2013 submarine cable market industry report

submarine te lecoms

INDUSTRYREPORT

2013

Authoredby

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Submarine Cable Industry ReportIssue 2March 2013

Copyright © 2013 by Submarine Telecoms Forum, Inc.

All rights reserved. No part of this book may be used or reproduced by any means, graphic, electronic, or mechanical, including photocopying, recording, taping or by any information storage retrieval system without the written permission of the publisher except in the case of brief quotations embodied in critical articles and reviews.

Submarine Telecoms Forum, Inc.21495 Ridgetop CircleSuite 201Sterling, Virginia 20166USAwww.subtelforum.com

ISSN: pending

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Disclaimer:Whileeverycareistakeninpreparationofthispublication,thepublisherscannotbeheldresponsiblefortheaccuracyoftheinformationherein,oranyerrorswhichmayoccurinadvertisingoreditorialcontent,oranyconsequencearisingfromanyerrorsoromissions,andtheeditorreservestherighttoeditanyadvertisingoreditorialmaterialsubmittedforpublication.Ifyouhaveasuggestion,[email protected].

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Table of Contents

1. Foreword 10

2. Introduction 11

3. ExecutiveSummary 13

4. WorldwideMarketAnalysisandOutlook 18

4.1 OverviewofHistoricalSystemInvestment 20

4.2 2008–2012SystemsinReview 20

4.3 SystemsInvestmentin2013andBeyond 21

5. SupplierAnalysis 25

5.1 SystemSuppliers 25

5.2 UpgradeSuppliers 26

6. OwnershipAnalysis 28

6.1 FinancingofCurrentSubmarineSystems 28

7. RegionalMarketAnalysisandCapacityOutlook 31

7.1 Transatlantic 31

7.1.1 BandwidthandCapacity 31

7.1.2 NewSystems 34

7.2 Transpacific 37


7.2.2 NewSystems 39

7.3 NorthandSouthAmerica 43


5

7.3.2 NewSystems 45

7.4 AustraliaandNewZealand 49


7.4.2 NewSystems 52

7.5 Sub-SaharanAfrica 57


7.5.2 NewSystems 61

7.6 SouthAsia&MiddleEast/Europe-Asia 62


7.6.2 NewSystems 65

7.7 Pan-EastAsia 67


7.7.2 NewSystems 69

7.8 PolarRoute 70

8. Conclusion 73

List of Figures:

Figure1:InvestmentinNewSubmarineFiberOpticProjects,1987-2012

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Figure2:DeploymentofNewSubmarineFiberOpticProjects,1987-2012

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Figure3:InvestmentinNewSubmarineFiberOpticProjectsbyRegion,2008-2012

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6

Figure4:Projectswith2013RFSDatesandProposedSubmarineFiberOpticProjects

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Figure5:Credible(“High-Activity”and“Medium-Activity”)ProposedSubmarineFiberOpticProjectsbyRegion,2013andBeyond

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Figure6:MarketShareforSupplyofNewSystems,2003-2013

25

Figure7:FinancingofNewSubmarineFiberOpticSystems,1987-2012

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Figure8:FinancingofNewSubmarineFiberOpticSystems,2008-2012

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Figure9:TotalActivatedTransatlanticCapacity,2007-2012 33

Figure10:TotalActivatedTranspacificCapacity,2007-2012 38

Figure11:ChineseInternationalInternetBandwidth,2003-2012

39

Figure12:ChineseOperators’ShareofChina’sInternationalInternetBandwidth,2013

41

Figure13:TotalActivatedNorthAmerica-SouthAmericaCapacity,2007-2012

44

Figure14:ShareofSouthAmericanInternationalBandwidthDemandbyCountry,2013

45

Figure15:TotalActivatedCapacitybetweenAustralia&NewZealandandtheUnitedStates(includingHawaiiandGuam),2007-2012

50

Figure16:InvestmentinNewSub-SaharanAfricanSystems,1993-2012

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Figure17:TotalActivatedSub-SaharanAfricanIntercontinentalCapacity,2007-2012

59

7

Figure18:TotalActivatedSouthAsianInterregionalCapacity,2007-2012

63

Figure19:TotalActivatedPan-EastAsianCapacity(TrunkSegments),2007-2012

68

List of Tables:

Table1:GrowthinActivatedCapacityalongMajorUnderseaRoutes,2007-2012

14

Table2:KeyUpgradeandRedeploymentProjectsforEquipmentSuppliers

27

Table3:ExistingTransatlanticCableSystems 32

Table4:PlannedTransatlanticCableSystems 36

Table5:ExistingTranspacificCableSystems 37

Table6:PlannedTranspacificCableSystems 40

Table7:ExistingUS-BrazilCableSystems 43

Table8:MajorBrazilianOperatorsandTheirSubmarineCableAssets,2013

46

Table9:ProposedLatinAmericanSystems 47

Table10:ExistingAustralia/NewZealandIntercontinentalSystems

49

Table11:MarketShareofMajorOperatorsinCombinedAustralia&NewZealandMarkets,andTheirKeyIntercontinentalSubmarineCableAssets,2013

51

Table12:ProposedAustralia/NewZealandIntercontinentalSystems

54

Table13:ExistingWestAfricanIntercontinentalSystems 58

Table14:ExistingEastAfricanIntercontinentalSystems 58

8

Table15:ProposedSub-SaharanAfricanIntercontinentalSystems

61

Table16:ExistingSouthAsianInterregionalSystems 64

Table17:ProposedSouthAsianInterregionalSystems 66

Table18:ExistingPan-EastAsianSystems 68

Table19:ProposedPan-EastAsianSystems 69

Table20:ProposedPolarSystems 70

Sponsors:

APTelecom 56

Ciena 17

HuaweiMarineSystems 24

SubOptic2013 9

TelecomEgypt 30

TerabitConsulting 12

WFNStrategies 72

http://www.suboptic.org

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1. Foreword

SubOpticisonceagainpleasedtosupporttheSubtelforumIndustryReport,nowinitssecondyear.ItfillsagapinthemarketplacebyprovidinganindependentviewoftheoverallindustrywrittenbyTerabitConsulting,whohave insiderknowledgeof thestructureandchallengesitfacesinthefuture.

Itsviewsarethoseoftheauthorandsomereadersmaytakeissuewithsomeoftheconclusionsitreaches,butthenthatislifeandnotallcommentatorshavethesameviewoftheworld,whichiswhyanindependentauthorisessential.

Fortunatelywith SubOptic 2013 being held nextmonth in Paris,thereisanopportunitywhentheindustrycomestogether,todebateanddiscussboththecontentsofthisreportandthewiderissuesofconcerntomanyofusinthecommunityofinterestservedbyourindustry.

Someofthesearehighlightedinthisreportsuchas:

• Where will money come from to finance new system build?• What will the shape of the industry be over the next five years?• How will the upgrade market impact the turnkey system suppliers?• The different drivers that will impact the various geographic regions

and what are the major challenges to be overcome.• Thisisjustashortlistofthemanyissuescoveredbythisreport,

whichdeservestobereadindetail.

Well done to Subtelforum for continuing this initiative, which Ihopewillbecomearegularfeature.IlookforwardtoseeingyouallinParisnextmonth,tocontinuethedebate.

FionaBeckPresident of the SubOptic Executive Committee andPresident and CEO of Southern Cross Cable Network

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2. Introduction

WelcometothesecondeditionoftheSubmarineTelecomsIndustryReport,whichwasauthoredbythesubmarineindustry’sleadingmarket analysis firm,TerabitConsulting,with research overseenbyTerabit’sDirectorofInternationalResearch,MichaelRuddy.ItservesasananalyticresourcewithinatrilogyofproductsbeginningwiththeSubmarineCableMapandincludingtheSubmarineCableAlmanac.

The Submarine Telecoms Industry Report features in-depthanalysisandprognosesofthesubmarinecableindustry,andservesasaninvaluableresourceforallwhoareseekingtounderstandthehealthofthesubmarineindustry.Itexaminesboththeworldwideand regional submarine cable markets, including issues such asthe new-system and upgrade supply environments, ownership,financing,marketdrivers, andgeopolitical/economicevents thatmayimpactthemarketinthefuture.

In this report, Terabit Consulting identified $28.5 billion innew projects that are currently being actively pursued by theirsponsors. Of those, $4.5billionworthofnewprojects are eitherunder construction or considered to be in an advanced stage ofdevelopmentandwell-positionedfornear-termdeployment.

While the crystal ball will rarely be completely clear, one factremains–thatour150+yearoldinternationalenterprisecontinuestobeathriving,excitingandever-evolvingindustry.

Our aim is to make this information as timely and availableas possible. As always, we feel that an informed industry is aproductiveindustry.

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3. Executive Summary

In 2013 the submarine communications industry marks its 25thyear of providing transoceanic fiber optic communications. Thefirstquarter-centuryhasbeenmarkedbyunimaginablehighsandlows,buttheindustry’sperformanceoverthelastfiveyearsmakesclear that it has recovered from itspost-dot-com-bubble collapsewith a healthy marketplace which, for the foreseeable future,should continue to averageat least $2billion innew investmentand 50,000 kilometers annually, together with an increasinglyrobustupgrademarket. More importantly, from theperspectiveofglobaleconomicandhumandevelopment,theindustry’srecentand planned investment patterns show a distinct trend towardimproving connectivity indeveloping regions andaccomodatingthefewislandandcoastalnationsthatremainwithoutfiberopticconnectivity.

Terabit Consulting’s examination of investment and demandrevealsthatmuchoftheindustry’sfutureactivitywillbedrivenbywhatTerabitidentifiesasthe“BICS”markets–Brazil,India,China,and Sub-SaharanAfrica. Over the last five years,more than $6billionoftheperiod’s$10billioneffectivelytargetedthelatterthreemarkets,andanexaminationofproposedprojectsrevealsseriousplansforanadditional$5.5billiontobeinvestedintheBrazilianmarket–includingtwonewsystemsbetweenBrazilandEurope,fourbetweenBrazilandtheUnitedStates,andfivebetweenBrazilandAfrica.

