Figure 17: Regional Distribution of Consortia Investment, 1987 to Present ...........................................................................................................
Figure 18: Regional Distribution
When
When
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Dear Colleagues,
SubOptic is once again pleased to support the SubTel Forum Industry Report, now in its fourth year.
It fills a gap in the market place by providing an independent view of the overall industry and for the first time it has been co-authored with TeleGeography. They are a well-respected source, who are well worth listening too and they provide a detailed view both of the current state of the in dustry and how it will evolve over the next few years.
Its views are those of the authors and some readers may take issue with some of the conclusions it reaches, but then that is life and not all commentators have the same view of the world, which is why an independent author is essential.
As they note the industry looks set for a buoyant few years with a large number of new systems in play across a number of regions of the world, including for the first time in a number of years, the Atlantic, driven by the desire to provide the lowest latency path.
They also note a possible slowdown in the upgrade market as operators await the emergence of equipment capable of providing 400Gbit/s channel capacity. With many systems built since the late 90’s being capable of handling capacity upgrades, from 10Gbit/s to 100gbit/s and now potentially 400Gbit/s, existing systems are capable of handling many times their initial design capacity.
With a number of systems however past their mid-life point, based upon a 25-year lifespan, a number of operators will have to make a choice soon between upgrade and new build.
This is a theme that SubOptic has also noted as it was extensively discussed at our last conference, SubOptic 2013, held in Paris.
Therefore, SubOptic has initiated a Working Group (WG) to investigate the realistic lifespan of optical amplifier based systems and the critical factors that need to be considered when reviewing this subject. They will be presenting their findings at our SubOptic 2016 event, which will be held in Dubai from the 18th – 21st April 2016, Hosted by E Marine.
This will be just one element in a full programme, which will be of interest to all in the industry, details of which can be found on our website at www.suboptic.org
Well done to SubTel Forum for continuing this initiative, which has now become a regular feature for the industry.
Yves Ruggeri
President of the SubOptic Executive Committee
Welcome to the fourth edition of SubTel Forum’s Annual Industry Report, which was co-authored with TeleGeography, with special thanks to TeleGeography’s Research Director, Alan Mauldin.
This year, we’ve updated the format of the annual Industry Report – we’ve attempted to make a more whole and encompassing view of the submarine fiber industry available to you, our readers. Within this issue, you will find the analysis of data collected by the diligent analysts of SubTel Forum and TeleGeography, a collaboration that aims to detail both the supply and demand side of the industry, as well as the actual productivity and outlook of current and planned systems.
In this report, we have identified $8.6 Billion in new projects that are being actively pursued by their sponsors. Of those, $4.6 Billion worth are executed contract-in-force, and $3.9 Billion of those new, contract-in-force systems are slated for 2016 alone.
While the looking glass is never one hundred percent clear, we feel that the next few years will be very busy for our niche industry.
In the coming months, we will 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.
Happy reading!
Kristian Nielsen Vice President
1. The World’s Submarine Telecoms
“Subsea Fiber has recently gained renewed focused within the TMT Investment sector of IFC (the private investment arm of the World Bank); as it has a broad economic impact on developing economies. Subsea provides increased international capacity, which usually equates to a drop in wholesale pricing, and open access to service providers. As volume and competition increases, prices fall to the enterprise and to the end consumer. This will stimulate the development of new business models regarding health, education, and commerce. Additionally, increased subscriber rates due to access to low cost, high speed internet access is one of the key catalysts to economic development. The World Bank estimates that a 10% increase in Broadband Internet Access, contributes to an increase of 1.38% in GDP.”
- Laureen Cook, Principal TMT Advisor, International Finance Corporation Telecoms, Media & Technology Venture Capital Group.
1.1 Internet
According to the World Bank, 41% of the world’s populace were internet users in 2014 (defined as individuals who have used the Internet from any location in the previous 12 months via computer, mobile phone, personal digital assistant, games machine, digital TV, etc.). (The World Bank, 2015)
Internet accessibility has varied across the globe, with the majority of countries appreciating less than 50% per capita.
Of least developed countries, per capita rates of 8.6 were realized, compared to 50.1 for Latin America and Caribbean countries, 46.9 for East Asia and Pacific, or 78.1 for Organisation for Economic Co-operation and Development (OECD) member countries. Similarly, 101 countries have realized per capita accessibility above 50%, and of those, 33 countries have realized per capita accessibility above 80%.
1.2 Global Bandwidth and Capacity
The world continues to grow bandwidth capacity at significant rates, though data are not “global” totals since routes provided are not exhaustive of all cables. From 2010 to 2014, total lit capacity on major submarine cable routes increased 2.5 times to more than 113 Tbps.
[Note: Data reflect lit capacity in unprotected terms at the end of the respective year.]
Demand growth continued unabated in 2014 with total used bandwidth on major submarine cable routes increasing 4.5 times since 2010 to 61.3 Tbps.
Similarly, total potential capacity on major submarine cable routes increased 3.5 times from 2010 to 2014, to a total of 796 Tbps.
Figure 1: 2014 Per Capita Internet Accessibility
Total Lit Capacity on Major Submarine Cable Routes
Transatlantic Transpacific Americas Intra-Asia
Figure 2: Total Lit Capacity on Major Submarine Cable Routes Source: TeleGeography
Total Used Bandwidth on Major Submarine Cable Routes
Figure 3: Total Used Bandwidth on Major Submarine Cable Routes
Total Potential Capacity on Major Submarine Cable Routes
Transatlantic Transpacific Americas Intra-Asia
Figure 4: Total Potential Capacity on Major Submarine Cable Routes
Source: TeleGeography
Characterized by steady activity, even during the downturn following the crash of investment in the early 2000s, the submarine cable industry has added on average 10 systems per year since 2001. In the past 15 years, 2015 included, the year with the single greatest activity was 2009, with a whopping 19 international systems ready for service, followed by 2009 with 15 – conversely, the years with the least system development were unsurprisingly 2003 and 2005, with only 4 systems ready for service each. With a swing of 15 systems between the most and least active years, and only 4 years between them, this industry has certainly seen its share of bumps and booms lately.
Similarly, to system development, the kilometers of cable laid has seen the same trend of dormancy and boom years. Looking into the next two years, the planned systems are showing a huge boost to the cable development world, boasting nearly 150,000 kms of cable to be laid in 2016 alone – if accomplished, will account for nearly the same amount of cable installed over the past five years.
Figure 7: Systems Upgraded – Global
Source: SubTel Forum
Unlike new cable development, upgrades performed around the world have seen a chill since 2014, only a handful being accomplished in the last three years. Explored more in the upgrades section of this report, upgrades to existing systems are in a holding pattern, waiting for new technologies such as 400G.
Source: SubTel Forum
Looking to the systems planned to be ready for service in 2016 and beyond, 47% are considered contract in force, a genuine indicator of system viability, and will be accomplished in the Americas region. Of the systems that are not contract in force yet, just under half are slated for development in the AustralAsia region. While only roughly half of the systems planned for 2016 and beyond are currently contract in force, every region in the world has a new system slated to be ready for service, a first time event since 2003.
2.1 Historical Perspective
The submarine cable industry started in 1850, when the first submarine cable in the world was laid in the English Channel by the stream tug Goliath. It was a revolutionary event where 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 networks in the world were gradually expanded. (Ash, 2014)
Source: atlantic-cable.com
In 1876, the telephone was invented and communication was expanded dramatically. Then, in 1891, the world’s first submarine cable for telephone was built in the English Channel. In 1901, Marconi successfully demonstrated transatlantic radio communication, but it was not until 1923 that two transoceanic communication methods were realized – submarine cable communication and radio communication.
