturated, with little room for growth other than route diversity however, new systems are being explored in and cutting down on existing latency. Lately, a similar manner to the Transatlantic. Demand TABLE 5: TRANSPACIFIC SYSTEMS, 2001-PRESENT

82

RFS YEAR

SYSTEM

CAPACITY (TBPS)

LENGTH (KMS)

2001

AJC

25.6

12224

2001

Japan-US

12.8

21880

2002

TGN Pacific

76.8

21424

2008

TPE

25.6

16163

2009

AAG

28.8

20547

2010

Unity

76.8

9486

2016

Faster

60

9000

2017

SEA-US

20

15400

2018

Hawaiki

67

15000

SUBMARINE TELECOMS INDUSTRY REPORT

REGIONAL MARKET ANALYSIS: TRANSPACIFIC

from OTT providers and desire for route diversity are the primary drivers behind these newer Transpacific systems. As a result, there is a potential explosion of growth possible through 2020.

350,000 300,000

KMS

250,000 200,000

21

20

20

19

20

18

20

17

20

16

20

15

20

14

20

13

20

12

20

11

20

10

20

09

20

08

20

07

20

06

20

20

20

05

Along with adding 4 new systems 150,000 since 2010, the region has been able to keep up with capacity 100,000 demand by utilizing system upgrades. With the easy availability Figure 68: KMS Added - Transpacific of 100G wavelength technology upgrades – which can boost capacity nearly tenfold in many 7.2.2 PLANNED SYSTEMS cases – it is little wonder new cable systems have only recently been able to present a After a huge growth spurt from 2000 to 2002, sustainable business case for the region. Unlike the Transpacific market has seen small to moderother regions, the Transpacific made heavy use ate growth for the last 13 years. of 40G wavelength technology. However, since 2013, 100G has been the standard wavelength The amount of cable in the region nearly triupgrade. To date, all but 3 of the 10 systems pled during this massive period of growth and currently serving the Transpacific region have has seen over 85,000 kms of cable added since been upgraded. A single system utilizes 10G then. (Figure 68) Average system length in the wavelength technology, while the rest — inregion is just under 17,500 kms, owing to the cluding the new systems — have taken advanTranspacific region having some of the longest tage of strictly 100G technology. (Figure 67) routes in the world. Between the massive systems required to span the region, and the easy availability of cheap capacity upgrades, the historically static nature of the region comes as no

TABLE 6: TRANSPACIFIC PLANNED SYSTEMS RFS YEAR

SYSTEM

CAPACITY (TBPS)

LENGTH (KMS)

2019

NCP

80

13618

2020

BtoBE

108

16000

2020

HKA

80

13000

2020

Jupiter

60

14000

2020

PLCN

144

12800

2020

Quintillion Subsea Phase 2

30

3500

2020

SAPL

30

17600

2020

Southern Cross NEXT

60

12500

SUBMARINE TELECOMS INDUSTRY REPORT

83

REGIONAL MARKET ANALYSIS: TRANSPACIFIC

surprise. Recently, however, there has been a noticeable uptick in system activity.

There are currently 9 planned systems set to be ready for service for 44% the period 2019-2021 and 56 percent 56% of them have achieved the CIF milestone. (Figure 69) Nearly all these systems are trying to bring large capacity increases along their respective routes, but more importantly they are trying to edge out the competition in latency. With the average system Figure 69: Contract in Force - Transpacific length of all planned systems for the Transpacific market being just under 12,900 kilometers, many of these systems should have strong business cases in an otherwise oversaturated region.

Despite high frequency traders driving less demand than in the past, latency is still a critical component to a system’s business case and shaving even a few milliseconds off a route is worth millions of dollars to the right customer. These new systems provide a bonus of increased route diversity – especially along the southern part of the region. Several of the systems that are not yet CIF are backed by OTT providers. This takes them out of direct competition with other planned systems and removes some of the financial risk from having to sign on outside investors.

84

SUBMARINE TELECOMS INDUSTRY REPORT

No Yes

85

7.3 Americas Regional Market REGIONAL SNAPSHOT:  Current Systems: 50  Capacity: 477 Tbps  Planned Systems: 14  Planned Capacity: 346 Tbps

86

SUBMARINE TELECOMS INDUSTRY REPORT

87

7.3.1 CURRENT SYSTEMS

80 70

Characterized by steady growth since the early 1990s, the Americas region has continued to enjoy frequent additions over the last 10 years – going from 34 cables in 2008 to 50 cables in 2018.