TerabitConsulting identified177newprojects,witha totalvalueof$28.5billion,whichareeitherunderconstructionorproposed.Fifteen new projects either entered service in early-2013 or arescheduled for completion in 2013 (i.e. under construction or inadvancedstagesofdevelopment),foratotalvalueof$1.4billion.There are an additional 24 projects which Terabit Consultingclassifiedas“high-activity,”i.e.consideredtobecredibleprojectsin an advanced stage ofdevelopmentwith a highprobability ofactivationin2013or2014.Thetotalvalueoftheseprojectsis$3.1billion; consequently, if there are no major construction delaysthen an average of at least $2 billionworth of new systemswill

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enterserviceannuallyin2013and2014.Atotalof95projectswereclassified into the “medium-activity” category, for $16.8 billionworth of proposed investment, serving as a strong indicator offuturedeploymentoverthemid-term.Finally,the“low-activity”categorycomprises43projectswithacombinedvalueof$7.2billion;althoughnot inadvancedplanningstages,eachof theseprojectswasconfirmedbyTerabitConsultingtobeunderconsiderationbyoperatorsorinvestors,withsomeshowingstrongpotentialbasedonmarketconditions.

Ananalysisofactivatedunderseacapacityrevealsthatthegreatestgrowth has occured in Sub-Saharan Africa, Latin America, andAsia,ledby71percentcompoundannualgrowthinSub-SaharanAfricanintercontinentalcapacityoverthelastfiveyears,comparedto27percentinthecomparativelymaturetransatlanticmarket.

Table 1: Growth in Activated Capacity along Major Undersea Routes, 2007-2012

CAGR,2007-2012

Sub-SaharanAfricanIntercontinental 71.2%

NorthAmerica-SouthAmerica 54.2%

Pan-EastAsian 46.6%

SouthAsia&MiddleEastIntercontinental 41.2%

Transpacific 36.2%

Australia&NewZealandIntercontinental 33.1%

Transatlantic 26.9%

Terabit Consulting’s regional analyses revealed the uniquecharacteristicsofeachlong-haulsubmarinecablemarket.

Inthetransatlantic, thelackofnewdeploymentoverthelast tenyearswouldseemtomakethemarketripefornewinvestment,but

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thefinancingofnew transatlantic cableshasprovedexceedinglydifficult. Nevertheless, there are two serious proposals for newtransatlanticconnectivity,witheachpromisinglowlatencybetweenthefinancialhubsofLondonandNewYork.

InvestmentinthetranspacificmarketwillcontinuetobestronglyinfluencedbythegrowingbandwidthrequirementsofChinaandJapan, but Terabit Consulting also identified an opportunity fora transpacific cable fromRussia’s eastern coast an even strongeropportunityforsingle-cableconnectivitybetweentheUnitedStatesandIndiainordertoavoidtherisksofpassingthroughEgypt.

DeploymentofnewunderseaconnectivitytoSouthAmericawillbe driven by Brazil, which accounts for half of the continent’spopulationbutfive-eighthsofitsinternationalbandwidthdemand.Brazil’seconomicgrowthhasbeenstrongandmoreequitablethaninotherdevelopingmarkets,resultinginalargeraddressablebasefortelecommunicationsandInternetservices;the2014WorldCupand2016SummerOlympicsareexpectedtoresultinevengreaterincreasesinbandwidthdemand;anditsPlanoNacionaldeBandaLarga(PNBL)isbothambitiousandcredible.TerabitConsulting’sevaluationofBrazilianoperatorsindicatesthattherewasastrongcasefortheplannedAMX-1cable,basedonthemarketsharesofAmericaMovil’sBraziliansubsidiaries.

The collapse of the Pacific Fibre project, which would haveconnectedtheUnitedStates,NewZealand,andAustralia,revealedthe challenges faced by private investors hoping to compete inmarkets served by a handful of operators that control both theconsumer markets and the existing international infrastructure.Nevertheless, other investor-ledproposals aim topickupwherePacificFibreleftoff.TerabitConsultingbelievesthatsomeformofoperatorparticipationorcommitmentwillbeneededforanyoftheproposedAustralianlong-haulprojectstosucceed.

Most new Sub-Saharan African investment aims to connect thecontinent to LatinAmerica, with specific interest in linking theLusophonecountriesofAngolaandBrazil.Fromtheperspective

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of the global network, robust connectivity in the SouthAtlanticisurgentlyneededbut it remains tobeseenwhetherbandwidthdemandalongtheroutewillbehighenoughtojustifytherequiredinvestment.ConsequentlymanyoftheSouthAtlanticprojectshaveproposedonwardlinkstoothercontinents,hopingtocapitalizeontheprincipalofMetcalfe’slaw.

ThemarketfornewunderseacapacitytoSouthAsiaandtheMiddleEast,whichincludestheEurope-to-Asiaroute,isdominatedbytheexpectationthattherewillbeaSea-Me-We-5,possiblywithstronginfluencefromChineseoperators.TerabitConsultingexpectsthatthe most successful projects in SouthAsia and theMiddle EastwillbethosethatcanprovideeconomicallyandtechnicallyviablemeansofbypassingEgypt.The Pan-East Asian undersea cable market features three newconsortium-ledprojectsthatareabouttobecompleted,twoofwhichattractedinvestmentfromnon-traditionalinvestorsintheformofGoogle and Facebook. TerabitConsulting believes that the newconsortium-ledprojects,inwhichmostmajorEastAsianoperatorshavestakes,werenecessitatedbythefactthatmostofEastAsia’sexistingpan-regionalbandwidthiscontrolledbyprivateinvestorsandoperatorsfromoutsideoftheregion.

Plansfortrans-Polarconnectivityseemtobeafflictedbyskepticismonthepartoffinanciers,butfromatechnological,economic,andgeopolitical standpoint, the route has never beenmore credible.Over the long term it is possible that the three largest politicalpowerspresentintheArctic(Canada,Russia,andtheUnitedStates)willtakegreaterinterestinthepotentialforunderseaconnectivity(andsurveillance)intheregion.

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4. Worldwide Market Analysis and Outlook

4.1 Overview of Historical System Investment

As of year-end 2012 there had been $56.3 billion worth ofinvestment in fiber optic submarine systems, comprising 1.25millionkilometers.Inthe25yearssincetheadventoftransoceanicfiberopticsystems,themarkethasaveraged$2.25billionworthofinvestmentand50,000kilometersofdeploymentperyear.

Figure 1: Investment in New Submarine Fiber Optic Projects, 1987-2012

($Billions by Ready-for-Service Date)

$0

$1

$2

$3

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($Billions)

Consortium Era: 1987 to 1997

Dot-Com Bubble

MarketDormancy

Developing-Market Focus

The first transoceanic fiber optic cable, TAT-8, entered servicein December of 1988 (although a few regional systems, bothexperimentalandcommercial,hadbeeninstalledpriortothatdate).For the first ten years of its existence, the submarine fiber opticcablemarketwasrelativelypredictable,controlledbyconsortiaofoperators,includingmanygovernment-ownedmonopolies.

On January 1, 1998 the European telecommunications marketbecame fully liberalized. Internet penetration was steadilyramping up, with usage already exceeding 30 percent in three

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countries: Iceland,NewZealand,andSweden. By the followingyear, the submarine consortia’s long-term build-out strategies toaccommodateISDNandGroup4faxtrafficwerequicklyrenderedobsolete. Inspired by the early success of private submarineinvestment in the transatlantic market, throngs of speculativeinvestorspitchedsubmarinecablebuild-outplansthatultimatelyresulted in more than $25 billion worth of new systems beingdeployedinlessthanfouryears.

During that period, the price of international bandwidth hadspiraled downward, driven by intense competition in manytransoceanicmarketsandunprecedentedadvancements indensewavelengthdivisionmultiplexing (DWDM) technology. By2002themajorityofthemajorinternationalwholesalenetworkoperatorshaddeclaredbankruptcy,anddeploymentofnewsubmarinefiberopticsystemscametoavirtualstandstill.

Between2003and2007,thesubmarinemarketstruggledtoreachlevelsof$1billioninnewinvestmentannually.Majorsubmarinecable plants were shuttered, and the industry saw its annualproductioncapacityfalltoapproximatelyone-thirdofitsall-timehighof200,000kilometers.Atthesametime,thesubmarinecableindustry’sfleetofinstallationandrepairvesselsshrunkinnumberas ships were converted for use in more profitable endeavors.Wholesale markets for submarine capacity on developed routesremained depressed, and even purchasers of distressed cableassetsstruggledtoremainprofitabledespitecostsbasesthatwereafractionoforiginalconstructionoutlays.

By 2008, however, the industry appeared to have found a newbalance focused on bringing connectivity to underserved routesandregions,withannualinvestmentinnewprojectsreturningtonormalhistoricallevelsandtheemergenceofanextremelyrobustmarket for system upgrades fueled by a shift to 40G and 100Gtransmissiontechnology.

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Figure 2: Deployment of New Submarine Fiber Optic Projects, 1987-2012

(Route Kilometers by Ready-for-Service Date)

0

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(Rou

te K

ilom

eter

s)

4.2 2008 – 2012 Systems in Review

Inthefiveyearsbetween2008and2012,$10billionworthofnewsubmarinefiberopticsystemsenteredservice,foranaverageof$2billionand53,000kilometersperyear,whichisinlinewithoverallhistoricalaverages.