Figure 8: Contract in Force - Planned Systems 2016-2017
Figure 9: Cableship Goliath
The first attempt at laying a transatlantic telegraph cable was promoted by an American named 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.
2.2 The Optical Age
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 one wavelength. Currently, the main method for
Source: SubTel Forum
Figure 10: Existing vs. Planned Cables
international telecommunications is the use of submarine cables –99 percent of international telecommunications is carried over submarine cables.
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 in video transmission in particular, and so demand for new submarine cables is increasing. This trend is expected to continue for the foreseeable future.
$5.0
$4.0
$3.0
$2.0
$1.0
$0.0
Source: SubTel Forum
Since 1988, the industry has invested more than $50 billion in submarine telecoms cables, comprising more than 1.4 million route kilometers, and annually averaging $1.9 billion worth of investment and 53,000 kilometers of deployed systems.
Source: SubTel Forum
2.3 2011 to 2015
From 2011 to present, more than $6 billion was invested in submarine cable projects, or an average of $1.2 billion and 76,000 route kilometers per year. Over the period, $.9 billion was invested in 5 Americas systems, $2.7 billion was invested in 17 EMEA systems (predominately in Africa), $.8 billion was invested in 5 Indian Ocean Pan-East Asian systems, $1.7 billion was invested in 12 AustralAsia systems, $.1 billion was invested in 1 transatlantic systems and $.5 billion was invested in 2 transpacific systems.
2.4 2016 and Beyond
From 2016 to the foreseeable future, more than $10 billion has been proposed to be invested in more than 38 submarine cable projects, or an average of $3 billion per year. Over the period, $1.1 billion has been proposed to be invested in six Americas systems, $1.1 billion has been proposed to be invested in six EMEA systems (predominately in Africa), $.6 billion has been proposed to be invested
Figure 11: Investment in Submarine Fiber Optic Systems, 1988-2015
Figure 12: Route Deployment Kilometers by RFS of Submarine Fiber Optic Systems, 1988-2015
Regional Investment in Submarine Fiber Optic Projects, 2011-2015
in two Indian Ocean Pan-East Asian systems, $1.7 billion has been proposed to be invested in 13 AustralAsia systems, $2.3 billion has been proposed to be invested in five transatlantic systems and $2.2 billion has been proposed to be invested in six transpacific systems.
Regional Investment in Submarine Fiber Optic Projects, 2016 and Beyond
Source:
and Beyond
3.1 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 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)
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 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.
Past submarine system financings accomplished by MDBs include the following:
Table 1: Past Multilateral Development Bank Projects
$18.2 million in long term loans and partnered with five major developmental institutions to provide a total of $78.7 million in LT Loans for the project running along the east coast of Africa that connects eight coastal countries and island nations to each other and to the rest of the world. The cable’s initial capacity is 20Gbps and can ultimately be upgraded to 320Gbps. The balance of the project cost — $247.1 million — was provided for by the 15 EASSy consortium members.
Figure 13: Regional Investment in Submarine Fiber Optic Projects, 2011-2015
Figure 14: Regional Investment in Submarine Fiber Optic Projects, 2016
Telecoms consulting of submarine cable systems for regional and trans-oceanic applications
Since 1987, the industry has invested more than $50 billion in submarine telecoms cables. The majority of this total investment — 82 percent — has been financed by traditional consortia, while private owners have invested 13 percent and MDBs have accounted for 5 percent over the period.
Systems, 1987-2014
3.2.1 Multilateral Development Banks
The regional distribution of MDB investment for 2004 to present is presented below. MDBs have invested more than $2 billion in submarine telecoms cables. The majority of this total investment — 53 percent — has been invested in Europe, Middle East and Africa (EMEA) projects – specifically, systems located primarily in Africa. Similarly, 21 percent of total MDB investment has been made in the Americas, 12 percent in AustralAsia, followed by 12 percent in the Indian Ocean Pan-East Asian region.
16: Regional Distribution of Multilateral Development Banks Investment, 2004 to Present
3.2.2 Consortia
The regional distribution of consortia investment for 1987 to present is presented below. Consortia have invested more than $40 billion in submarine telecoms cables. The majority of this total
of Consortia Investment, 1987-2015
Figure 17: Regional Distribution of Consortia Investment, 1987 to Present
Figure 15: Financing of New Submarine Fiber Optic Systems, 1987-2014 Source: SubTel Forum
Figure
investment — 22 percent — has been invested in EMEA projects. Similarly, 19 percent of total consortia investment has been made in Australasian systems, followed by 16 percent in Indian Ocean PanEast Asian and 15 percent in the Americas and transatlantic regions — followed by 13 percent in transpacific.
3.2.3 Private
The regional distribution of Private investment for 1987 to present is presented below. Private financiers have invested more than $5 billion in submarine telecoms cables. The majority of this total investment — 43 percent — has been invested in transpacific projects. Similarly, 16 percent of total private investment has been made in transatlantic and AustralAsia systems, followed by 1 percent in both the Americas region, and by 11 percent in Indian Ocean PanEast Asia.
Distribution of Private Investment, 1987-2015
Source: SubTel Forum
3.3 2011 to 2015 Financing
From 2011 to 2015, submarine system financings accomplished by MDBs include the following:
Table 2: Recent Multilateral Development Bank Projects
2014 Seabras-1 International Finance Corporation
2015 Samoa-Fiji Asian Development Bank and others
$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.
$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.
Seaborn Networks closed on the debt financing for its Seabras-1 system in 2015 with a fully underwritten debt of $270 million from Natixis, the corporate, investment and financial services arm of Groupe BPCE. (Andrew Lipman, 2015)
Figure 18: Regional Distribution of Private Investment, 1987 to Present
In the recent 2011 to 2015 period, the industry has invested more than $9 billion in submarine telecoms cables. Traditional consortia have financed 87 percent of total investment, while private owners have invested 9 percent and MDBs have accounted for 4 percent over the period.
Financing of Systems, 2011-2015
The rates of Consortia, Private and MDB financing realized in the recent 2011 to 2015 period are similar to those since 1987.
3.4 Future Planned Systems Financing
Looking ahead for planned submarine fiber optic systems, the industry has more than $11 billion in new projects being planned over the period 2016 to 2018. 52 percent of total investments are currently estimated to be financed by traditional consortia, compared with 41 percent for private owners and 7 percent for MDBs. However, the rate for private owner financing is anticipated to decrease significantly to be more in line with historic trends as some planned systems extend or even miss their future Contract in Force (CIF) dates.
Financing of Systems, 2011-2015
Source: SubTel Forum
Assuming a typical, historical rate of investment, successful privately financed systems are anticipated to be 10-15 percent of total investment for the period, which is significantly less than presently shown. Private investors will continue to face difficulty in acquiring project financing. As a result, CIF dates will slip and some projects will simply go away. Consortia investment is expected to grow in proportion to that shown and be more in line with their historically high market proportions. MDBs are anticipated to continue along the same path of serving less-developed markets along similar moderate — albeit important — total market proportions.
Consortia Private Multilateral Development Banks
Figure 19: Financing of New Submarine Fiber Optic Systems, 2011-2015
Source: SubTel Forum
Consortia Private Multilateral Development Banks
Figure 20: Financing of Planned Submarine Fiber Optic Systems, 2016-2018
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4.1 System Suppliers
4.1.1
Current Systems
Based on each supplier’s reported activity by region, companies are keeping in line with overall market trends – while 2011-2012 saw heavy focus in the EMEA region, nearly every supplier’s recent focus is in the AustralAsia region. Alcatel-Lucent Submarine Networks and Nexans buck the trend a little by being most active in the EMEA region, however. Most companies almost exclusively focus on their “home” regions, but a few suppliers are able to serve multiple regions around the globe.
of Cable Produced 2011-2015
21: Kms of Cable Produced, 2011-2015
Source: SubTel Forum
According to announced information on the amount of cable each company has supplied over the last 5 years, Alcatel-Lucent Submarine Networks takes the lead – with a hefty amount of over 100,000 kms of cable produced. This is almost double the amount of the next biggest supplier, TE SubCom, which produced just shy of 54,000 kms of cable. NEC comes in third at nearly 21,500 kms of cable produced.