The Americas market has seen very few upgrades since the first one was accomplished in 2008. While other markets have caught fire with new upgrades, this market has enjoyed a steady increase in new systems to

50 40 20

0 20 4 0 20 5 0 20 6 0 20 7 0 20 8 0 20 9 1 20 0 1 20 1 1 20 2 1 20 3 1 20 4 1 20 5 1 20 6 1 20 7 1 20 8 1 20 9 2 20 0 21

30 20

After ten years of steady growth, with an average of about 2 systems being ready for service per year, the region is currently undergoing another boom in development with 4 systems implemented last year and 1 more this year and 13 additional systems planned to be ready for service by the end of 2020. (Figure 70)

60

Figure 70: Systems in Service - Americas

100% 80%

100G 40G

60%

20G

40%

10G

20% 0%

Not Upgraded

2014

2015

2016

2017

2018

Figure 71: Systems Upgraded - Americas

TABLE 7: AMERICAS SYSTEMS, 2010-PRESENT

88

RFS YEAR

SYSTEM

CAPACITY (TBPS)

LENGTH (KMS)

2010

Antel

3.84

250

2010

SG-SCS

1.28

1249

2011

East-West

2.5

1700

2012

Estrecho de Magallanes

1.8

37

2013

ALBA-1

5.12

1600

2014

AMX-1

50

17800

2015

PCCS

60

6000

2016

Guantánamo Bay Cable

1500

2017

Junior

2017

Monet

60

10556

2017

Seabras-1

72

10750

2017

Tannat

90

2000

SUBMARINE TELECOMS INDUSTRY REPORT

390

REGIONAL MARKET ANALYSIS: AMERICAS

20 05 20 06 20 07 20 08 20 09 20 10 20 11 20 12 20 13 20 14 20 15 20 16 20 17 20 18 20 19 20 20 20 21

KMS

meet increasing demands for more bandwidth. The type of wavelength 300,000 upgrade is roughly even between 10G, 40G and 100G. However, where 250,000 100G has dominated other regions, 40G has been the most relied upon 200,000 upgrade in the Americas until 2016.

Of the remaining 69 percent of sys150,000 tems left not upgraded — and this 100,000 includes the brand-new systems already on 100G — there has been no public announcement for future upgrades. Looking forward, there are Figure 72: KMS Added - Americas currently plans for 13 more systems in the Americas region through 2020 and no more beyond that. (Figure 71) Many of Since 2005, new cable development has consisthe systems to be implemented for this period tently added an average of 4.25 percent more are driven by OTT providers. Once they have kilometers per year. Breaking from the average, finished their infrastructure buildout, the region there was a 7 percent increase in 2009, an 11 may not see a new system for quite some time. percent increase in 2014. By and large, the region has seen steady growth until last year when an unprecedented 12.5 percent growth rate was 7.3.2 PLANNED SYSTEMS observed. Looking forward, this higher than avUnlike most of the other markets, the Americas erage growth rate could continue through 2020, region has consistently observed medium to with the number of planned kilometers for 2019 high levels of growth. and 2020 potentially resulting in a 7.25 and 10.5 TABLE 8: AMERICAS PLANNED SYSTEMS RFS YEAR

SYSTEM

CAPACITY (TBPS)

LENGTH (KMS)

2019

ARBR

48

2700

2019

Crosslake Fibre

2019

Guantánamo Bay Cable 2

2019

TevaFiber

2019

Austral

2019

Curie

2019

Ketchikan - Prince Rupert

2019

WALL-LI

2020

Deep Blue Phase 1

2020

Galapagos Subsea System

2020

Hudson Bay Link

2020

Malbec

58

1200 1500

1800 8900

95

160

12000 1000

2500

SUBMARINE TELECOMS INDUSTRY REPORT

89

REGIONAL MARKET ANALYSIS: AMERICAS

percent increase in kilometers added, respectively. However, past 2020 there are currently no potential systems announced. (Figure 72) Continuing the strong growth trend of the region, there are 12 systems planned for 2019-2020 and current 40 percent of those cables are already CIF. (Figure 73) The last few years have been relatively busy even compared to historical trends for the Americas market. With a development rate that has remained steady since 2001, the Figure 73: Contract in Force - Americas period 2019-2020 will be within historical norms – and perhaps a little ahead of them. However, the next 12-18 months are busy for the industry at large. With a finite number of cable ships to accomplish so many projects, several systems for this region could end up being delayed a year or more.

50%

90

SUBMARINE TELECOMS INDUSTRY REPORT

50%

No Yes

91

7.4 AustralAsia Regional Market REGIONAL SNAPSHOT:  Current Systems: 58  Capacity: 524 Tbps  Planned Systems: 8  Planned Capacity: 295 Tbps

92

SUBMARINE TELECOMS INDUSTRY REPORT

93

7.4.1 CURRENT SYSTEMS The AustralAsia market has been characterized by a massive amount of growth in a relatively short amount of time. Since 2007, it has been one of the busiest regions in the entire world – though recently it has slowed down.