Geographically,$2.9billionwas invested innewsystems inSub-SaharanAfrica, including four new long-haul systems along thecontinent’swesterncoastand threealong itseasterncoast. FournewsystemsconnectedIndiaandtheMiddleEasttoEuropeatacostof$1.7billion,andthreenewtranspacificsystemsalsoenteredserviceatacostof$1.7billion.Collectively,morethan$6billionoftheperiod’sinvestmenttargetedthemarketsofChina,India,andSouthAfrica–threeofthefiveso-called“BRICS”markets.

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Figure 3: Investment in New Submarine Fiber Optic Projects by Region, 2008-2012

Africa29%

South Asia and Middle East

18%Transpacific17%

East Asia12%

Europe and Mediterranean

10%

Australia4%

Pacific Islands4%

Latin America and Caribbean

3%

North American Regional

3%

4.3 Systems Investment in 2013 and Beyond

Theanalysisidentified177newprojects,withatotalvalueof$28.5billion,whichareeitherunderconstructionorproposed.Proposedprojects were each classified into one of three categories: “highactivity,”“mediumactivity,”and“lowactivity”basedonvariouscriteria including supply contracts, funding, licenses, carriercommitments, market opportunities, marine surveys, desktopstudies,andfeasibilitystudies.

In the most immediate category, 15 new projects have beenidentifiedthateitherenteredserviceinearly-2013orarescheduledfor completion in 2013 (i.e., under construction or in advancedstagesofdevelopment),foratotalvalueof$1.4billion.

Inaddition,24“high-activity”projectshavebeenidentified,whichare considered to be credible projects in an advanced stage of

22

developmentwithahighprobabilityofactivationin2013or2014.The total value of theseprojects is $3.1 billion. Consequently, iftherearenomajorconstructiondelaysthenanaverageofatleast$2billionworthofnewsystemswillenterserviceannuallyin2013and2014.

A total of 95 projectswere classified into the “medium-activity”category,for$16.8billionworthofproposedinvestment. Finally,the“low-activity”categorycomprises43projectswithacombinedvalueof$7.2billion.

Figure 4: Projects with 2013 RFS Dates and Proposed Submarine Fiber Optic Projects

($Billions)

$0

$2

$4

$6

$8

$10

$12

$14

$16

$18

Completed, UnderConstruction, or

Highly Likely in 2013

High-Activity Medium-Activity Low-Activity

Prior to the most recent round of undersea cable deployment,Terabit Consulting forecasted that most undersea investmentwouldbedirectedtowardtwospheres:first,unconnectedmarkets;andsecond,theso-called“BICS”economies–i.e.,eachoftheBRICSeconomieswiththeexceptionofRussia(which,givenitsproximitytoEuropeanhubsandterrestrialconnectivity,wouldrequirelowerlevels of investment over the short-term). During the 2008-2012timeframe,more than$6billionor60percentof investmentwasdirectedtowardIndia,China,andSouthAfrica.Notsurprisingly,theindustryhasnowturneditsfocustoBrazil,withtwosystemsplannedbetweenBrazilandEurope,fourbetweenBrazilandthe

23

UnitedStates,andfivebetweenBrazilandAfrica,foratotalof$5.5billionworthofproposedinvestment.

When credible proposed investment, i.e., those projects that canbe classified as either “high-activity” or “medium-activity,” isclassifiedaccordingtogeography,itbecomesclearthatsubmarineinvestment is likely to be significantly more diversified amongdifferentregionsthanithadbeeninthepast. Credibleproposedinvestmenttargetingdevelopingorunconnectedmarketsaccountsfor more than two-thirds of the total. At the same time, thereremains a reasonable amount of credible interest in traditionaltransoceanicmarketsthathavehistoricallybeenthecornerstoneoftheindustry.Overall,futureinvestmentinnewsubmarinesystemsappearsbalancedandsustainable.

Figure 5: Credible (“High-Activity” and “Medium-Activity”) Proposed Submarine Fiber Optic Projects by Region, 2013 and

Beyond

Latin America20%

Multi-Continental

(including Polar)13%

East Asia12%Australia

11%

Transpacific11%

South Asia/ME 10%

Africa9%

Transatlantic9%

Europe and Mediterranean

3%

Pacific Islands2%

http://www.huaweimarine.com/marine/

25

5. Supplier Analysis

5.1 System Suppliers

Thefuturelandscapeofsubmarinesystemsuppliersisperhapsoneofthegreatestquestionmarksfacingtheindustry.Theindustry’scapitalandtechnologicalrequirementsserveasaformidablebarriertoentryandhavelimitedthenumberofsuppliersthatcanviablycompeteforturnkeysystemsupplycontracts.

Thereisnoclearindicationthatthesupplymarketfornewsystemshasbecomemorecompetitiveovertime.Historically,themarketfornewfiberoptic submarinesystemswas fairlyevenlydividedalonggeographicallinesbetweenthreegroups:thepredecessorsofAlcatel-Lucent,thepredecessorsofTESubCom,andtheJapanesesupplycommunity.TheobstaclesfacedbythelikesofKDD-SCS,OCC, andHitachi Cable had a negative impact on the Japanesesupplycommunity,leadingtoadeclineinitsmarketshare,althoughNEChas recentlygainedstrengthparticularly in theAsia-Pacificregion. Meanwhile,amongthe twoothermajorsuppliers,asTESubComhasremainedrelativelystableatapproximatelyone-thirdofthemarketfornewsystems,Alcatel-Lucent’smarketsharehasapproachedone-half.

Figure 6: Market Share for Supply of New Systems, 2003-2013

(Primary Contracts Only; Excluding Subcontracts)

Alcatel-Lucent, 47%

TE SubCom, 30%

NEC, 12%

Fujitsu, 4%

Huawei Marine, 2%

NSW, 2%Nexans, 1%

Ericsson, 1% Others, 2%

26

Many industry observers were encouraged by the launch ofHuawei Marine Networks, a joint venture between HuaweiTechnologiesandGlobalMarineSystems,in2008.Thecompany’sinitial entry into themarketwas aggressive, and itwas accusedof “buying market share” by submitting low-cost bids for newprojects.Huawei’sdevelopmentofrepeatertechnologypositioneditasaviablecompetitoragainst theestablishedsuppliers,but itsdependenceonothersforthemanufactureoffiberopticcablehasproventobeasignificantchallenge.Morerecently,HuaweiMarineNetworkshasbeendealtasetbackbytheeffortsofsomeAmericanandAustralianpoliticianstoblacklistHuaweiTechnologies.

ThethreewildcardsinthesubmarinesupplylandscapearethefuturestrategyofHuaweiMarineNetworks(includingthepossibilityofpartneringwithChinesecablemanufacturers);theexpectedsaleofAlcatel-Lucent’ssubmarinenetworksdivisionandarealignmentoftheindustry’smanufacturingassets;andthegrowthofequipment-onlysupplierssuchasCiena,Infinera,Mitsubishi,andXtera,drivenby40Gand100Gtransmissiontechnologies.

5.2 Upgrade Suppliers

Capacityupgradeshavebecomeoneofthemostdynamicaspectsofthesubmarinecableindustry.Beginninginthelate1990’sfew,ifany,systemswereequippedtotheirfulldesigncapacityatRFS;instead,ownersconsciouslyplannedtoinstalladditionalterminalequipmentasmarketconditionsdictated.Anyopticallyamplifiedsystem can potentially be upgraded beyond its design capacity,and those installed from 1999 onwards are excellent candidates.Provision of terminal equipment for upgrades does not requireinvestmentinrepeaterdesign,cablemanufacturing,orcableships,andthishasresultedinmanysuppliersbeyondthosetraditionallyengaged in provision of submarine cable systems entering themarket for terminalequipmentupgrades. Thisdynamicmaybeuncomfortableforsomesuppliers,buthasbroughtaboutstrikingbenefitsforsystemowners.

Theupgrademarketwill arguablybe themost consistent sourceofgrowthandhasbeen targetedby fourequipmentsuppliers inadditiontothetraditionalsubmarinesystemsuppliers.

27

Table 2: Key Upgrade and Redeployment Projects for Equipment Suppliers

Ciena SouthernCrossCableNetwork,TGNAtlantic, Japan-USCableNetwork,NorthAsianLoop,Australia-JapanCable, FLAG Europe-Asia, FLAG Atlantic-1, LatinAmericanNautilus,Seacom

Infinera Pacific Crossing-1, North Asian Loop, Transatlanticcable,MedNautilus,Kodiak-Kenai,Pacnet

Mitsubishi Asia-America Gateway, TAT-14, I-Me-We, EAC,Japanesedomestic

Xtera EAC/C2C,AC-1,GulfBridgeInternational,GlobeNet,Arcos,PAC,SHEFA-2,GOKI,Columbus-2,Columbus-3,Gemini Bermuda, C-BUS, East-West Cable, TamaresCable

28

6. Ownership Analysis

6.1 Financing of Current Submarine Systems

Historically,71percentofsubmarinefiberopticcable investmenthas been financed by telecommunications carriers on their own,in small groups, or in large consortia. Largelydue to the influxofspeculativeinvestmentduringthedot-combubble,projectsledby non-telecom, private investors have accounted for 22 percentof investment. Supplier financing accounted for 5 percent, alsolargelyalegacyofdot-comerafinancingmodels.

Figure 7: Financing of New Submarine Fiber Optic Systems, 1987-2012

Carrier-led and Consortium, 71%

Investor (Private, Non-Telecom), 22%

Supplier, 5%Government and

Development Bank, 1%

Duringthemostrecentfive-yearperiodfromthebeginningof2008totheendof2012,carrier-ledandconsortiumprojectsaccountedfor80percentoftotalinvestment,withinvestor-ledprojectsaccountingfor14percentandgovernment-andmultilateraldevelopmentbank(MDB)-financedprojectsaccountingfor5percent.