Even though NEC contracted a similar amount of systems to several of its closest competitors, the company actually supplied a much larger amount of cable. This indicates that while many of these companies were quite active, they were not necessarily supplying large systems.
Number of Systems by Supplier 2011-2015
22: Number of Systems by Supplier, 2011-2015
Source: SubTel Forum
Over the last couple of years, there has been a renewed interest in routes connecting Asia and South America directly to Europe. This will involve vast systems, requiring thousands of kilometers of cable. With each company able to handle only so much production, expect some of the small and medium sized suppliers to seize opportunities and help meet demand in the future.
4.1.2 Future Systems
Regional plans for the future should follow the same trends as recent years. Southeast Asia continues to drive demand in the Aus-
Figure
Alcatel-Lucent
Figure
tralAsia region, as emerging markets find themselves hungry for capacity. 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 as long as oil prices cooperate, and expect emerging markets in South America to increase activity in the Americas region as well.
4.2.1 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 is only just now seeing a new system coming online after over a decade of inactivity.
Overall, Alcatel-Lucent Submarine Networks continues 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, TE SubCom is working to close that gap while NEC quietly gains ground on both, especially in the AustralAsia region. However, with more and more systems announced every year, there will always be room for a savvy supplier to take on a promising opportunity.
Every one of these 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 for years to come.
Source: SubTel Forum
However, in the last two years, upgrade activity has come almost to a screeching halt. While upgrades give system owners a cost-effective way to stay competitive, at some point systems can only be upgraded so much further. With the vast majority of systems along high traffic routes already being on the latest and greatest technology, there has simply been nowhere to go in recent times. Indeed,
Alcatel-Lucent
Figure 23: Future Systems, 2016-2017
Figure 24: Systems Upgraded by Year
some systems have upgraded capacity so heavily that they run the risk of affecting their revenue as a result of massive amounts of cheap bandwidth.
4.2.2 Regional Market Activity
While nearly every region has seen at least some upgrade activity, the AustralAsia and EMEA region have seen the most since 2011. 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. As a result of owners trying to stay on top of the competition, 13 systems in AustralAsia have been upgraded, with 18 in the EMEA region. Out of all systems upgraded since 2011, these two regions account for almost half of all upgrades by themselves.
Figure 25: Current Upgrades, 2015
Source: SubTel Forum
Based on public announcements, Ciena, Alcatel-Lucent and Xtera have upgrade experience in every part of the world. Infinera, Mitsubishi Electric, Fujitsu, 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 sub-
marine telecoms industry, regional work experience is not 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.
Since they joined the market some years ago, Ciena, and Infinera 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.
4.2.3 Market Activity
Reported Upgrade Activity 2011-2015
Figure 26: Reported Upgrade Activity, 2011-2015
Source: SubTel Forum
With upgrades slowing down in recent times, expect these companies to drastically reduce their market activity. With 400G pretty
much right around the corner, many systems still on older wavelength technology may simply be opting to put a hold on upgrades until they can get the best bang for their buck. For those systems already on 100G, upgrading to 400G will allow for a 300 percent capacity increase. System owners that have stayed on 40G, however, will have the opportunity to increase their capacity by a staggering 900 percent once 400G rolls around. With there being no currently known limit to just how much data can be packed on a single wavelength, the possibilities for upgrade technologies over the next decade could quite literally be limitless.
4.3 Installers
4.3.1 Regional Capabilities
When determining ownership of the global cableship fleet, reported information shows that TE SubCom operates the largest portion by far at 7 ships. Alcatel-Lucent, Global Marine, S.B. Submarine Systems, and E-Marine all have 3 cable installation ships to their name. Elettra owns a single cableship, with IT International Telecom, Kokusai Cableship, and NTT owning 2 each. While these numbers illustrate the part of the fleet that is exclusively owned and operated by each installer, they can also make use of “vessels of opportunity”. This allows for a high degree of flexibility to take on any type of project around the globe.
Looking at the big picture, many of these companies overlap in their regional capability. This provides comprehensive installation experience to the submarine fiber industry as a whole. 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.
Systems Installed By Company 2011-2015
Figure 27: Systems Installed by Company, 2011-2015
Source: SubTel Forum
Based on announced systems installed between 2011 and 2015, Alcatel-Lucent is shown to be the busiest overall. Huawei Marine, NEC, TE SubCom, S.B. SS, NTT and Orange Marine are not far behind, while the rest of the bunch is about even when discussing total systems installed. This lines up with regional capability, as those who can serve the most regions tend to be the busiest. However, the number of cableships owned clearly does not correspond to the amount of system installations performed per company.
Breaking down the amount of kilometers installed regionally for the last five years shows the EMEA region to be the busiest by far. In fact, the amount of cable installed for the EMEA region is nearly triple that of the second busiest region. Emerging markets in Africa, the continued desire for more bandwidth and redundancy on the Europe to Asia route and the fact that it is the largest region in the world all play a role in the amount of work put into the EMEA region. The Americas region has seen the second most amount of activity, largely due to emerging markets in South America.
Source: SubTel Forum
By contrast, the Transatlantic region is more or less fully developed and the Indian Ocean Pan-East Asian region often times merely serves a through station on the route for larger systems. While the AustralAsia region is certainly busy in the amount of new systems coming online, to date they have primarily been short systems linking new nations to existing international backbones.
Projections for the next two years paint a very different picture for the regional landscape. The Indian Ocean Pan-East Asian region will see a huge surge of activity as several giant systems make their way through the area. The Transpacific region is set to see its first batch of new cables since 2010 with each planned system averaging nearly 14,000 kms in length, while activity in the EMEA region should continue to decline largely due to the ever-increasing instability in the Middle East. The Transatlantic region can look forward to a small surge in activity due to increased desire to connect South America to Europe and Africa, while the AustralAsia region is predicted to maintain its steady level of growth.
Source: SubTel Forum
Viewing the numbers as a whole, the amount of cable laid over the next two years is projected to eclipse that of the previous five. With several large systems planned for this time frame already contract in force, this estimate seems very likely. This is welcome news, as the last several years have seen a sharp decline in overall activity.
4.4 Surveyors
4.4.1 Current Surveys
Based announced activity, Fugro, UTEC and EGS have survey experience in nearly every region of the world. Gardline and Elettra are also quite diverse, while IT International Telecom and C & C Technologies seem to focus more on specific regions.
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 important 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.
Gardline owns the largest percentage of the global survey fleet. EGS has the next highest percentage, while Fugro, IT International
Figure 28: Kms Installed by Region, 2011-2015
Figure 29: Planned Kms, 2016-2017
Telecom and C & C Technologies make up the remainder. It is important to note that this does not represent the sum total of vessels available for survey work. Each survey company also has contracts with additional vessels all around the world. These “vessels of opportunity” enable rapid deployment of survey capability across the world and help to reduce long-term operation and maintenance costs.
Regarding systems surveyed from 2011 through 2015, reported activity shows that Fugro has been the busiest surveyor of the bunch. Elettra, UTEC and EGS are next in line, with IT International Telecom, C&C Technologies and Gardline rounding out the remainder. This more or less lines up with regional capability, as those that can serve the most regions tend to be the busiest. However, the number of vessels owned does not necessarily correspond to the amount of systems surveyed by each company.