80 70 60 50 40 30 20 10 0

20 0 20 4 0 20 5 0 20 6 0 20 7 0 20 8 0 20 9 1 20 0 1 20 1 1 20 2 1 20 3 1 20 4 1 20 5 1 20 6 1 20 7 1 20 8 1 20 9 2 20 0 21

Growth from 2001 to 2005 was negligible, and while there was a moderate amount of activity in 2006, the real growth spurt occurred from 2008 to Figure 74: Systems in Service - AustralAsia 2009. (Figure 74) The biggest factor contributing to growth in the region is emerging markets in Southeast Asia, with counconnectivity largely overrode such concerns. tries such as Indonesia, Singapore and Malaysia The widespread adoption of mobile and cloud becoming information technology powerhouses. services throughout the region combined with the recent surge of data center and OTT proThe industry crash of the early 2000s certainvider driven systems promises to sustain growth ly influenced the later timing of the region’s in the region for the foreseeable future. While boom, but the rising markets of Southeast the region should continue to enjoy this steady Asia and their ardent desire for international growth, not all the 8 systems planned through TABLE 9: AUSTRALASIA SYSTEMS, 2014-PRESENT

94

RFS YEAR

SYSTEM

2014

ICN1

2014

Western Visayas-Palawan

2015

BLAST

2015

Far East

1.6

1844

2015

SMPCS

40

2000

2016

APG

54

10400

2017

ATISA

7.2

280

2017

MCT

30

1425

2017

SKR1M

6

3500

2017

Tasman Global Access

20

2300

2018

ASC

40

4600

2018

Hawaiki

67

15000

2018

SEAX-1

2018

Tui-Samoa

SUBMARINE TELECOMS INDUSTRY REPORT

CAPACITY (TBPS)

LENGTH (KMS) 1259

300 250

250 8

1470

REGIONAL MARKET ANALYSIS: AUSTRALASIA

2020 are likely to be implemented.

A number of these systems will be delayed or simply die outright.

It is also important to note that at this time last year, 10 systems were planned for the next 2 years in the AustralAsia region compared to only 8 this year. This reinforces the estimation that the AustralAsia region is beginning to slow down from its historically rapid growth.

100% 100G

80%

40G

60%

20G

40%

10G Not Upgraded

20% 0%

2014

2015

2016

2017

2018

Figure 75: Systems Upgraded - AustralAsia

Upgrades were very popular around the globe from 2010 to 2014, but the AustralAsia market has seen relatively little upgrade activity. (Figure 75) One of the primary reasons for this is the lower total bandwidth demand compared to more developed regions until recently. Another primary reason is that unlike other markets, AustralAsia has many island nations that all need their own cable to connect to the global telecommunications network. Other markets can simply make use of upgrades on major backbones serving multiple countries to meet their capacity needs, but the AustralAsia market relies almost entirely on brand new systems to meet capacity and connectivity requirements. A third contributing factor to the low amount of upgrade activity is that most of the systems in this

market are generally newer compared to the rest of the world – with most having been installed since 2009. With 100G being available as early as 2010, this has allowed many systems to start their lifespan on the latest and highest capacity wavelength technology.

To date, only 22 percent of systems in the AustralAsia market have been upgraded. Of the 11 systems upgraded, none have made use of 10G technology, 1 has been upgraded to at least 40G technology and the remaining 10 systems have taken advantage of 100G technology.

TABLE 10: AUSTRALASIA PLANNED SYSTEMS RFS YEAR

SYSTEM

CAPACITY (TBPS)

LENGTH (KMS)

2019

Coral Sea Cable System

20

4000

2019

ICN2

1.28

3500

2019

Indigo Central

36

4850

2019

Indigo West

36

4600

2019

NATITUA

10

2500

2019

SSCS

Â

827

2020

HK-G

48

3900

2020

SJC2

144

10500

SUBMARINE TELECOMS INDUSTRY REPORT

95

REGIONAL MARKET ANALYSIS: AUSTRALASIA

7.4.2 PLANNED SYSTEMS

350,000 300,000 KMS

After the huge growth spurt from 2008 to 2009, the AustralAsia market has seen a steady amount of growth in the amount of cable added per year.

250,000 200,000

For those systems that are not yet CIF, business cases simply may not be strong enough — owing to the small size of the countries some of these cables are planned for, or the simple inability to find available suppliers and installers.

With systems these days running tens of millions of dollars even for short lengths, a few of these governments and businesses simply may not be able to shoulder the cost. MDBs have been increasingly active in this region, but even they have their limits.

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SUBMARINE TELECOMS INDUSTRY REPORT

21

20

20

19

20

18

20

17

20

16

20

15

20

14

There are currently 8 planned systems set to be ready for service for the 75% period 2019-2021. Most of these new systems will connect small nations to mainland Asia or existing international pipelines, while a handful will span nearly the entire region. Of these Figure 77: Contract in Force - AustralAsia planned systems, 75 percent are considered CIF. (Figure 77) This healthy CIF rate indicates that the growth rate for the region’s immediate future may be sustainable.

However, considering how busy the industry in general is through 2019, it is likely that some of these systems will at least be delayed.

20

13

20

12

20

11

20

20

09

20

08

20

07

20

06

20

05

20

20

10

150,000

Since 2010, the region has 100,000 seen an average of 8,600 kms added per year, with an average system length of Figure 76: KMS Added - AustralAsia 5,350 kilometers. The next 2 years hint at another possible growth spurt with more countries and providers in the region demanding affordable bandwidth and route diver25% sity. (Figure 76)

No Yes

97

7.5 EMEA Regional Market REGIONAL SNAPSHOT:  Current Systems: 113  Capacity: 641 Tbps  Planned Systems: 8  Planned Capacity: 500 Tbps

98

SUBMARINE TELECOMS INDUSTRY REPORT

99

7.5.1 CURRENT SYSTEMS 150

Characterized by steady growth since the early 1990s, Europe, the Middle East and Africa have all seen an increase in development over recent years. This has been one of the most consistent growth regions in the world, owing to its size as well as the important “crossroads” of the Mediterranean Sea and the Suez Canal.