29

Figure 8: Financing of New Submarine Fiber Optic Systems, 2008-2012

Carrier-led and Consortium, 80%

Investor (Private, Non-Telecom), 14%

Government and Development Bank,

5%

Other, 1%

Theanalysisclearlyindicatesashifttowardamarketplaceinwhichthe telecommunications operators undertakemost investment innewsystemsthemselves. Opportunitiesforprivate,non-telecominvestors have decreased significantly while governments anddevelopment banks have taken a significantly more active role.Although much of the activity in the latter category has beenfocused on less-developed markets, government financing hasrecentlybeenproposedforprojectsonmoredevelopedroutessuchasthetransatlantic.

31

7. Regional Market Analysis and Capacity Outlook

7.1 Transatlantic

7.1.1 Bandwidth and Capacity

The transatlantic submarine cable market continues to confoundmarketobserverswithitsongoingdroughtofinvestment.Theroutewas the object ofmore than $10 billion of investmentduring the15-yearperiod following theadventof thefirst transoceanicfiberopticcable,TAT-8,inthelate-1980s.Morethan$7billionworthofnewtransatlanticsystemsenteredservicebetween1998and2003,primarily seeking to capitalize on runaway Internet bandwidthdemandbetweenEuropeandNorthAmerica.Yettherehasbeennonewdirecttransatlanticconstructionformorethantenyears,andthetraditionalconsortiaofoperatorsthatoncedominatedtransatlantictelecommunicationshaveremainedpubliclysilentsince2001.

Twonewinvestor-ledprojectsintheNorthAtlantic,bothwithsimilarcompetitivestrategiesbasedonlowlatency,missedtheirplanned2012ready-for-servicedates,butin2013theirpromotersofferednewsthatseemedtorevealdivergenttrajectories.Oneproject,contractedtoanAmericansupplier,reportedthatithadgainedapreliminarycommitment from the United States government’s export creditagency,while the other project, contracted to aChinese supplier,wasforcedtosuspendallworkamidstclaimsof“dangerous”anti-Chinese political sentiment and blacklisting efforts in theUnitedStates.

Meanwhile,therehasbeenincreasinginterestindirecttransatlanticlinksbetweenEuropeandLatinAmerica,drivenbythegrowthofBrazilian bandwidthdemand ahead of the 2014 FIFAWorldCupandthe2016SummerOlympics,aswellasdemandforconnectivityamong the research community (there have also been proposalsforwhatwouldbe thefirst transoceanicprojectsacross theSouthAtlantic,connectingSouthAmericawithAfrica;thoseprojectsaredescribedinthe“Sub-SaharanAfrica”section).

There also remains abelief among some industryveterans that aconsortium-ledprojectmaysoonmaterializeintheAtlantic,perhapsproposinga“next-generation”twisttodifferentiateitselffromthetraditionalTATcables.

32

Table 3: Existing Transatlantic Cable Systems

RFS System Owner(s)

1999 AtlanticCrossing-1(AC-1) Level3

1999 Columbus-3 Internationalconsortiumofcarriers

2000 Yellow(Level-3)/AtlanticCrossing-2(AC-2) Level3

2000 Atlantis-2 Internationalconsortiumofcarriers

2001 FLAGAtlantic-1(FA-1) RelianceGlobalcom

2001 HiberniaAtlantic HiberniaNetworks(ColumbiaVenturesCorp.)

2001 TAT-14 Internationalconsortiumofcarriers

2001 TGN-Atlantic TataCommunications

2003 Apollo C&WWorldwide(Vodafone)/Alcatel-Lucent

Between2002and2008, tentransatlanticsubmarinecableswereeither entirely or partially removed from service, leaving ninesystemsofferingatotalof15differentcablepathsbetweenEuropeandtheAmericas.ThesevenlitDWDMsystemsbetweenNorthAmericaandEuropeareownedbysixentities:ApolloSCSLtd.(ajointventurebetweenCable&WirelessWorldwideandAlcatel-Lucent),Level3 (formerlyGlobalCrossing,whichoperates twosystems), Hibernia Networks (owned by Columbia VenturesCorporation and Constellation Ventures Partners), RelianceGlobalcom, Tata Communications, and the TAT-14 consortium.Consequently, the transatlantic market can be described as anoverwhelmingly“wholesale”market,whereoperatorshaveoptedtoleasecapacityfromnetworkoperators,asopposedtomakingdirectinvestmentintheirowncapacityinfrastructure.

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A number of events have brought about the commoditizationof bandwidth between most European and North Americanendpoints.Inthelate-1990s,hundredsoffiberpairsweredeployedtometropolitan areas on both continents, making point-to-pointconnectivitybotheconomicalandpractical,andatthesametimeretailmarketswerefullyliberalized.Then,moreimportantly,intheearly-2000sthedot-combubbleburstdrovemanycableoperatorsinto bankruptcy, allowing investors to acquire transoceanicnetworks at pennies on the dollar and unleashing a downwardpricespiralthatsawerosionofupto75percentperyearandthe“dumping”of bandwidthonto themarket. In the samedecade,newindustriesemergedofferingdatacenterandcontentdeliveryservices that further streamlined international connectivity forboth operators and end-users. By the mid-2000s transatlanticbandwidth had become extremely cheap (sometimes cheaperthanitsconstructioncost)andend-to-endservicesbetweenNorthAmericaandEuropewereefficientlyandcompetitivelymanaged,tothepointwhereevensmall-andmedium-sizedenterprisescouldbecharacterizedasviablebandwidthclientele.

Figure 9: Total Activated Transatlantic Capacity, 2007-2012

0

5,000

10,000

15,000

20,000

25,000

2007 2008 2009 2010 2011 2012

Gbp

s

Asofyear-end2012,littransatlanticcapacitywas19.8Tbps.Thecompound annual growth of lit transatlantic capacity was 27percentovertheprecedingfiveyears,althoughactualtransatlanticbandwidthdemandgrowthhasbeenslightlyhigher,at30percent.

34

Determining the total design capacity of existing transatlanticsystems is an imprecise task: although 40G and 100G upgradetechnologiespromisevastdesigncapacityincreasesintheory,thepractical implementationof the technology in ten- tofifteen-yearoldtransoceanicsystems,especiallythosewhichhaveundergonemultiplerepairs,hasnotshownuniformsuccess.Nevertheless,atleastfivetransatlanticsystemsclaimedtobesignificantlyorfullyupgradeable to 40G, yielding a design capacity (based on fielddemonstrations)ofatleast66.8Tbpsandasmuchas100Tbps,withevengreatercapacitiestheoreticallypossiblewith100G.

7.1.2 New Systems

The lackofnewsubmarinedeploymentdirectlybetweenEuropeand theAmericaswithin the last tenyearswould seem tomakethe market ripe for new investment, but the financing of newtransatlanticsystemshasprovenexceedinglydifficultascontinuedprice erosion, increasing upgradeability of existing systems, andtheperceivedmaturityofdemandhaveall combined to frightenawayprospectivesourcesoffinancing. Furthermore,veterans intheprojectfinancesectorremainhauntedbythemeltdownofthetransatlanticbandwidthmarketintheearly-2000s.

Most proposed transatlantic projects propose some competitiveadvantage not available among existing systems. These includelowerlatenciestargetinghigh-frequencytrading(HFT)customers;access to energy-efficient data centers; and direct, cost-efficientconnectivity on a historically underserved route (i.e., Europe-to-LatinAmerica).

Two privately-financed projects targeting the traditional NorthAtlanticroutebetweenEuropeandNorthAmericawereannouncedinSeptemberof2010andJulyof2011,respectively:HiberniaNetworks’ProjectExpressandEmeraldNetworks’EmeraldExpress.Initially,bothprojectsannouncedready-for-servicedates in2012. HiberniaAtlantic selected theAnglo-Chinese joint ventureHuaweiMarineNetworks to supply (and to potentially provide financing for) itsnewsystemwhileEmeraldNetworkschosetheAmericansupplierTESubCom.Apartfrommarinesurveyactivityandsecuringsomeoftherequiredpermits,therewaslittlematerialprogressannouncedbyeitherofthetwoprojectsduringmostof2012.

35

However,inJanuaryandFebruaryof2013,importantnewsaboutboth projects began to emerge. Emerald Networks’ news waspositive, as it indicated that ithad receivedwhat itdescribedasa “preliminary commitment” from theUS government’s Export-ImportBankintheformofa“PreliminaryProjectLetter.”

HiberniaNetworks’news,ontheotherhand,appeareddire.Thecompanywasreportedtohave“haltedworkwithHuawei”ontheHiberniaExpressprojectduetosecurityconcernsexpressedbytheUSgovernmenttowardChinesesupplierssuchasHuaweiandZTE.HiberniaNetworks’reporteddecisionfolloweda2012investigationbytheUSHouseofRepresentatives’PermanentSelectCommitteeonIntelligencewhichthechairmanofthecommittee,RepublicanCongressmanMikeRogers,summarizedbysayingthat“IfIwereanAmericancompany today…andyouare lookingatHuawei, Iwould find another vendor if you care about your intellectualproperty,ifyoucareaboutyourconsumers’privacy,andyoucareaboutthenationalsecurityoftheUnitedStatesofAmerica.”

Criticsassertedthatthe60-pagereportreleasedbytheIntelligenceCommittee contained no scientific or engineering evidence ofsecurityweaknessesuniquetoZTEandHuawei,nordiditidentifyanyattemptsatespionage;instead,thereportbaseditsassertionsonwhatitclaimedwasthefailureofZTEandHuaweito“provideclear answers to Committee questions…provide supportingdocumentation…or alleviate Committee concerns.” Critics alsoclaimed that the committee’s actions,whichbenefittedAmericansuppliers,couldeasilybeconstruedastradeprotectionism.Foritspart, thecommitteesaidthatmoredetailedinformationcouldbefoundin theclassifiedannex to thereport,but“that informationcannotbesharedpubliclywithoutriskingUSnationalsecurity.”