Surveyed 2011-2015
Source: SubTel Forum
4.4.2 Regional Survey Activity
Looking at the amount of kilometers surveyed regionally, the Transpacific and Indian Ocean Pan-East Asian regions have been the busiest by a noticeable margin. The primary reasons for this is are a renewed focus on route diversity and lower latency routes across the Pacific Ocean, and large systems linking Europe and Asia passing through the Indian Ocean. The AustralAsia, EMEA and Americas regions have all seen about the same amount of survey work, while the Transatlantic has only seen survey work for a single system.
Source: SubTel Forum
These numbers are actually very encouraging, as it means that the large majority of systems have completed the first real hurdle on their way to implementation. Completing a survey indicates a project is moving forward, with a higher chance of being implemented than simply being contract-in-force. On the whole, 81 percent of all routes planned for 2016 and 2017 have finished their surveys for a total of 165,000 kilometers. Assuming most of these systems see implementation - including a few of the stragglers that have yet to being their own survey – this could mean the amount of cable added over the next two to three years will eclipse that of the previous five.
Figure 30: Systems Surveyed, 2011-2015
Figure 31: Survey Status of Planned Systems, 2011-2015
4.5 Recent Merger and Acquisition Activities
In late 2014 and 2015, a number of mergers and acquisitions were accomplished in the submarine industry, a few of which are highlighted below.
4.5.1 Alcatel-Lucent Submarine Networks
In April, 2015, Nokia and Alcatel-Lucent entered into a memorandum of understanding under which Nokia will make an offer for all of the equity securities issued by Alcatel-Lucent, through a public exchange offer in France and in the United States. Each company’s Board of Directors had approved the terms of the proposed transaction, which is expected to close in the first half of 2016.
The combined company will be uniquely positioned to create the foundation of seamless connectivity for people and things wherever they are. This foundation is essential for enabling the next wave of technological change, including the Internet of Things and transition to the cloud. The combined company will have unparalleled innovation capabilities, with Alcatel-Lucent’s Bell Labs and Nokia’s FutureWorks, as well as Nokia Technologies, which will stay as a separate entity with a clear focus on licensing and the incubation of new technologies.
In October 2015, it was further announced that Alcatel-Lucent would continue to operate its undersea cables business, Alcatel-Lucent Submarine Networks (ASN), as a wholly owned subsidiary. ASN will continue to execute its strategic roadmap, strengthen its leadership in submarine cable systems for telecom applications and pursue further diversification into the Oil & Gas sector. Retaining ASN has no impact on Alcatel-Lucent’s intention to complete its proposed combination with Nokia.
ALDA Marine
In March 2015, Alcatel-Lucent and Louis Dreyfus Armateurs (LDA) renewed their long-term partnership and streamlined their cableship operations. With the completion of the transaction, ASN had full ownership of ALDA Marine and its fleet, while LDA remained ASN’s long-term partner for cableship management and fleet development, allowing to better answer the expected growth of the telecom market and the development of oil and gas activities.
Since 2000, ASN and LDA have grown a successful partnership under the joint venture ALDA Marine – building, owning and operating a fleet of cableships.
4.5.3 Cable and Wireless Communications
In November 2015, Liberty Global, the cable empire owned by John Malone, announced a £3.5 billion deal to buy Cable and Wireless Communications (CWC), extending the reach of the US “king of cable” in Latin America and the Caribbean. Liberty, which owns Virgin Media, has tabled a cash and shares deal to buy the London-listed Caribbean telecoms operator, which has been recommended by the CWC board. The deal values CWC at 81.04p a share, including a 3p special dividend if it is approved. The offer represents a 40pc premium on CWC’s closing price of 58p per share on October 21, the day before CWC admitted it had been approached by Liberty. As a result of CWC’s varied shareholder register – which includes tens of thousands of small British shareholders – the offer is being made in a number of complex formats to appease large investors and gain support.
4.5.4 Columbus Communications
In April 2015, CWC announced it had completed its $1.85 billion acquisition of Columbus International Inc. (CII), adding significant fiber optic submarine backhaul and terrestrial broadband and TV capability to mobile and legacy copper networks in the Caribbean.
4.5.5
Hibernia
In June 2015, it was reported that Murosa Development paid $82 million for a major stake in the Irish firm Hibernia NGS, which owns a fiber optic cable that links Ireland, North America and the U.K. It was further reported that Murosa now owns 51 percent of Hibernia NGS, with U.S. firm Columbia Ventures Corporation (CVC) owning the remainder.
4.5.6 ICPC and SubOptic
In March 2015, International Cable Protection Committee (ICPC) and SubOptic formally signed a Memorandum of Understanding (MoU) to formalize their relationship and will be seeking to further co-ordinate their activities to the benefit of the submarine cable networks community as a whole.
As part of this MoU, SubOptic presented at the ICPC Plenary in April 2015, outlining the SubOptic organization, its activities, and how it will evolve in the future. Reciprocally, ICPC will be a key presenter at SubOptic 2016, in Dubai in April 2016, to explain the work they are doing to help protect strategic cable infrastructure and how they are informing governments and industries alike about how essential this is to the global economy.
4.5.7 Optoplan
In November 2014, ASN signed agreement to acquire Optoplan, a Norway-based provider of 4D Permanent Reservoir Monitoring solutions for offshore oil and gas production.
4D Permanent Reservoir Monitoring (4D PRM) requires the permanent installation of seabed sensors to carry out frequent 4D seismic surveys of oil or gas reservoirs, collecting data that can be used by operators to monitor how oil, water and gas move in a reservoir over time. Once processed, the data helps produce detailed maps of underground geological structures, where wells should be drilled and how reservoirs can be drained to recover as much fuel as possible. Optoplan, which is based in Trondheim, Norway, is the company behind Optowave, a leading, field-proven 4D PRM technology for such seismic surveys. ASN and Optoplan’s com-
bined expertise will bring to the market a fully integrated 4D PRM solution, including design, manufacturing, assembly and marine installation. This will allow oil and gas companies to boost their oil recovery ratio, extend the life of their oil fields and improve the safety of their operations.
4.5.8 Pacnet Limited
In April 2015, Telstra announced it had completed the acquisition of Pacnet Limited, a provider of connectivity, managed services and data center services to carriers, multinational corporations and governments in the Asia-Pacific region. Pacnet would be integrated into Telstra and the Pacnet brand progressively retired. Telstra will continue the development of the joint venture in China. US assets will be integrated when regulatory approval is obtained.
The completed acquisition will double Telstra’s customers in Asia, and greatly increase network reach and data center capabilities across the region. Telstra will refinance Pacnet’s outstanding debt, being repayment of Pacnet bank debt and the redemption of all of Pacnet’s existing $350 million high yield notes.
In May 2015, Telstra said that computer systems at its recently acquired undersea cable company Pacnet Ltd had been hacked, potentially exposing sensitive customer information to theft.
4.5.9 Xtera Communications
In October 2015, Xtera announced their filing of an S-1 form with the US Securities and Exchange Commission (SEC) for its initial public offering (IPO).
Xtera expects to price 5.5 million shares in the range of $9 to $11, with an overall allotment option for an additional 825,000 shares. At the maximum price, the entire offering is valued at $69 million. Xtera intends to file on the Nasdaq Global Market under the symbol XCOM, and the underwriters for the offering are Needham, Cowen and BMO Capital Markets.