60

0 20 4 0 20 5 0 20 6 0 20 7 0 20 8 0 20 9 1 20 0 1 20 1 1 20 2 1 20 3 1 20 4 1 20 5 1 20 6 1 20 7 1 20 8 1 20 9 2 20 0 21

90

20

While system count has remained relatively steady – with an average of 3 systems ready for service every year since 2002 – the actual lengths of these systems can vary. (Figure 78) The primary factor behind these growth spurts are the SEA-ME-WE systems, as well as large coastal systems ringing Africa.

In actual number of systems accomplished, the EMEA region is the most consistent region in the world. It has a growth pattern that is seemingly immune to the industry’s boom and bust pattern seen over the past 15 years.

120

Figure 78: Systems in Service - EMEA

100% 100G

80%

40G

60%

20G

40%

10G

20%

Not Upgraded

0%

2014

2015

2016

2017

2018

Figure 79: Systems Upgraded - EMEA

The EMEA region sees a consistent, annual addition of smaller regional systems.

These complement the hugely ambitious proj-

ects like SEA-ME-WE 3 and 4, ACE, EIG and WACS to name a few. These behemoth projects

TABLE 11: EMEA SYSTEMS, 2014-PRESENT

100

RFS YEAR

SYSTEM

CAPACITY (TBPS)

LENGTH (KMS)

2014

Didon

18

173

2014

Flores-Corvo

0.96

685

2014

MENA

57.6

8800

2015

NCSCS

12.8

1100

2016

C-Lion 1

144

1172

2017

AAE-1

40

25000

2017

Ceiba-2

8

290

2017

Greenland Connect North

4.8

680

2017

SEA-ME-WE 5

24

20000

SUBMARINE TELECOMS INDUSTRY REPORT

REGIONAL MARKET ANALYSIS: EMEA

seek to link up entire regions of the world, rather than smaller, inter-country routes and are the biggest projects the industry tackles. Each system of this kind comes in at well over 10,000 kms per route — sometimes beyond 20,000 kms. Despite the steady system count massive inter-regional projects cause a huge surge in kilometers installed with 2010 to 2012 seeing the most recent growth spurt for the region.

In contrast to the steady development of new systems in the EMEA region, upgrades to existing cables have been relatively slow, considering the potential market for said upgrades. Of the 116 cable systems utilized in the region, only 15.5 percent have been upgraded.

(Figure 79) This relatively low upgrade rate for so many systems leaves some opportunity for the currently dwindling upgrade market. Many of the systems active in the EMEA region could make use of 100G or even 40G upgrades in the coming years.

350,000

KMS

300,000 250,000 200,000

12 20 13 20 14 20 15 20 16 20 17 20 18 20 19 20 20 20 21

11

20

10

20

09

20

08

20

07

20

06

20

20

20

100,000

05

150,000

Figure 80: KMS Added - EMEA

57%

No

43%

Yes

Figure 81: Contract in Force - EMEA

7.5.2 PLANNED SYSTEMS As mentioned previously, the EMEA region is uniquely characterized as a region of steady activity, with bursts of highly ambitious, re-

gion-spanning systems every few years.

The rate of kilometers added per year shows an average increase of 6.4 percent annually. Re-

TABLE 12: EMEA PLANNED SYSTEMS RFS YEAR

SYSTEM

CAPACITY (TBPS)

LENGTH (KMS)

2019

Eastern Light

2019

Orval

20

560

2019

DARE

30

5400

2020

Englandcable

240

700

2020

IFC-1

120

492

2020

Liquid Sea

30

10000

2020

PEACE

60

SUBMARINE TELECOMS INDUSTRY REPORT

101

REGIONAL MARKET ANALYSIS: EMEA

cent bursts of 28 percent, 15.5 percent and 18 percent have been observed in 2010, 2012 and 2017, respectively. However, the last 5 years have seen a lower average annual increase of only 4.6 percent. While 2019-2020 could add up to 2 and then 9 percent more cable, there are no new systems currently planned for 2021 and beyond.

(Figure 80) As with several other regions around the world, the EMEA is looking at a considerable drop-off in system activity after 2020.

There are currently 7 systems planned to be ready for service for the period 2019-2021.

Currently, 43 percent of these systems have achieved the CIF milestone. (Figure 81) With nearly half of these 7 systems being considered viable now, the initial impression positive. Unfortunately, the EMEA region has been rife with economic uncertainty and political instability, casting a cloud over any prospective projects.

102

SUBMARINE TELECOMS INDUSTRY REPORT

REGISTRATION

NOW OPEN!