Beyondthepolitical intriguesurroundingthetwoNorthAtlanticprojects,thereremainfundamentalconcernsastowhetherprivateinvestorscansucceedinsuchawell-servedmarketwherebandwidthhas effectivelybecomea commodity. In fact, throughout 2012 itwas rumored thatbothprojectshadbeen shelved. Theprojects’initialfocusonattractinghighfrequencytrading(HFT)companiesthroughlatencysavingsofafewmillisecondswaslargelydebunkedasamajorpotentialsourceofbandwidthdemand,asquestionsalsoarose regarding theability to simultaneouslymarket low-latencybandwidthatapremiumprice toHFTandothermission-critical

36

clientele while still capturing traditional operator demand atmarketprices.

Meanwhile,atleastthreeothernewsystemswouldprovidepathsbetween Europe and Latin America in an attempt to enhanceconnectivity on a route which offers only one relatively low-capacityalternativetointerconnectionintheUnitedStates(namely,Atlantis-2).

The success of any of the proposed transatlantic projects willdepend on commitments or participation from tier-one carriers,as privately- or alternatively-financed cable systems will find itchallengingtocompeteagainstfutureconsortium-ledendeavors.

Table 4: Planned Transatlantic Cable Systems

(Europe to the Americas)

System Owner(s)

AtlanticCableSystem-Europe(ACSea-EUR) Telebras

EmeraldExpress EmeraldNetworks

EuropeLinkwithLatinAmerica(ELLA) Researchcommunity

ProjectExpress HiberniaNetworks(ColumbiaVenturesCorp.)

TransatlanticConsortiumSystem/TAT-15

Internationalconsortiumofcarriers

WASACENorth(WASACEPhaseIII) WASACECableCompany

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7.2 Transpacific


InvestmentinnewtranspacificsystemshasbeenmoreconsistentthanintheAtlantic. Newtranspacificcablesbeganenteringintoservice less thansixyearsaftercompletionof the lastcable fromthe “dot-com” investment boom. Furthermore, while Internetbandwidthmarkets on both sides of the NorthAtlantic quicklymatured and settled into growth rates of less than 30 percent,the overall growth ofAsian bandwidth demand has beenmorecharacteristicofemergingmarkets.

Table 5: Existing Transpacific Cable Systems

RFS System Owner(s)

2000 PacificCrossing-1(PC-1) NTT

2001 China-USCableNetwork Internationalconsortiumofcarriers

2001 Japan-USCableNetwork Internationalconsortiumofcarriers

2002 TGN-Pacific TataCommunications

2008 TransPacificExpress(TPE) Internationalconsortiumofcarriers

2010 Asia-AmericaGateway(AAG)


2010 Unity/EACPacificPacnet/Google/Bharti/GlobalTransit(TimedotCom)/KDDI/Singtel

The transpacific market suffered a shock with the activation ofthreenewsystemsbetween2008and2010.Eachofthethreenewsystems targeted its ownmarket segment: Trans Pacific Express(TPE) catered to China’s transpacific demand; Asia-AmericaGateway (AAG) was the first cable to connect North America

38

directly to SoutheastAsianmarkets; andUnity/EACPacific, ledbyPacnetandGoogle,positioned itself asa complement todatacenter infrastructure in the United States and Japan. Between2008and2010thenumberofactivetranspacificsystemsincreaseddramatically, from four to seven. Furthermore, the Unity/EACPacificproject,withmorethantwo-thirdsofitscapacitycontrolledby non-operators and wholesalers, opened up the Japan-USwholesalemarket,whichuntilthenhadbeendominatedbyTGNPacificandPacificCrossing-1.Asaresult,transpacificpricesfellbyasmuchas50percentinoneyear.

Asofyear-end2012,activatedtranspacificcapacitywas15.2Tbps.Using40Gtechnology,andbasedondemonstratedupgradeabilityinthefield,thecombineddesigncapacityoftranspacificsystemsis at least 60 Tbps. Theoretical upgradeability based on the fullpotential of 40G and 100G may ultimately reveal itself to besignificantlyhigher,butthelengthoftranspacificspansisexpectedtoposeasignificantobstacletothemaximumimplementationofwavelengthsandhigherlinerates.

Figure 10: Total Activated Transpacific Capacity, 2007-2012

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

2007 2008 2009 2010 2011 2012

Gbp

s

In addition to strong bandwidth growth, the case for newdeployment in the transpacific is bolstered by the technicalchallengesofimplementing40Gand100Gupgradesontheroute’sexistingsubmarinesegments,someofwhichareamongthelongestcable spans in the world. There is also greater geographicalsegmentation in the transpacific market, with operators insecondary Southeast Asian markets showing a sustained desire

39

foradditionaltranspacificconnectivitythatlandsdirectlyontheirshores. It should be noted, however, that prohibitive costsmayleadsomeSoutheastAsiansubmarineprojectstoultimatelyopttolandinmarketssuchasGuam,ratherthanconstructingcompletetranspacificspans.

Over the longterm, theprimarydriverof transpacificandAsiansubmarine markets will undoubtedly be the growth of ChineseInternet and telecommunications markets. As of 2013, Chineseinternationalbandwidthexceeds2Tbps,with52percentdirectedtoward the United States. Although international bandwidthdemand fromChina still remains adistant second in the region,behindJapan’swhichisapproximately3Tbps,theChinesemarketnevertheless shows the strongest prospects for growth in theregion, driven by its fixed broadbandmarketwhich is expectedtoexceed200millionsubscribersby2014.Thecountry’sfiber-to-the-homemarketexceeds25millionandmorethan8millionfiberkilometershavebeendeployed. China’s12thFive-YearPlancallsforbroadbandspeedstoincreaseto20Mbpsinurbanareasand4Mbpsinruralareasby2015.

Figure 11: Chinese International Internet Bandwidth, 2003-2012

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Gbp

s

7.2.2 New Systems

There have been few formal announcements of proposedtranspacificsystemsbetweenAsiaandNorthAmerica.

40

Table 6: Planned Transpacific Cable Systems

System Owner(s)

China-US-2 Internationalconsortiumofcarriers

SerantauCableSystem(Malaysia-US)

KonsortiumRangkaianSerantauSdnBhd

SoutheastAsia-US Internationalconsortiumofcarriers

TransPacificExpress(TPE)Expansion


Giventhetremendouscostsinvolvedinconstructingatranspacificcable system, the route has historically been a less attractivemarketforinvestor-ledprojects,withoperatorstakingtheleadingrole.Itisexpectedthattherewillbeacontinuationofthetrendofcomparativelysmallertranspacificconsortia,whichduringthelastroundoftranspacificdeploymentconsistedofbetweensixand17telecommunicationsandInternetcompanies.

Fortheforeseeablefuture,operatorsinChinaandJapanwilllikelyhave the strongest influenceon futuredeploymentof submarinecablesintheNorthPacific.

InChina,ChinaTelecomandChinaUnicomhaverespectivesharesof13and26percentintheTransPacificExpress(TPE)system,butitisunclearhowlongtheseshareswillaccommodateeachoperator’sdemand,andbothoperatorsarebelievedtobeseriouslyconsideringoptionsforadditionalcapacity. ChinaMobile isalsoexpectedtoadoptamoreaggressivestancewithrespecttotranspacificcapacity;the operator has recently begun making investments in Asianregional submarine capacity including the SoutheastAsia-JapanCable (SJC)andAsia-PacificGateway (APG),and isconstructingitsownGlobalNetworkCentreinHongKongtointegrateitsdatacenterservicesandsubmarineconnectivity.

41

Figure 12: Chinese Operators’ Share of China’s International Internet Bandwidth, 2013

China Telecom55%China Unicom

31%

China Mobile11%

Research Networks3%

Japan’s 3 Tbps of bandwidthdemand remains the largest in theregion and for the immediate future the transpacific bandwidthdemand of the country’s leading operatorsNTT andKDDIwilllikely be accommodated by their investments in the PC-1 andUnity systems, respectively. However, the country’s thirdmajoroperator,SoftbankTelecom,isexpectedtoemergeasanaggressiveinvestorinsubmarinebandwidthfollowingitspendingmid-2013acquisition of 70 percent of Sprint Nextel. The acquisition willgiveSoftbankanexpandedportfoliooflitsubmarinecableassetsin thePacific, theAtlantic,andLatinAmericaand isexpected totransformSoftbankintotheworld’sthird-largestmobileoperatorbyrevenue,behindonlyChinaTelecomandVerizon.

Among the transpacific projects that have been announced tothe public, one of themost developed plans is for the SerantauCableSystem,whichwasproposedbytheKonsortiumRangkaianSerantau (KRS), a group of 24Malaysian operators. The 18,500kilometersystemwouldconnectMalaysiaandtheUnitedStates,andwouldavoidtwomajorsubmarinecable“chokepoints”intheLuzonStraitandthewatersoffSingapore,whicharevulnerabletoearthquakesandanchordamage,respectively.However,asof2013theMalaysiangovernment’sfinancialsupport,whichwouldlikelybeaprerequisiteinordertomoveforward,remainsuncertain.

42

Althoughtheredon’tyetappeartobeanycredibleplanstodeveloptransoceanic connectivity from Russia’s pacific coast, TerabitConsulting’s internal analysis has identified a relatively strongmarketopportunityfordirectconnectivitybetweentheeastcoastofRussiaandeitherAlaska,Canada,ortheUSWestCoast.

Over the longer term, Terabit Consulting also expects seriousoperator-led initiatives for single-cable transpacific connectivitybetweentheUnitedStatesandIndia,whichwouldaddresssomeoftheriskposedbyconcentrationofIndia-boundcablesthroughEgypt(theproposedBRICScablewouldalsodothesame,albeitintheoppositedirection).