5.1 Transatlantic Regional Market
Regional Snapshot:
Current Systems: 10
Current Capacity: 35 Tbps
Potential Capacity: 181 Tbps
Planned Systems: 5
Planned Capacity: 240 Tbps
5.1.1 Bandwidth, Capacity and Pricing
The transatlantic continues to be the highest-capacity submarine cable route in the world.
From 2010 to 2014, lit capacity increased 2.4 times purely though upgrades.
Figure 32: Existing vs. Planned Transatlantic Cables
Source: SubTel Forum
[Note: Data reflect lit capacity in unprotected terms at the end of the respective year. Transatlantic capacity excludes Atlantis-2.]
Demand growth continued unabated in 2014 with used bandwidth increasing 41 percent over the previous year. Transatlantic cable operators have met all incremental demand requirements through upgrades. No new cables entered service from 2003 until October 2015 when Hibernia Express was commissioned.
With this level of growth and no new cables until recently, it would be natural to assume that potential capacity is rapidly dwindling. However, advances in 100 Gbps coherent technology have allowed existing cables’ capacity to go far beyond their original limit and have kept the share of potential transatlantic capacity that is lit below 20 percent.
Transatlantic capacity prices are the lowest among primary global routes. Median monthly lease prices for 10 Gbps wavelengths on the London-New York route dropped 9 percent in 2014 to $7,250, declining at a compound annual rate of 14 percent from 2011 to 2014. Median prices on other transatlantic routes are nearly the same, with the small variance in backhaul costs and carrier PoPs lead to price differences. Median monthly lease prices for 10 Gbps wavelengths on the Paris-Washington declined at a compound annual rate of 15 percent from 2011 to 2014 to $7,500.
Figure 34: Used Transatlantic Bandwidth Source: TeleGeography
Figure 35: Potential Transatlantic Capacity
Source: TeleGeography
$14,000
$12,000
$10,000
$8,000
5.1.2 Current Systems
This year has welcomed the first new system to be ready for service across the northern transatlantic route in 12 years. Growth on the transatlantic route skyrocketed from the late 1990s through 2003. But after that, the region saw a decade-long break from new development. $0 $2,000 $4,000 $6,000
Two of the major causes of the slow was a glut of bandwidth, which still remains largely unlit, and the financial crash of the early 2000s, brought on by overinvestment in the submarine cable industry. With investment on the rise again, and systems aging out in the transatlantic route, new systems are beginning to come on line. The newest, Hibernia Express, seeks to tap in to the exploding demand from high frequency traders, one of their key selling points is stated by Hibernia Networks as the “lowest latency available across the Atlantic Ocean - 59.5 milliseconds (NY - London)”.
To cover the steady rise in demand for new capacity during the down period of the submarine cable industry, upgrading existing systems became the new norm starting in 2010. Today, all existing transatlantic systems have been upgraded to at least 40G technology, with 75 percent of the systems having been upgraded to 100G. As with other regions, upgrades have been a reliable and cost-effective measure in extending the life of a system – a new upgrade costs a fraction of what a new system can cost and increases the available regional bandwidth reversely proportionate. In short, upgrades to the existing transatlantic systems answered the growing demand adequately at the time. However, as the need for lower latency connections is on the rise by high-frequency traders, simply increasing the bandwidth of a system no longer adequately meets demand.
Figure 36: Median Monthly Transatlantic
Figure 38: Systems Upgraded – Transatlantic Source: SubTel Forum
5.1.3 Planned Systems
During the last boom of transatlantic system development, the average system length was roughly 13,000 kms with the majority of systems all taking similar routes between Europe and the US.
Contract in Force - Planned Transatlantic
With the rise in demand for low latency systems, planned systems for 2016 and beyond average roughly 5,600 kms based on their announced routes. The change in demand from bandwidth to low latency has shifted developers to take routes averaging 57 percent shorter than previous systems, with proposed systems claiming to drop latencies dramatically.
SubTel Forum
There are currently four planned systems set to be ready for service in 2016 and beyond – the earliest of which is announced to be ready for service in January 2016. Of the four planned systems, three are slated to follow the northern route between Europe and the U.S. The fourth system is set to bridge Brazil and Angola. Of the four systems, only AEConnect – which will be ready for service in January 2016 – is considered contract-in-force. The cable has been manufactured and is expected to be installed before the end of 2015 or in early 2016. However, not all cables are destined to be. As 2016 moves forward, the real test of each of the three remaining systems will be if they can prove their business case for their proposed routes.
Figure 39: Transatlantic Route Kms Added
Source: SubTel Forum
Figure 40: Contract in Force - Planned Transatlantic Source:
Figure 41: Existing vs. Planned Transpacific Cables
Source: SubTel Forum
5.2 Transpacific Regional Market
Section Summary:
Current Systems: 8
Current Capacity: 24.4 Tbps
Potential Capacity: 102 Tbps
Planned Systems: 5
Planned Capacity: 202.8 Tbps
5.2.1
Bandwidth, Capacity and Pricing
The transpacific continues to be a significant capacity submarine cable route in the world.
Table 4: Existing Transpacific Cable Systems
RFS System Owner(s)
2000 Pacific Crossing-1 (PC-1) NTT
2000 Southern Cross Southern Cross Cable Network
2001 China-US Cable Network International consortium of carriers
2001 Japan-US Cable Network International consortium of carriers
2002 TGN-Pacific Tata Communications
2008 Trans Pacific Express (TPE) International consortium of carriers
2010 Asia-America Gateway (AAG) International consortium of carriers
2010 Unity / EAC Pacific Pacnet / Google / Bharti / Global Transit (Time dotCom) / KDDI / Singtel
In 2010, 33 percent of all capacity was lit on transpacific cables, while in 2014, only 24 percent of all potential capacity was lit.
TeleGeography
[Note: Data reflect lit capacity in unprotected terms at the end of the respective year. Transpacific capacity excludes Southern Cross and Telstra Endeavour.]
Transpacific demand remains strong, with an increase of 49 percent in used capacity for 2014. The transpacific route has grown more quickly than the transatlantic, where used capacity grew 41 percent over the previous year. Additionally, used capacity more than doubled between 2012 and 2014, increasing from 7.2 Tbps to 16.3 Tbps.
The transition to 100 Gbps wavelengths on transpacific systems has brought significant increases in potential capacity on existing cable systems. Between 2012 and 2014, potential capacity more than doubled from 49 Tbps to 102 Tbps.
Transpacific Potential Capacity
Source: TeleGeography
Source: TeleGeography
Figure 42: Transpacific Lit Capacity Source:
Transpacific Bandwidth
Figure 43: Used Transpacific Bandwidth
Figure 44: Transpacific Potential Capacity
Monthly Transpacific Lease Price
Figure 45: Median Monthly Transpacific Lease Price
Transpacific capacity prices are significantly higher than that of transatlantic routes. Median monthly lease prices for 10 Gbps wavelengths on the Los Angeles-Tokyo route dropped 16 percent in 2014 to $16,000, declining at a compound annual rate of 26 percent from 2011 to 2014. Median prices on other transpacific routes are higher. Median monthly lease prices for 10 Gbps wavelengths on the Hong Kong-Los Angeles route declined at a compound annual rate of 34 percent from 2011 to 2014 to $28,000. Median prices on the Los Angeles-Singapore route dropped a similar amount but are slightly higher at nearly $29,700 per month.
5.2.2 Current Systems
The Transpacific region has been similar to the Transatlantic in recent years, showing relatively little growth year upon year. A few new systems are added here and there, but most of the capacity increase has been from upgrades, not additional systems.
The time period from 2000-2002 saw by far the most growth in modern times, and since then only three systems in total have been added to the region. The industry crash of the early 2000s certainly played a large part in this, but the fact that there has been no new system on the Transpacific routes since 2010 is largely due to existing systems being able to upgrade their capacity for relatively little cost and push potential competitors out of the market. As with the transatlantic region, the transpacific seems almost fully saturated at this point, with little room for growth other than route diversity and cutting down on existing latency.