Register at www.suboptic2019.com 103

7.6 Indian Ocean Pan-East Asian Regional Market

REGIONAL SNAPSHOT:  Current Systems: 26  Capacity: 251 Tbps  Planned Systems: 4  Planned Capacity: 166 Tbps

104

SUBMARINE TELECOMS INDUSTRY REPORT

105

30

7.6.1 CURRENT SYSTEMS

25 20 15

5

0 20 4 0 20 5 0 20 6 0 20 7 0 20 8 0 20 9 1 20 0 1 20 1 1 20 2 1 20 3 1 20 4 1 20 5 1 20 6 1 20 7 1 20 8 1 20 9 2 20 0 21

10 20

The Indian Ocean Pan-East Asian region has been on a steady path of development since the boom following the submarine cable industry downturn in the early 2000’s. It has enjoyed mostly consistent growth since 2003 despite its small size, largely due to it being an important crossroads region between the busier EMEA and AustralAsia regions.

Figure 82: Systems in Service - Indian Ocean Pan-East Asian

The region has experienced periods of rapid development, followed by a 100% brief period of dormancy. The years 100G 80% of growth have been largely driven by 40G 60% trans-regional systems such as SEA20G ME-WE 3, 4 and 5, FLAG, Falcon and 40% 10G AAE-1 to name a few. This has resultNot Upgraded 20% ed in 3 distinct development spikes 0% in 2006-2007, 2009 and 2015-2017.

2014 2015 2016 2017 2018 (Figure 82) Local development is largely small systems linking India east to Figure 83: Systems Upgraded - Indian Ocean Pan-East Asian Indonesia or west to the Middle East and beyond, providing new connections for the countries that ring the Indian Ocean. dle bandwidth demands. Starting in 2011, system owners in the region began rolling out upgrades While system development in the region largely to their systems. During the period 2011-2015, depends on the huge SEA-ME-WE type projects nearly one quarter of all the region’s systems were that only happen every few years, some system upgraded. Of the systems that are upgraded 80 owners in the region have opted for the inexpen- percent are upgraded to 100G, the current indussive option of upgrading their capacities to hantry gold standard for upgrades. However, as with TABLE 13: INDIAN OCEAN PAN-EAST ASIAN SYSTEMS, 2010-PRESENT

106

RFS YEAR

SYSTEM

CAPACITY (TBPS)

LENGTH (KMS)

2010

Khulna-Chennai

115

2011

EIG

3.84

15000

2011

MACHO

2012

LION-2

1.28

3000

2012

SEAS

2000

2016

BBG

55

8040

2017

AAE-1

40

25000

2017

SEA-ME-WE 5

24

20000

SUBMARINE TELECOMS INDUSTRY REPORT

REGIONAL MARKET ANALYSIS: INDIAN OCEAN PAN-EAST ASIAN

250,000 200,000 KMS

the rest of the world, upgrade activity has slowed considerably since 2015.

(Figure 83)

21

20

20

19

20

18

20

17

20

16

20

15

20

14

20

13

20

12

20

11

20

10

20

09

20

08

20

07

20

06

20

20

100,000

20

With two new systems added in 2017 none in 2018 and 4 systems planned through 2021, new system development will continue at a sporadic pace.

This continues to follow the feast-orfamine style of system development that is the historical norm.

05

150,000

7.6.2 PLANNED SYSTEMS

Figure 84: KMS Added - Indian Ocean Pan-East Asian

The region enjoyed the addition of 2 major systems in 2017, and the 4 systems planned for the period 2019-2021 25% potentially add nearly 26,500 kilometers No of cable. (Figure 84) Unfortunately, once Yes these projects have run their course, 75% the region will likely be at the mercy of its neighbors for additional international connectivity. This region does not generally have a strong telecoms presence on its own. Therefore, business cases tend to be challenging. However, Figure 85: Contract in Force - Indian Ocean Pan-East Asian with Australia looking for more route diversity from its western coast and an increasing desire for connectivity between Asia (Figure 85) Two systems are planning to link and Europe, this steady growth could continue South Africa to India and the other two routes are beyond 2019. Additionally, there are hints that smaller, intra-regional systems. Business cases for OTT providers will explore routes from the United these systems may be difficult to prove, hamperStates to India and potentially bring more system ing efforts to secure funding. While these systems development to the region. would expand route diversity in the region two of them are competing with each and it is very likely Only one of the systems planned through 2021 at least one of these systems will not hit their in this region have achieved the CIF milestone. target RFS date.

TABLE 14: INDIAN OCEAN PAN-EAST ASIAN PLANNED SYSTEMS RFS YEAR

SYSTEM

CAPACITY (TBPS)

LENGTH (KMS)

2019

IOX

54

8850

2019

MARS

16

700

2019

METISS

24

3000

2021

SAEx2

72

13900

SUBMARINE TELECOMS INDUSTRY REPORT

107

7.7 Arctic Regional Market REGIONAL SNAPSHOT:  Current Systems: 1  Capacity: 30 Tbps  Planned Systems: 4  Planned Capacity: 120 Tbps

108

SUBMARINE TELECOMS INDUSTRY REPORT

109

REGIONAL MARKET ANALYSIS: ARCTIC

7.7.1 CURRENT SYSTEMS

7.7.2 PLANNED SYSTEMS

The first true Arctic submarine fiber system in industry history was installed in 2017. Previous systems, such as Svalbard, had only ever brushed the Arctic region. At 1,200 kilometers over 6 landing points, Quintillion Subsea Phase 1 marked the first successful and fully Arctic submarine fiber system in the world.