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7.3 North and South America


The North America-South America capacity market is heavilydependent on three privately-owned geographic ring networks:Oi’sGlobeNet,Telefonica’sSAM-1,andLevel3’sSouthAmericanCrossing (the latter connects to the mainland United States viaLevel3’sotherLatinAmericancables,Mid-AtlanticCrossingandPan-AmericanCrossing).

Americas-IIistheonlyotherexistinglinkbetweentheUnitedStatesandBrazil;itwasconstructedbyaconsortiumofmorethanadozenoperatorsin2000andhasbeenupgradedtolevelswellbeyonditsinitially-stateddesigncapacity,althoughitsdesigncapacityisstillestimatedtobebelowthoseofthethreegeographicringsystems.Connectivitytothenorthernandwesterncoastsofthecontinent,meanwhile,isprovidedbytheconsortiumcablesMaya-1andPanAmerican,aswellasbyColumbusNetworks’Arcos-1andCFX-1systems.

Table 7: Existing US-Brazil Cable Systems

RFS System Owner(s)

2000 Americas-II Consortium

2001 GlobeNet Oi

2001 SAM-1 Telefonica

2001 SouthAmericanCrossing(SAC)

Level3(LANautilus (Telecom Italia) fiber pair)

Asofyear-end2012, lit submarinecablecapacitybetweenNorthAmerica andSouthAmericawas 6.3Tbps. Growth in activatedsubmarine capacity has been extremely high, with a compoundannualgrowthrateof54percentoverthelastfiveyears.

44

Figure 13: Total Activated North America-South America Capacity, 2007-2012

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2007 2008 2009 2010 2011 2012

Gbp

s

ThedynamicsoftheLatinAmericanmarketareunique;themajorityof Internet demand is directed to North America (specificallyMiami), and bandwidth pricing remains among the highest ofany region, ranging from $25perMbps for volume IP transit inBrazilto$80perMbpsinParaguay.TransportpricingontheNorthAmerica-SouthAmericarouteisasmuchastentimeshigherthantransatlantic pricing. This is due in large part to the relativelytight control over the marketplace exhibited by the three majorwholesalers (Level 3, Oi, and Telefonica), as well as unforeseenbandwidthgrowthinthecontinent’sprimarymarkets,combiningtocreatea“seller’smarket.”

Growth in South American bandwidth demand, though strongin almost all of the region’smarkets, is driven by Brazil, whichaccountsforhalfofthecontinent’spopulationbutfive-eighthsofitsinternationalbandwidthdemand.Brazil’seconomicgrowthhasbeenstrongandmoreequitablethaninotherdevelopingmarkets,resulting in a larger addressable base for telecommunicationsandInternetservices,andthe2014WorldCupand2016SummerOlympics are expected to result in even greater increases inbandwidthdemand.Thecountry’sPlanoNacionaldeBandaLarga(PNBL),administeredbystate-ownedTelebras,aimstoprovide1Mbpshigh-speed Internet connections forUS$18permonth andhasattractedcommitmentsfrommostmajoroperators.

45

Figure 14: Share of South American International Bandwidth Demand by Country, 2013

Brazil62%

Argentina13%

Colombia9%

Chile5%

Ecuador3%

Peru3%

Venezuela3% Others

2%

7.3.2 New Systems

FuturedeploymentofsubmarineconnectivitytoSouthAmericawillbedriveninlargepartbythebandwidthrequirementsofBrazil’smajoroperators.ThreeofBrazil’sfourlargesttelecommunicationsoperatorshaveownershipofsignificant(terabit-capable)submarinecableassets.ThenotableexceptionisAmericaMovil,whichownsthecountry’sClaro,Embratel,andNetbrandnames.

ItisthereforeunsurprisingthatthemostadvancedSouthAmericansubmarine cable project in terms of development, according tosources,isAmericaMovil’sAMX-1cable,whichwillconnectBrazil,Colombia,PuertoRico,theDominicanRepublic,themainlandUnitedStates, Mexico, and Guatemala. The project’s supplier, Alcatel-Lucent, asserts that the 17,500-kilometer cable will have a trunkdesigncapacityofmorethan50Tbpsusing100Gbpstechnology.

46

Table 8: Major Brazilian Operators and Their Submarine Cable Assets, 2013

Fixed Line Market Share Rank

Mobile

Market Share Rank

Fixed Broadband Market Share Rank

Submarine Cable Assets

Oi 1 4 1GlobeNet,ConsortiumCables

Telefonica/Vivo 2 1 3

SAM-1,ConsortiumCables

Net/Claro/Embratel(AmericaMovil)

3 3 2 ConsortiumCables

TIM(TelecomItalia)

2SAC(viaLANautilusFiberPair)

GVT(Vivendi) 4 4

Telebras N/A(EstablishedtomanagethePlano Nacional de Banda Larga)

In March of 2012 Boston, USA-based Seaborn Networks revealedplans for its Seabras-1 project. Unlike other Latin American cableprojects,Seaborn-1wouldconnectonlytheUnitedStatesandBrazil,and notably, the projectwouldpursue a “carrier’s carrier” businessplan. SellingcapacityontheopenmarketinBrazilmayprovetobechallenging, given the aforementioned dynamics of the country’stelecommunicationssector.Theend-usermarketisconcentratedinthehandsofafewoperators,threeofwhich(Oi,Telefonica,andTelecomItalia)havetheirownterabit-capablenetworksinplacebetweenBraziland the United States, with a fourth (America Movil) expected to

47

launchitsownbeforetheendoftheyear.AMay2012announcementthatTataCommunicationswouldbecomean“anchortenant”ontheSeabras-1systemwasasignificantstepforwardalthoughTataisnotcurrentlyamajorplayerintheregion’send-usermarkets.Nevertheless,Seabras-1’ssupplierAlcatel-LucentreportedinJanuaryof2013thatitwasperformingamarinesurveyandSeabornsaidthat the32-Tbps,100G-capablesystemwasexpectedtobeactivatedin2015.

In 2012 Alcatel-Lucent was also awarded the turnkey contractfor a third 100G-capable North America-South Americasubmarine project, the comparatively modest Pacific CaribbeanCommunications System (PCCS), which would span 6,000kilometersfromtheUnitedStatestoEcuadorandColombiaviatheCaribbeanandCentralAmerica.

Table 9: Proposed Latin American Systems

System Owner(s)

AmericaMovil-1(AMX1) AmericaMovil

AtlanticCableSystem-US(ACSea-US)

Telebras

BRICSCable ImphandzeSubtelServices(S.Africa)

PacificCaribbeanCommunicationsSystem(PCCS)

Consortium

Seabras-1 SeabornNetworks(USA)

TransamericasBroadbandInfrastructure(TBI)

Consortium

WASACEAmericas WASACECableWorldwide/AteriosCapital

AtleastfourotherprojectswouldalsoprovideconnectivitybetweenNorthAmericaandSouthAmerica,althoughnonehadannouncedsupplycontractsasofearly-2013.Theyincludedthreeprojectsthatwouldbeintegratedwithlargerinterregionalnetworks:Telebras’

48

Atlantic Cable System (ACSea), the BRICSCable, andWASACEAmericas.

ACSeawould formpartofahubnetworkconnectingBrazil toNorthAmerica,Europe,andAfricaviaaseriesofcables.BRICS,meanwhile,would provide connectivity between the United States, Brazil, SouthAfrica,India,Singapore,China,andRussia.WASACEwouldcompriseintercontinentallinksfromEuropetoNorthAmericatoSouthAmericatoAfrica.

The fourth proposed project that has yet to announce a supplycontract, Transamericas Broadband Infrastructure (TBI), wouldconsist of an ambitious consortium-led North America-LatinAmerican geographic ring system along both sides of SouthAmerica. Among the investors that had reportedly consideredparticipating at one time or anotherwereAT&T,Google, FranceTelecom,andleastadozenLatinAmericanoperators.

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7.4 Australia and New Zealand


TheinternationalbandwidthmarketinAustraliaandNewZealandhasshowntremendousgrowth,withthetwocountries’combinedinternationalbandwidthcurrentlywell inexcessof1Tbps,morethan 80 percent of which is directed toward the United States.Between 2011 and 2012, the total volume of data downloadedviaAustralia’s broadbandnetworks grewby 51percent. Futuregrowth in the countries’ international bandwidth demand isexpectedtobesignificantlyhigherthaninotherdevelopedmarketsdue to aggressive government-led investment in broadbandinfrastructure.InAustralia,therolloutofthe$40-billionAustralianNationalBroadbandNetwork(NBN)iswellunderway,withmorethan3.5millionresidencesandbusinessesset tobeconnectedtofiber by 2014 and fiber connectivity formore than 90 percent ofthepopulationby2021,ultimatelypromising1Gbpsofdownloadbandwidthtothehome.AcrosstheTasmanSea,meanwhile,NewZealand’sUltra-Fast Broadband (UFB) initiative aims to connect75percentofthecountry’spopulationtobroadbandservicewithdownloadspeedsofatleast100Mbpsby2020.

Table 10: Existing Australia/New Zealand Intercontinental Systems

RFS System Owner(s)

1997 Jasaurus Internationalconsortiumofcarriers

1999 Sea-Me-We-3 Internationalconsortiumofcarriers

2001 SouthernCrossCableNetwork(SCCN) TNZ/SingtelOptus/Verizon

2002 Australia-JapanCable(AJC)


2008 Endeavour Telstra

50

2009 PipePacificCable-1(PPC-1) TPGTelecom

The lit bandwidthofAustralianandNewZealandPacific cablesexceeded 2.3 Tbps as of year-end 2012, although much of thecountries’internationalbandwidthisconfiguredasprotectedpathsonSouthernCross. It should alsobenoted that SouthernCrossaloneexpectstoincreaseitslitcapacitybyanadditional1Tbpsin2013.