Figure 47: Systems Upgraded – Transpacific
Source: SubTel Forum
Even without a new system since 2010, the region has easily been able to keep up with capacity demand via the use of upgrades. With the easy availability of 100G wavelength technology upgrades –which can boost capacity nearly tenfold in many cases – it’s little wonder a new cable system hasn’t been able to present a sustainable business case for the region. Unlike some of the other regions, the Transpacific actually made fairly heavy use of 40G wavelength technology. Since 2013, however, it’s been all about 100G. To date, all but one of the nine systems currently serving the transpacific region have been upgraded. A single system utilizes 10G wavelength technology, three others have been upgraded to at least 40G, while the remainder have taken advantage of strictly 100G technology.
5.2.3 Planned Systems
After a huge growth spurt from 2000-2002, the transpacific region has seen almost no growth at all for the last 13 years.
The amount of cable in the region nearly tripled during this massive period of growth, and has seen a mere 50,000 kms of cable added since then. Average system length in the region is just over 20,000 kms, owing to the transpacific region having some of the longest routes in the world. Between the massive systems required to span the region, and the easy availability of cheap capacity upgrades, the static nature of the region comes as no surprise.
Figure 46: Systems in Service – Transpacific Source: SubTel Forum
KMS Added - Transpacific
There are currently five planned systems set to be ready for service in 2016 and beyond. Nearly all of 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 length of all planned systems for the Transpacific region being just over 13,750 kms, many of these systems should have fairly strong business cases in an otherwise oversaturated region. Latency is the name of the game in the industry these days, and shaving even a few milliseconds off of a route is worth millions of dollars to the right customer. These new systems provide an added bonus of increased route diversity – especially along the southern part of the region. With all four systems planned for 2016 and 2017 already being contract-in-force, it’s highly likely all of these systems will actually enter service.
Contract in Force - Planned Transpacific
Figure 48: Kms Added – Transpacific
Source: SubTel Forum
Figure 49: Contract in Force - Planned Transpacific
Source: SubTel Forum
50: Existing vs. Planned Americas Cables
Source: SubTel Forum
5.3 Americas Regional Market
Section Summary:
Current Systems: 44
Current Capacity: 22.3 Tbps
Potential Capacity: 197.9 Tbps
Planned Systems: 7
Planned Capacity: 184 Tbps
5.3.1 Bandwidth, Capacity and Pricing
The demand for international bandwidth between the U.S. and Latin America continues to experience robust growth.
Table 5: Existing Americas Cable Systems
RFS System Owner(s)
2000 Americas II Consortium
2001 GlobeNet Private equity fund controlled by Grupo BTG Pactual
2001 SAM-1 Telefonica
2001 South American Crossing (SAC) Level 3 (LANautilus (Telecom Italia) fiber pair)
2014 America Movil-1 (AMX1) America Movil
2015
Pacific Caribbean Communications System (PCCS) Consortium
The majority of international capacity in Latin America comes from submarine cable systems that connect to the United States. To keep up with the increasing bandwidth demand between the U.S. and Latin America, submarine cable operators added 6.6 Tbps of lit capacity in 2014, resulting in a 42 percent increase over the previous year.
Figure
[Note: Data reflect lit capacity on cables linking the United States and Latin America.]
Between 2010 and 2014, international bandwidth usage on the route increased at a compound annual growth rate of 45 percent.
Between 2010 and 2014, potential capacity more than quadrupled from 44.6 Tbps to 197 Tbps.
[Note: Data reflect potential capacity on cables linking the United States and Latin America.]
Major international routes in the Latin American region are focused on connectivity to the United States. These routes are characterized by modest competition and relatively high prices, and have been slower to erode than in other regions. Median 10 Gbps wavelength lease prices on the Miami-Saõ Paulo route declined at a compound annual rate of 23 percent between 2011 and 2014. Median prices on the Bogota-Miami route declined faster, falling 29 percent compounded annually over the same period. Even with these declines, Latin American routes remain comparatively expensive. In Q4 2014, median 10 Gbps wavelengths on the competitive Miami-Saõ Paulo route were $72,000 per month compared to $16,000 and $7,250 per month on Los Angeles-Tokyo and London-New York, respectively.
Figure 51: Americas Lit Capacity
Figure 52: Used Americas Bandwidth Source: TeleGeography
Characterized by steady growth since the early 1990s, the Americas region has seen a recent explosion of growth – roughly doubling the number of systems in service over the last 10 years.
As almost a mirror reflection to growth in the transatlantic region –which saw a halt in development around the same time – the Americas region was faced with a glut of connectivity without anywhere to channel it, forcing a boom in connections between countries to distribute it. After ten years of steady growth, with an average of about two systems being ready for service per year, the region is expecting another boom in development with seven new systems announced to be ready for service over the next two years.
Again in contrast to the transatlantic, the Americas have seen very few upgrades since the first one was accomplished in 2008. While other regions have caught fire with new upgrades, the Americas have enjoyed a steady increase in new systems to meet increasing demands for more bandwidth. The type of wavelength upgrade is roughly even between 10G, 40G and 100G. However, where 100G has dominated other regions, 40G has been the most relied upon upgrade in the Americas. Of the remaining 65 percent of systems left not upgraded, there has been no public announcement for future upgrades. Looking forward, there does not seem to be a downturn in planned development for systems in the Americas.
Bogota–Miami
Figure 54: Median Monthly Americas Lease Price
Figure 56: Systems Upgraded – Americas
Source: SubTel Forum
Systems
Unlike other regions, the Americas region has not seen an extraordinary boom in cable development.
Over the past 15 years, new cable development has consistently added on average 2-5 percent more kilometers every year - which does dramatically change in 2013 with a 10 percent increase and in 2007 with a 7 percent increase. By and large, the region has seen steady growth in the recent past. Looking into the future, the planned systems of 2016 show a considerable increase in kilometers of cable added with a 17 percent increase to the region. Of the planned systems, the vast majority are already considered contract in force, and are somewhere into the engineering or cable manufacturing stages.
in Force - Americas Planned Systems 2016-2017
Source: SubTel Forum
There are currently a little fewer than ten systems planned to be ready for service in 2016 and 2017. Of those cables only one is not considered to be contract in force yet, showing a very promising 87.5 percent contract in force rate for future systems in the region. The last few years have been relatively busy for the Americas region, and with a development rate that has been steady since 2001, the next two years will likely remain just as steady for new systems. Looking ahead, systems that have gone contract in force are significantly more likely to be completed. That said, 2016 is a busy year for the industry at large. With a finite number of cable ships to accomplish so many projects, systems slated for end of year installations may slip into 2017.
Figure 57: Kms Added
Figure 58: Contract in Force – Americas, Planned Systems 2016-17
5.4 AustralAsia Regional Market
Section Summary:
Current Systems: 37
Current Capacity: 32 Tbps
Potential Capacity: 315 Tbps
Planned Systems: 13
Planned Capacity: 167.7 Tbps
5.4.1 Bandwidth, Capacity and Pricing
The AustralAsia region continues to experience strong international bandwidth growth.
In 2014, used international bandwidth connected to Oceania, specifically, reached 2.4 Tbps. Between 2010 and 2014, Oceania’s used international bandwidth increased at a compound annual growth rate of 47 percent.
Figure 59: Existing vs. Planned AustralAsia Cables
Source: SubTel Forum
[Note: Data reflect used international bandwidth connected to Oceania.]