These systems are focused on routes in the far north of Canada, linking up local communities or bridging the gap between Europe and Asia.

Arctic Connect is an attempt to link Europe to Japan by going over top of Russia.

Interest in the Arctic has been at an all time high the past few years, as cable developers are looking to take advantage of the dramatically shorter routes that can be achieved through the Arctic Circle. The Quintillion Subsea system has proven that a fully Arctic system can be done for future systems that look to tackle this particularly difficult region.

Arctic systems have particular challenges to overcome during their development cycle, and only have small windows of time throughout the year during which work can be accomplished.

This both extends the development timeline and increases the cost.

One of the main goals for Arctic systems connecting Europe to Asia is to dramatically reduce existing latency. Currently, data must either go through the United States, or through the Suez Canal and Indian Ocean. This has required systems totaling at least 20,000 kilometers in the past. However, future Europe to Asia Arctic routes are planned for about 10,000 kilometers — potentially cutting latency in half. Additionally, systems exploring Arctic routes avoid the troubled Middle East region and circumvent potential privacy concerns in the United States.

TABLE 15: ARCTIC 2017-PRESENT RFS YEAR

SYSTEM

CAPACITY (TBPS)

LENGTH (KMS)

2017

Quintillion Subsea

30

1200

TABLE 16: ARTIC PLANNED SYSTEMS

110

RFS YEAR

SYSTEM

CAPACITY (TBPS)

LENGTH (KMS)

2020

EAUFON

30

6900

2020

Quintillion Subsea Phase 2

30

3500

2021

Arctic Connect

30

10500

2021

Quintillion Subsea Phase 3

30

5000

SUBMARINE TELECOMS INDUSTRY REPORT

111

AFTERWORD

KIERAN CLARK

Big Data. Cloud Computing. Artificial Intelligence. Internet of Things.

T

hese are four of the most popular terms thrown around in tech these days and they all mean the same thing: Bandwidth. Lots and lots of bandwidth. Seemingly every major tech company – and even a few non-tech – is chasing after these goals and will continue to drive near exponential increases in bandwidth demand. That is potentially good news for our industry, as more bandwidth inevitably means more cables. In fact, this demand has led to back-to-back years of high levels of investment and new system activity.

However, capacity prices continue to trend downwards – and in some cases potentially bottoming out – while business cases for non-OTT or datacenter driven systems are weaker than ever. More and more submarine fiber systems are being treated as a means to an end rather than a business unto themselves. Between several sales and mergers, poor Initial Public Offerings and numerous companies spinning out various infrastructure divisions the business side of submarine fiber seems to be on shaky ground. Additionally, the supplier side of the industry is almost entirely dominated by just three companies.

Traditional carriers are slowly being pushed out of the market while OTT providers roll out new infrastructure builds left and right. This flurry of activity will keep our industry active through 2019 and a good chunk of 2020 for certain but beyond that there is a worrying drop-off of activity. It is not unusual for systems to be announced or discussed more than two years out and by mid November of 2017 there were 15 systems announced for 2020 with 27 planned as of this

112

SUBMARINE TELECOMS INDUSTRY REPORT

report. Currently, there are only half a dozen systems announced for 2021.

Further, the tech industry at large is also on potentially shaky ground. Between data privacy concerns, monopoly concerns and simple profitability concerns there should be some worry about a potential shake up – or shake out – of Silicon Valley and similar companies around the world. As these companies are the driving force behind the bulk of prospective data demand any turmoil in this sector would negatively impact the submarine fiber industry.

Despite this, one fact remains: The world at large will continue to rely heavily on data and bandwidth heavy applications. They are too central to our modern way of life and even if some sort of shake up impacts things temporarily there will always be a need for more in the long term. Additionally, with oil prices on the rise once more and offshore energy continuing to gain ground there are fresh opportunities for anyone willing to take them on.

At the end of the day, only our industry can provide the infrastructure that allows modern society to function. So, while the crystal ball is slightly muddied for the near future over the long term there will be plenty of opportunities for a healthy industry.

I thank you for reading this seventh edition of our Submarine Telecoms Industry Report and hope these findings prove to be a valuable resource.

Humbly yours,

SUBMARINE TELECOMS INDUSTRY REPORT

WORKS CITED Alan Mccurdy and Robert Lingle, J. (2017, November). From The Sea Floor To The Shore: Extending the Transoceanic Link from the Ocean Floor to the Inland Data Center. Submarine Telecoms Forum Magazine - Issue 97 System Upgrades & New Technologies. Retrieved from https://subtelforum.com/products/subtel-forum-magazine/ Ash, S. (2014). The Development of Submarine Cables. In D. Burnett, Submarine Cables: The Handbook of Law and Policy

(pp. 19-40). Leiden, Boston: Martinus Nijhoff.