Figure 15: Total Activated Capacity between Australia & New Zealand and the United States (including Hawaii and Guam),

2007-2012

0

500

1,000

1,500

2,000

2,500

2007 2008 2009 2010 2011 2012

Gbp

s

With its elevated demand for long-distance bandwidth inthe direction of the United States, relatively limited numberof intercontinental submarine cables, and bandwidth pricesremainingstubbornlyhighatbetween$25and$40perMbpsforvolumepurchases,theAustralianandNewZealandinternationalbandwidthmarketwouldatfirstglance seem tobeanattractiveopportunityforsubmarinecableinvestors.However,thefailureoftheproposedAustralia-USPacificFibreprojectrevealedthepitfallsof trying to compete in an environment where both the retailmarketandinternationalsubmarineinfrastructurearedominatedbyahandfulofoperators.

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Table 11: Market Share of Major Operators in Combined Australia & New Zealand Markets, and Their Key

Intercontinental Submarine Cable Assets, 2013

Fixed Line Market Share

Mobile

Market Share

Fixed Broadband Market Share

Key Intercontinental Submarine Cable Assets

Telstra 74% 40% 48%

Endeavour&AAGFiberPairtoUS(100%);Australia-JapanCable(47%)

Optus(Singtel) 9% 27% 14% SouthernCross

(40%)

Vodafone/VodafoneHutchison

25% 6%

TelecomNewZealand/AAPT

9% 5% 7% SouthernCross(50%)

Subtotal, Top 4 Operators

92% 97% 75%

OtherOperators 8% 3% 25%

PipePacificCable-1(TPGTelecom)

Four telecom groups, Telstra, Singtel Optus, Telecom NewZealand, and Vodafone/Vodafone Hutchison Australia, controlapproximately 93 percent of the combined consumer market inAustralia and New Zealand. Telstra, Optus, and TelecomNewZealand,whichcollectivelycontrolabout76percentoftheconsumermarket, each have their own high-capacity systems toward theUnitedStates. ThepresenceofTPGTelecom’sPipePacificCable(PPC-1),which connects toGuam, further limits the addressable

52

marketforsubmarinecableinvestorslookingtoconnectAustraliaandNewZealandwiththeUnitedStates.

Consequently, any future investment in submarine infrastructurebetween Australia and the United States will require theparticipationofeitheramajoroperatororagovernmentinvestor,intheformofequityoraverylargecapacitycommitment.

7.4.2 New Systems

Perhaps themost serious effort in the last tenyears to constructa new cable betweenAustralia and the mainland United Stateswas Pacific Fibre. The projectwas first announced in early-2010anddevelopmentcontinuedinearnestformorethantwoyears;inmid-2010AsiansubmarinecableoperatorPacnetwasidentifiedasapotentialinvestorintheproject,andtheprojectwasalsobuoyedbyVodafone’s pledge in 2011 to shift its capacity fromSouthernCrossontothenewcableonceitenteredservice.Totalpre-salesonPacificFibre,toabaseofwhatwasreportedtobefive“foundation”customers includingVodafone, iiNet, andNewZealand researchnetworkREANNZ,weresaidtoamountto$170million.

Byearly-2012,however,rumorsbegancirculatingthattheprojectwas encountering strong resistance in its fundraising efforts. Inresponse, investorsRodDrury,SamMorgan,PeterThiel,andSirStephen Tindall announced in mid-2012 that they would injectadditionalcapitalintotheendeavor.SomesourcesindicatedthattheprojectmayhavealsobeeninapositiontoattractfundingfromChineseinvestors,butsucheffortswereendedbecauseofespionagefearsexpressedbyUSauthorities.

By July of 2012, Mr. Drury revealed that the project had onlyraised half of its required funding and would be abandoned.Shortly after the project collapsed, one of its co-founders, LanceWiggs,predictedthatonemajoroutcomeofPacificFibre’sfailurewouldbehigherbandwidthprices.Mr.WiggsconcededthatthetelecommunicationsmarketsinAustraliaandNewZealandwerecontrolledbythesamelimitednumberofinvestorsthatcontrolledthe submarine infrastructure, and claimed that the Pacific Fibreprojectwasdefeatedinpartby“awell-knowngametheoryscenariofromothercablemarkets,wheretypicallyincumbentsdroppricesjustenoughtodiscouragecrediblethreatsandthenpricesremain

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staticandmonopoly rent-takingensues. Indeed the self-reportedhistorical Southern Cross priceswere amusingly static and thenplummetarguablyaroundaboutthesametimeasvariouscrediblethreatsturnup.”

Inlate-2012,anumberofproposalsemergedtosucceedtheoriginalPacificFibreendeavor.KimDotcom,thefounderoftheseizedfile-sharing serviceMegaupload, indicated that hewould revive thePacificFibreprojectaspartofhisplan to re-launchMegauploadinNewZealand. However,skepticsnotedthateffortsbytheUSDepartmentofJusticetoextraditeMr.DotcomfromNewZealandinordertostandtrialonchargesofcopyrightinfringementmightprovetobeanobstacleifhisprojectweretoapplyforasubmarinecablelandinglicenseintheUnitedStates.

Also in late-2012, Australian communications minister StephenConroyindicatedthattheAustraliangovernmentmightconsiderinvesting ina submarinecable to theUnitedStatesaspartof itsNational Broadband Network initiative. “If the internationalmarket doesn’t improve, for $250 million out of a $40 billionbudgetI’llbuildalinktotheUStobringpricesdown,”hetoldanInternetconferenceinNewYork.Someobserverspraisedtheplanasnecessary intervention toaddresswhat theyperceived tobeamarketfailure,butasof2013theAustraliangovernmenthadgivennoindicationthatitintendedtoproceedwithsuchaninvestment.

Atapproximatelythesametime,SubPartners,ledbythedeveloperofthePipePacificCableprojectBevanSlattery,announcedthatitwouldconstructtwointercontinentalcablesservingAustralia:AsiaPacificExpressEast(APX-East)toHawaiiandCalifornia,andAsiaPacificExpressWest(APX-West)toIndonesiaandSingapore.Thecompanysaidthatitwoulddifferentiateitselffromotherprojectsbyallowingcustomerstopurchasepartialfiberpairsor“spectrumownership” that would allow the customers to benefit fromadvancementsintransmissiontechnology.

In addition to the APX cables, the informal Australia NBNproposal,andtheKimDotcomplan,severalotherprojectswouldprovideintercontinentalconnectivitytoAustralia,primarilyviathecountry’swestcoast.TheproposedAustralia-SingaporeSubmarineCable(ASSC-1)projectbetweenPerthandSingaporewasinitiallyproposed inearly-2012and indicated thatTelstrahadcommitted

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to purchase a fiber pair; however it appeared to be negativelyimpactedbytheAustraliangovernment’shostilitytowardHuawei,whichwouldhaveparticipatedinthesupplyoftheprojectthroughits joint ventureHuaweiMarine. A similar systemproposedbyLeighton Holdings, the Australia-Singapore Cable (ASC), wasreportedlystillonthetableevenasthecompanymovedtoselloffitstelecommunicationsassets.MatrixCableSystem’ssubmergedbranchingunitsalsoleaveopenthepossibilityoffutureexpansionofthatsystemtoPerth.

Elsewhere, sources have indicated that the Pacific Transit Cable,firstproposedapproximately12yearsagoasaSouthPacific linkbetweenAustralia,NewZealand,andChile, isonceagainunderconsideration, and the proposed Hawaiki cable would connectAustralia, New Zealand, and Hawaii with branches to severalSouthPacificislands.

Table 12: Proposed Australia/New Zealand Intercontinental Systems

System Owner(s)

AsiaPacificExpressEast(APX-East) SubPartners

AsiaPacificExpressWest(APX-West)(formerlyAustralia-Indonesia-SingaporeCable)

SubPartners

AustraliaNBNCable GovernmentofAustralia

Australia-SingaporeCable(ASC)LeightonContractorsTelecommunications(Australia-SingaporeCableLtd.)

Australia-SingaporeSubmarineCable(ASSC-1) ASSC-1(JPCInternational)

Hawaiki HawaikiCable/Intelia

MatrixCableSystemAustralianExpansion

BrantwoodInternationalLtd./CausewayBayInvestmentsLtd.

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PacificFibreOriginallyPacificFibreLtd.;revivalproposedbyKimDotcom

PacificTransitCable(PTC) CTC(Chile)

SouthernCrossCableNetwork-2(SCCN-2) SouthernCrossCablesLtd.

Themarketopportunityforintercontinentalcapacitywaspotentiallymade more complex by the February 2013 announcement thatTelecomNewZealand,Telstra,andVodafonewouldcooperateinbuildinga$60millioncablebetweenAustraliaandNewZealandtobeknownasTasmanGlobalAccess(TGA).Theproject’sproponentssaid that the cable would increase each country’s access to theother’sinternationalsubmarinecables,butNewZealandoperatorCallPlus(theparentcompanyofISPSlingshot)saidthatitwouldexpressconcerntoregulatoryauthoritiesaboutwhatitperceivedtobetheanti-competitivenatureoftheproject.

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http://aptelecom.net/

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7.5 Sub-Saharan Africa


Untilfouryearsago,Sub-SaharanAfricawasthemostunderservedregion in the world with respect to international fiber capacity.EastAfricawas particularly underserved and reliant exclusivelyoncostlyandless-reliablesatelliteconnections;the6,700-kilometerstretchof coastlinebetweenMtunzini, SouthAfrica andDjiboutihadthedubiousdistinctionofbeingtheworld’slongestexpanseofshorewithoutaninternationalsubmarinecable.