Geographic isolation, distance and a smaller number of carriers offering international capacity to Australia have historically kept costs high, but recent price erosion has been rapid, bringing the country closer to other transpacific routes. Median 10 Gbps lease prices between Los Angeles and Sydney fell 29 percent between Q4 2013 and Q4 2014 and 30 percent compounded annually since Q4 2011.
5.4.2 New Systems
The AustralAsia region has been characterized by a massive amount of growth in a relatively short amount of time.
Growth from 2001-2005 was almost negligible, and while there was a moderate amount of activity in 2006, the real growth occurred from 2008-2009. The biggest factor contributing to growth in the region is emerging markets in Southeast Asia, with countries such as Indonesia, Singapore and Malaysia becoming information technology powerhouses. The industry crash of the early 2000s certainly had an effect on the later timing of the region’s boom, but the rising
63: Systems Upgraded – Australasia
Source: SubTel Forum
Figure 60: Used Oceania Bandwidth
Source: TeleGeography
Los Angeles-Sydney Median Monthly Americas Lease Price
Figure 61: Los Angeles-Sydney Median Monthly Americas Lease Price
Figure 62: Systems in Service – Australasia
Figure
economies of Southeast Asia and their strong desire for international connectivity largely overrode such concerns. This region continues to be one of the fastest growing in the world as more and more of its nations start to enter the global economy.
While upgrades have become the norm for the rest of the world, the AustralAsia region has seen relatively little upgrade activity. One of the primary reasons for this is the lower total bandwidth demand compared to more developed regions. Another primary reason is that unlike other regions, AustralAsia has many island nations that all need their own cable to connect to the global telecommunications network. Other regions can simply make use of upgrades to meet their capacity needs, but the AustralAsia region 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 the majority of systems in this region are fairly new – with most having been installed since 2009. This has allowed many systems to start their lifespan on the latest and highest capacity wavelength technology. To date, only 27 percent of systems in the AustralAsia region have been upgraded. Of the ten systems upgraded, none have made use of 10G technology, three have been upgraded to at least 40G technology and the remaining systems have taken advantage of 100G technology.
5.4.3 Planned Systems
After the huge growth spurt from 2008-2009, the AustralAsia region has seen a steady amount of growth in the amount of cable added per year.
Since 2009, the region has seen an average of around 6,500 kms of cable added per year, with an average system length of less than 2,300 kms. The next two years, however, hint at another possible growth spurt with more and more countries in the region demanding affordable bandwidth via submarine fiber cables.
There are currently twelve planned systems set to be ready for service in 2016 and beyond. 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 planned systems, only three are considered contract-in-force. It’s very likely that a few of these twelve planned systems will never see the light of day. Business cases for these systems may not end up being there, owing to the small size of the countries some of these cables are planned for. 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.
Figure 64: Kms Added – Australasia
Figure 65: Contract in Force - Planned Australasia
SubTel Forum
Source: SubTel Forum
Figure 66: Existing vs. Planned EMEA Cables
Section Summary:
Current Systems: 112
Current Capacity: 5.75 Tbps
Planned Systems: 7
Planned Capacity: 67 Tbps
5.5.1 Bandwidth, and Capacity and Pricing
Demand
Submarine cable routes linking Europe to Africa, Asia, and Middle East has experienced tremendous growth in recent years due to an influx of new systems.
Table 7: Existing EMEA Cable Systems
2009 East Africa Marine System (TEAMS) TEAMS Ltd. / Etisalat
Used international bandwidth between Europe and Asia quadrupled from 466 Gbps to 2 Tbps in 2014. During the same period, used bandwidth on the Europe-Middle East and Egypt route increased 6-fold and Europe-Sub-Saharan Africa route rose 7-fold.
Figure 67: Used EMEA Bandwidth
TeleGeography
[Note: Data reflect the total used bandwidth on the Europe-Middle East & Egypt, Europe-Sub-Saharan Africa, and Europe-Asia routes.]
Johannesburg-London Median Monthly Lease Price
Figure 68: Johannesburg-London Median Monthly Lease Price Source: TeleGeography
Bandwidth prices on routes linking Africa and Asia to Europe have seen considerable downward pressure in recent years. The median monthly lease price for an STM-1 on the Johannesburg-London route has tumbled from $47,500 in Q4 2011 to $12,500 in Q4 2014, a compounded annual decline of 36 percent.
During the same period the median monthly lease price for a 10 Gbps wavelength on the London-Mumbai and London-Singapore routes dropped 22 percent and 16 percent, respectively.
Median Monthly EMEA Lease Price
$300,000
$250,000
$200,000
$150,000
$100,000
$50,000
$0
Figure 70: Systems in Service – EMEA Source: SubTel Forum
Percent Growth Change In Kms Added - EMEA
5.5.2 New Systems
Characterized by steady growth since the early 1990s, Europe, the Middle East and Africa have all seen a relative increase in development over recent years.
While system count has remained relatively steady – with an average of four systems ready for service every year since 2002 – the actual lengths of those systems varies wildly from year to year. The primary drivers for this swing are the SEA-ME-WE systems, as well as large coastal systems ringing Africa. In actual number of systems accomplished, the EMEA region is one of the more steady regions in the world. It has a consistent growth pattern seemingly immune to the industry’s boom and bust pattern seen over the past 15 years.
71: Percent Growth, Change in Kms Added – EMEA
Source: SubTel Forum
Delving more into the growth pattern, every year maintains a number of smaller, regional systems. This is typically paired with years of huge growth spurred by enormous systems including hugely ambitious projects like SEA-ME-WE 3 and 4, ACE, EIG and WACS to name a few. These enormous projects seek to link up entire regions, rather than smaller, inter-country routes. Each system of this
Figure 69: Median Monthly EMEA Lease Price
Figure
kind comes in at well over 10,000 kms per route. As seen in the chart above, while the number of systems accomplished is relatively steady, the actual size and scope of the projects varies incredibly from year to year – most recently with 2010, 2011 and 2012 being the busiest years for the region.
In contrast to the steady development of new systems in the EMEA region, upgrades to existing cables have been relatively slow, con-
sidering the potential market for said upgrades. Of the over 100 cable systems utilized in the region, only a little less than 15 percent have actually been upgraded.
5.5.3 Planned Systems
As mentioned previously, the EMEA region is rather uniquely characterized as a region of steady activity, with bursts of highly ambitious, region-spanning systems every few years.
The rate of kilometers added per year shows a steady increase of roughly 3-7 percent annually. Recent bursts of 24 percent, 17 percent and 14 percent have been observed in 2010, 2011 and 2012 respectively. The last two years have seen a return to the relatively steady pace. However, 2016 is promising to be a very busy year for the region.
There are currently seven systems planned to be ready for service in 2016 and 2017. Of those systems, only 43 percent are considered contract in force. With under half of the systems being considered viable at the moment, the initial impression is gloomy. However, comparing the actual kilometers of cable each system has announced and their contract in force status, we find that 89 percent of the 24,000 kms on the docket for 2016 and 2017 are likely to be laid. The EMEA region is a region with caveats – while each year is consistently busy, the kilometers added for each system must be taken into account as well.
Figure 72: Systems Upgraded – EMEA
Added Announced Kms Added
Figure 73: Kms Added – EMEA
Source: SubTel Forum
Figure 74: Contract in Force, Planned Systems – EMEA Source: SubTel Forum
Figure 75: Existing vs. Planned Indian Ocean Pan-East Asian Cables
Source: SubTel Forum
5.6 Indian Ocean Pan-East Asian Regional Market
Section Summary:
Current Systems: 22
Current Capacity: 32 Tbps
Potential Capacity: 315 Tbps
Planned Systems: 4
Planned Capacity: 84 Tbps
5.6.1
Bandwidth, and Capacity and Pricing
The Asia region has a unique mix of both mature and developing markets, with wide variations in the rate of demand growth.