Bayly, C. (2018, July). Building Global And Delivering Local: How the Convergence of Subsea Cable and Terrestrial Infrastructure Serves the Demands of Both International and Regional Connectivity. Submarine Telecoms Forum Magazine - Issue 101 Regional Systems. Retrieved from Submarine Telecoms Forum: https://subtelforum.com/products/subtel-forum-magazine/ CNBC. (2017, July 7). Retrieved from https://www.cnbc.com/2017/07/07/equinix-ceo-how-my-data-center-reit-serves-clients like-burger-king.html Duvernay, L. (2018, March). Dancing With Financiers: When the Submarine Industry Goes into Flirting Mode. Submarine Telecoms Forum Magazine - Issue 99 Finance & Legal Edition. Retrieved from Submarine Telecoms Forum: https://subtelforum.com/products/subtel-forum-magazine/ Fontaine, J.-M. (2018, March). Liability For Damagae To Underwater Cable. Submarine Telecoms Forum Magazine - Issue 99 Finance & Legal Edition. Retrieved from Submarine Telecoms Forum: https://subtelforum.com/products/subtel-forum-magazine/ Gerstell, G. S. (2008, March). SubTel Forum. Retrieved from Financings of Submarine Fiber Optic Networks: The Building Boom

and the Need for Financing: http://subtelforum.com/articles/products/magazine/

Joensuu, J.-P. (2018, July). Connectig The European Single Market: Regional Systems in Europe Providing Cross-Connectivity And Redundancy to Meet the New Needs of Data Retention in the World of GDPR. Submarine Telecoms Forum Magazine Issue 101 Regional Systems. Retrieved from https://subtelforum.com/products/subtel-forum-magazine/ Shelton, A. (2017, November). Ultimate Capacity Upgrade With Spectrum Engineering On New And Legacy Systems: Current and Future Generations of SLTE Technology. Submarine Telecoms Forum Magazine - Issue 97 System Upgrades & New Technologies. Retrieved from Submarine Telecoms Forum: https://subtelforum.com/products/subtel-forum-magazine/

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LIST OF FIGURES Figure 1: Henry Ash Lithograph of Cableship Faraday laying an Atlantic cable in 1884 from Nova Scotia to Ireland, and on to England and France....................................... 11

Figure 2: Cableship Goliath.................................................................................................................... 11 Figure 3: Global Capacity Growth on Major Routes, 2014-2018........................................................... 12 Figure 4: Average System Capacity, 2014-2018..................................................................................... 13 Figure 5: Global Planned Capacity Growth, 2019-2023......................................................................... 13 Figure 6: Transatlantic Capacity Growth, 2014-2018............................................................................. 14 Figure 7: Transatlantic Capacity Growth, 2019-2022............................................................................. 14 Figure 8: Transpacific Capacity Growth, 2014-2018............................................................................... 14 Figure 9: Transpacific Capacity Growth, 2019-2022............................................................................... 15 Figure 10: Americas Capacity Growth, 2014-2018................................................................................. 15 Figure 11: Americas Capacity Growth, 2019-2022................................................................................. 15 Figure 12: Intra-Asia Capacity Growth, 2014-2018................................................................................ 16 Figure 13: Intra-Asia Capacity Growth, 2019-2022................................................................................ 16 Figure 14: 100Gbps IRU Prices, 2018..................................................................................................... 17 Figure 15: 10G and 100G Lease Prices, 2018........................................................................................ 17 Figure 16: New System Count by Region, 2014-2018........................................................................... 18 Figure 17: KMS Added by region, 2014-2018....................................................................................... 18 Figure 18: Planned Systems by Region, 2019-2021............................................................................... 18 Figure 19: Global Contract in Force Rate, 2019-2021........................................................................... 19 Figure 20: Ownership Type, 2014-2018................................................................................................. 19 Figure 21: Ownership Type, 2019-2021................................................................................................. 19 Figure 22: Financing of System, 1987-2018........................................................................................... 22 Figure 23: Distribution of MDB Investment, 2004-2018........................................................................ 24 Figure 24: Distribution of Consortia Investment, 1987-2018................................................................. 24 Figure 25: Distribution of Private Investment, 1987-2018...................................................................... 25 Figure 26: System Investment, 1990-2018............................................................................................. 25 Figure 27: System Deployment, 1990-2018........................................................................................... 25 Figure 28: Regional Investment in Submarine Fiber Systems, 2014-2018............................................. 26 Figure 29: Financing of Systems, 2014-2018......................................................................................... 26 Figure 30: Regional Investment in Submarine Fiber Systems, 2019-2021............................................. 26 Figure 31: Financing of Planned Systems, 2019-2021........................................................................... 26

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SUBMARINE TELECOMS INDUSTRY REPORT