Table 8: Existing Indian Ocean Pan-East Asian Cable Systems
RFS System Owner(s)
1997 FLAG Europe-Asia (FEA) Global Cloud Xchange (Reliance Globalcom)
1999 Sea-Me-We-3 Consortium
2002 i2i Bharti Airtel
2002 SAT-3/SAFE Consortium
2004 TGN-TIC Tata Communications
2005 Sea-Me-We-4 Consortium
2006 Falcon Global Cloud Xchange (Reliance Globalcom)
Consortium / West Indian Ocean Cable Company (WIOCC)
2010 I-Me-We Consortium
2011 Europe India Gateway (EIG) Consortium
2012 Gulf Bridge International (GBI) Gulf Bridge International
Overall, the pace of Asia’s international bandwidth usage growth is slowing but is still higher than rates seen in other regions. Between 2013 and 2014, Asia’s used international bandwidth rose 62 percent.
Intra-Asia Lit Capacity
Figure 76: Intra-Asia Lit Capacity
Source: TeleGeography
[Note: Data reflect lit capacity in unprotected terms at the end of the respective year. Intra-Asia capacity only includes cables with landings in both Hong Kong and Japan.]
More than most regions, Asia derives most of its international bandwidth through submarine cables. Between 2010 and 2014, the lit capacity of intra-Asian submarine cables increased at a compounded annual growth rate of 38 percent, from 8.7 Tbps to 31.9 Tbps. Potential capacity grew faster than lit capacity, increasing at a compound annual growth rate of 49 percent, due to the introduction of new cables and the increased potential capacity of older cables due to 100 Gbps technology.
Intra-Asia Potential Capacity
Figure 77: Intra-Asia Potential Capacity
Source: TeleGeography
Intra-Asian bandwidth prices vary substantially by route, reflecting differences volume, competition and the regulatory environment. Median 10 Gbps lease prices on the Hong Kong-Tokyo and Singapore-Tokyo routes decreased a compound annual rate of 29 percent between 2011 and 2014. During this period, the rate of price erosion
Median Monthly Intra-Asia Lease Price
$350,000
$300,000
$250,000
$200,000
$150,000
$100,000
$50,000
$0
Mumbai–Singapore Hong Kong-Tokyo Singapore-Tokyo
Figure 78: Median Monthly Intra-Asia Lease Price
Source: TeleGeography
on the Mumbai-Singapore routes was slightly slower. Median 10 Gbps wavelength prices on this route declined at a compound annual rate of 26 percent. In 2014, median 10 Gbps wavelength prices on the Mumbai-Singapore route were six times greater than the Singapore-Tokyo route.
5.6.2 New Systems
One of the newest emerging markets, 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.
79: Systems in Service - Indian
Pan-East Asia Source: SubTel Forum
The region has experienced periods of explosive development, followed by years of dormancy. The years of growth have been largely driven by trans-regional systems such as SEA-ME-WE 3 and 4, FLAG and Falcon, to name only a few. Local development is largely small systems linking India to Indonesia and beyond.
Asia
Figure 80: Percent Growth - Indian Ocean Pan-East Asia
As mentioned before, the growth pattern of the region is largely driven by ambitious inter-regional systems, as shown by the three distinct spikes in development in 2005, 2009 and the planned systems of 2016. Between the years of huge additions of cable to the region, smaller regional systems have bubbled along, providing
Figure 81: Systems Upgraded - Indian Ocean Pan-East Asia
Source: SubTel Forum
Figure
new connections for the countries that ring the Indian Ocean and beyond to the east. Since this region is relatively new, the majority of connections have been by the huge inter-regional systems.
As the boom years have fallen off since 2009, this region hasn’t stopped or slowed in its demand for more connectivity. To accommodate rising demand, the owners in the region have opted for the inexpensive option of upgrading their capacities. Starting in 2011, system owners have been rolling out upgrades to their systems. In just five years, nearly a third of all the region’s systems have been upgraded. Of the systems that are upgraded 67 percent are upgraded to 100G, the current industry gold standard for upgrades.
5.6.3 Planned Systems
Tracking with the other charts, the kilometers added show a boom and dormancy cycle in the Indian Ocean Pan-East Asian region.
The periods of explosive growth come with new inter-regional systems and the interim years are largely inactive.
Contract In Force - Planned Systems
Ocean Pan-East Asia
Figure 83: Contract in Force - Planned Systems, Indian Ocean Pan-East Asia
Source: SubTel Forum
There are just a handful of new systems planned to be ready for service in 2016 and 2017, only half of which are actually considered to be contract in force. It would seem that there is a boom year upon the region again, with three new inter-regional systems all clocking in at over 20,000 kms a piece. The majority of new development will be connecting the region to its neighbors, not just with itself.
Over the last few years, the submarine fiber industry has seen a number of ups and downs. While the most recent years have shown more down than up, the next two years in particular look very encouraging. As of November 2015, nearly 40 systems are planned around the world for 2016 to 2017. Many of these have hit the important contract in force milestone, one of the most promising signs for cable system implementation.
In fact, there are so many systems planned for 2016 that there simply may not be enough cableships available to install them all. It is very likely that some of these systems will slip to 2017, which should even out the workload for this two-year period. Nearly all of the planned systems for 2016 should have strong business cases, but whether they will be largely unaffected by any delays which potentially push their ready for service date into 2017 is unknown.
Upgrades have been hugely popular since 2010, and despite the recent lull, this trend should continue once new wavelength technologies become available. System providers can continue to support their products years after implementation, allowing owners to stay ahead of competition. While the predicted boom of new systems over the next few years seems to be affecting upgrade activity in a big way, global bandwidth demands will continue to rise ever higher and provide ample opportunities for capacity upgrades in the future.
Bandwidth prices in every region have fallen sharply in the last few years, largely due to the efforts of the submarine fiber industry. Between new cable systems and upgrades to existing ones, even today’s bandwidth hungry markets have been sated. Affordable telecommunications services are now a reality in places where internet connectivity would have been nearly unheard of just a few years ago. The systems in Africa and Southeast Asia are prime examples of this, showcasing the economic impact even one submarine fiber cable can have. It is not too far of a stretch to say that the submarine fiber industry has the ability to change the world.
These days, the industry has shifted from a “capacity first” mindset to a “latency first” one. Regional capacity needs have been easily met – grossly exceeded in some cases – and now the world is de-
manding lower latency connections. Customers need more than just a big pipe in today’s fast-paced telecommunications world. They also need to get their data to its destination faster than the competition. Systems like Hibernia Express and most of the planned systems along the transpacific route highlight this shifting desire.
With new routes being explored in just about every region, the industry can look forward to new challenges. Whether it is finding a lower latency route in a high traffic area, or connecting a new nation to the global telecommunications network, each planned system is critically important in its own way. The companies that make up this industry and provide the foundation for our technological world will be more than equal to the tasks laid before them.
Every region is busy, and every company has a project.
7. Works Cited
Andrew Lipman, U. P. (2015, March). SubTel Forum. Retrieved from Financing a New Private Submarine Cable Network: http://subtelforum.com/STF-81/#?page=64
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.
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/
NGR Guardian News. (2015, March 25). Retrieved from Leapfrogging Internet Infrastructure Deficit for Nigeria’s Socio-Economic Development: http://www.ngrguardiannews. com/2015/03/leapfrogging-internet-infrastructure-deficit-for-nigerias-socio-economic-development/
The World Bank. (2015, November). World Development Indicators. Retrieved from http://data.worldbank.org/indicator/ IT.NET.USER.P2