Figure 32: Number of Systems by Supplier, 2014-2018......................................................................... 30 Figure 33: KMS of Cable Produced by Supplier, 2014-2018.................................................................. 31 Figure 34: Future Systems by Supplier................................................................................................... 31 Figure 35: Wavelength Upgrades by Year, 2014-2018........................................................................... 34 Figure 36: Upgrades by Region, 2014-2018.......................................................................................... 35 Figure 37: Wavelength Upgrades by Region, 2018............................................................................... 35 Figure 38: Reported Upgrade Activity by Company, 2014-2018........................................................... 36 Figure 39: Systems Installed by Company, 2014-2018.......................................................................... 36 Figure 40: KMS Installed by Region, 2014-2018.................................................................................... 37 Figure 41: Planned KMS by Region, 2019-2021.................................................................................... 37 Figure 42: Systems Surveyed by Company, 2014-2018......................................................................... 42 Figure 43: Survey Status of Planned Systems, 2019-2021..................................................................... 43 Figure 44: Total Cable Fault Stories, 2010-2018.................................................................................... 47 Figure 45: Total Cable Fault Stories, 2010-2018.................................................................................... 47 Figure 46: Average Time Between Fault and Announcement, 2010-2018............................................ 47 Figure 47: Average Reported Repair Time in Days, 2010-2018............................................................. 48 Figure 48: Average Estimated Repair Time by Region, 2010-2018....................................................... 48 Figure 49: Traditional Club Agreements Map........................................................................................ 49 Figure 50: Private Maintenance Agreements Map................................................................................. 50 Figure 51: Cableship Fleet Distribution by Company............................................................................ 54 Figure 52: Cableship Fleet Distribution by Region................................................................................ 55 Figure 53: Dedicated Cableship Purpose.............................................................................................. 55 Figure 54: Cableships Added by Year, 1996, 2018................................................................................ 55 Figure 55: Age Distribution of Cableship Fleet...................................................................................... 56 Figure 56: Landing Distribution by Region, 2014-2018......................................................................... 56 Figure 57: Landing Distribution by Region, 2019-2021......................................................................... 56 Figure 58: Systems Driven by Datacenter and OTT Providers, 2016-2018............................................ 63 Figure 59: Systems Driven by Datacenter and OTT Providers, 2019-2021............................................ 63 Figure 60: WTI and Brent Crude Combined 5-Year Price History, 2013-2018....................................... 63 Figure 61: Offshore Oil & Gas Systems per Year, 2016-2022................................................................. 66 Figure 62: Systems in Service -Transatlantic........................................................................................... 74 Figure 63: Systems Upgraded - Transatlantic......................................................................................... 74 Figure 64: KMS Added - Transatlantic.................................................................................................... 75 Figure 65: Contract in Force - Transatlantic........................................................................................... 76 Figure 66: Systems in Service - Transpacific........................................................................................... 82 Figure 67: Systems Upgraded - Transpacific.......................................................................................... 82

115

LIST OF FIGURES (Continued) Figure 68: KMS Added - Transpacific..................................................................................................... 83 Figure 69: Contract in Force - Transpacific............................................................................................. 84 Figure 70: Systems in Service - Americas............................................................................................... 88 Figure 71: Systems Upgraded - Americas.............................................................................................. 88 Figure 72: KMS Added - Americas......................................................................................................... 89 Figure 73: Contract in Force - Americas................................................................................................. 90 Figure 74: Systems in Service - AustralAsia............................................................................................ 94 Figure 75: Systems Upgraded - AustralAsia........................................................................................... 95 Figure 76: KMS Added - AustralAsia...................................................................................................... 96 Figure 77: Contract in Force - AustralAsia.............................................................................................. 96

Figure 78: Systems in Service - EMEA.................................................................................................. 100 Figure 79: Systems Upgraded - EMEA................................................................................................. 100 Figure 80: KMS Added - EMEA............................................................................................................ 101 Figure 81: Contract in Force - EMEA................................................................................................... 101 Figure 82: Systems in Service - Indian Ocean Pan-East Asian.............................................................. 106 Figure 83: Systems Upgraded - Indian Ocean Pan-East Asian............................................................. 106

Figure 84: KMS Added - Indian Ocean Pan-East Asian........................................................................ 107 Figure 85: Contract in Force - Indian Ocean Pan-East Asian............................................................... 107

LIST OF TABLES

Table 1: Recent Multilateral Development Bank Projects....................................................................... 27 Table 2: KDDI Planned Cableship Specifications................................................................................... 57 Table 3: Transatlantic Systems, 2001-Present......................................................................................... 74 Table 4: Transatlantic Planned Systems.................................................................................................. 75 Table 5: Transpacific Systems, 2001-Present.......................................................................................... 82 Table 6: Transpacific Planned Systems................................................................................................... 83 Table 7: Americas Systems, 2010-Present.............................................................................................. 88 Table 8: Americas Planned Systems....................................................................................................... 89 Table 9: AustralAsia Systems, 2014-Present........................................................................................... 94 Table 10: AustralAsia Planned Systems.................................................................................................. 95

Table 11: EMEA Systems, 2014-Present............................................................................................... 100 Table 12: EMEA Planned Systems........................................................................................................ 101 Table 13: Indian Ocean Pan-East Asian Systems, 2010-Present........................................................... 106 Table 14: Indian Ocean Pan-East Asian Planned Systems.................................................................... 107 Table 15: Arctic 2017-Present............................................................................................................... 110 Table 16: Artic Planned Systems.......................................................................................................... 110

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SUBMARINE TELECOMS INDUSTRY REPORT

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SUBMARINE TELECOMS INDUSTRY REPORT