Inthemid-2000s,thescenariochangeddramatically,drivenbythreefactors. First, the adoption ofmobile phone service throughoutthe continent exceeded all expectations, driving growth in bothbandwidthdemandandoperatorrevenue. Second, internationalfinancial institutions including the World Bank and theAfricanDevelopment Bank, aswell as private financiers, increased theirlendingfortelecommunicationsinfrastructureprojectsintheregion,particularly fiber optic networks. At the same time, submarinesuppliers began to focus on potential greenfield opportunitiesin Africa in order to counteract the lack of new investment intransoceanicmarkets,oftenproposingattractivepricesforpotentialnewAfricanprojectsinanattempttostimulatedemand.

Figure 16: Investment in New Sub-Saharan African Systems, 1993-2012

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Total Investment 2009-2012: $2.927 billion

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Theresultwasawaveofmajorinvestmentbetween2009and2012totalingalmost$3billionthatincludedthreeintercontinentalcablesalongtheeastcoast(TEAMS,Seacom,andEASSy),fouralongthewest coast (Glo-1, Main One,ACE, andWACS), and additionalinvestmentinregionalsystems(includingAdones,LION,LION-2,andtheSeychelles-EastAfricaSystem).

Table 13: Existing West African Intercontinental Systems

RFS System Owners

1993 SAT-2 Consortium

2002 SAT-3/SAFE Consortium

2010 Glo-1 Globacom

2010 MainOne MainStreetTechnologies

2012 AfricaCoasttoEurope(ACE)

Consortium

2012 WestAfricaCableSystem(WACS)

Consortium

Table 14: Existing East African Intercontinental Systems

RFS System Owners

2009 EastAfricaMarineSystem(TEAMS)

TEAMSLtd./Etisalat

2009 Seacom IPS(AgaKhanFund)/Remgro/HeraklesTelecom/ConvergencePartners/ShandukaGroup

2010 EastAfricanSubmarineCableSystem(EASSy)

Consortium/WestIndianOceanCableCompany(WIOCC)

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The arrival of next-generation submarine systems to the Sub-SaharanAfricanmarketoverthelastfouryearshashadadramaticimpact on the continent’s international bandwidth, with annualgrowth in demand exceeding 100 percent inmanymarkets, andtotallitcapacityinSub-SaharanAfricansubmarinecablesystemsincreasingby71percentannuallyoverthelastfiveyears.

Figure 17: Total Activated Sub-Saharan African Intercontinental Capacity, 2007-2012

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Overall, the majority of next-generation Sub-Saharan Africansubmarine cable projects are either majority- or wholly-fundedby telecommunications operators, sometimes in the form ofconsortiumprojectssuchasEASSyandWACS.Thecarrier-fundedprojects,dimensionedaroundoperators’ownestimatedbandwidthrequirements,aregenerallyperceivedtobelessriskythaninvestor-ledmodelspredicatedonthesaleofwholesalecapacitytooperators.

Consequently, a key issue surrounding the African submarinecablemarket iswhether thewholesale capacity businessmodel,particularly projects led by private non-telecom investors, cansurviveandflourish.Analysisrevealsthatthewholesalemarketisrifewithbothopportunitiesandchallenges.

On the one hand, the addressable market of African wholesalebandwidth customers is more promising than in many otherregions. Sub-Saharan Africa has 49 markets and dozens ofoperatorswith international bandwidth demand, none ofwhomaredominantonacontinentalbasis,andmanyofwhomwereuntil

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recently paying inflated satellite capacity prices. In this respect,thecontinentmeetswhatTerabitConsultinghas identifiedasanoptimalscenarioforprivateinvestmentinsubmarineinfrastructure:manyoftheregion’soperatorslacktheresourcestomaketheirowninvestments in intercontinental infrastructure. Opportunity alsopresentsitselftowholesaleprovidersintheformofthecontinent’spersistently high bandwidth prices; some Sub-Saharan AfricanmarketsstillcommandhundredsofdollarsperMbpsforInternettransitbandwidthviaEurope.

On the other hand, theAfricanwholesale capacitymarket facessignificantchallengesdueprimarilytotherestraineddevelopmentofthecontinent’sdomesticInternetmarkets.Africa’sfixed-broadbanddeployment is negligible compared to other regions, andmobileInternet usage, still largely 2G inmanymarkets, has not shownthegrowthrates that initiallycharacterized theuptakeofmobilevoiceandtextingservices.Perhaps,moreimportantly,operators’controlovertheterrestrialsegmentsofthenetworkinfrastructureposesanobstacletotheefficientdistributionofsubmarinecapacity,beginningwithshore-to-citybackhaulandinternationalgateways,and throughout domestic transmission and access networks,which inmany cases are significantly underdeveloped. InmostAfricancountries,domesticinfrastructureeffectivelyimposesbothaneconomicandtechnicalbottleneckoninternationalsubmarinecapacity,withexorbitantinterconnectionandaccesspriceschargedbydomesticoperatorsforwhatisoftenlow-bandwidth,unreliableinfrastructure.

Regardless of the performance ofAfrica’s wholesale bandwidthmarket,TerabitConsultingdoesnot forseeanoverallbandwidth“glut.”Thedesigncapabilitiesofsub-SaharanAfrica’ssubmarinecable systems will greatly exceed demand for the foreseeablefuture,butthedynamicsoftheAfricantelecommunicationsmarket,particularly its historical resistance to both consolidation amongoperatorsandtransbordermarketintegration,allowittosupportmultiple submarine cable projects. Most African operators arefinanciallyhealthyandwillingtoinvestinorpurchasesubmarinecablecapacity.

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7.5.2 New Systems

Although some existing West Coast systems propose theconstruction of extensions to South Africa and several smallerprojectspropose intraregionalconnectivity,mostof theproposedinvestment in Sub-Saharan African submarine market focuseson the construction of transatlantic systems betweenAfrica andLatinAmerica.SomeprojectsspecificallytargetthelinguistictiesbetweenLusophonecountriesincludingBrazilandAngola.MostoftheprojectspositionSouthAtlanticspansaspartoflargernetworkbuild-outsthatincludeconnectivitytoNorthAmerica,Europe,orAsia.

FortheretobesignificantSouthAtlanticdemandbetweenAfricaand South America, Terabit Consulting believes that there mayneedtobegreaterprogressintheSouthernHemisphere’sInternetcontentdevelopment,Internetroutingpatterns,politicalrelations,and overall economic development. In the meantime, there isperhaps a more immediate opportunity for single-system (orotherwise seamless) connectivity betweenAfrica and theUnitedStates.

Table 15: Proposed Sub-Saharan African Intercontinental Systems

System Owners

AtlanticCableSystem-Africa(ACSea-AFR)(PossibleintegrationofprojectwithSACS)

Telebras/Odebrecht


SouthAtlanticCableSystem(SACS)(formerlyAngola-Brazil)

AngolaCables/Telebras

SouthAtlanticExpress(SAEx) eFiveTelecoms

WASACESouth WASACECableWorldwide/AteriosCapital

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7.6 South Asia & Middle East/Europe-Asia


India,withincominginternationalInternetbandwidthinexcessof1Tbpsasof2012,istheleadinggeneratorofbandwidthdemandin SouthAsia and theMiddleEast. India’sdemand far exceedsthecombineddemandoftheregions’nextthreelargestbandwidthmarkets,whichindescendingorderareSaudiArabia,theUnitedArabEmiratesandPakistan.TheIndianinternationalbandwidthmarketisuniqueforitsstrongtiestotheUnitedStates;asof2013IndiaistheUnitedStates’leadingvoicecorrespondent,accountingformore than one out of every four outgoing international callsmade in the United States, and the combined, bidirectionalinternational Internet bandwidth (both direct and connecting)betweenthetwocountriesisitselfontracktoexceed2Tbpsinlate-2013orearly-2014.

Terabit Consulting’s analysis shows that the near-term promiseof the Indian telecommunications market will likely be weakerthanChinaandBrazil,dueprimarilytostructuralproblemsintheIndianeconomy.Onthesurface,Indianeconomicstatisticsappeartobeencouraging:inlessthantenyears,between2002and2010,the Indianmiddle-andupper-class (characterizedashouseholdswith incomes in excess of USD$4,000 per year) grew from 13.8million households to 46.7 million. Extremely impoverishedhouseholdsearninglessthan$1,000peryearfellfrom65.2millionto41million.Yetdespitethecountry’sincomegains,middle-andupper-classhouseholdsstillaccountforlessthan20percentofthepopulation.Thesizeofthecountry’sso-called“in-betweenclass,”classifiedashavingan incomeofbetween$1,000 and$4,000peryearperhousehold,remainedsteadyatmore thanthree-fifthsofthepopulation; theaveragehousehold comprisesmore thanfiveinhabitants so theupperboundof thisclassification translates toroughly$2.20perhouseholdmemberperday.

In lightof the low incomeofmanyof the country’shouseholds,mobile voice services are extremely affordable: IndianARPU isamongthelowestintheworldatapproximately114INR(USD$2).However, the industry’s long-term challenge will be to ensurewidespreadpenetrationofbroadbandInternetservices,whichsofar have failed to achieve significant penetration outside of the

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country’s upper class. A primary obstacle is the country’s lowcomputer ownership, at less than 10 percent of households. Inaddition, national broadband initiatives proposed by the Indiangovernmenthavefailedtogaintraction.AffordableADSLpackagesdo exist, but fiber-based broadband services are significantlymoreexpensivethanintherestoftheworld;thecountry’slargestInternet service provider recently launched a fiber-to-the-homeservice priced at INR 2,999 (USD$56) per month for the lowestbandwidthof just1Mbps. Onthemobileside,3Gadoptionhasbeen weaker than expected, and its growth has been restrainedby widespread consumer complaints about high prices, weakcoverage,incompatiblehandsets,and“billshock.”

Figure 18: Total Activated South Asian Interregional Capacity, 2007-2012

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The South Asian and Middle Eastern bandwidth market hasrecentlybeendominatedbyeffortstoprovideacost-effectiveandreliablepathtoEuropethatavoidsthebottleneckofcablescrossingterrestriallythroughEgypt. Theconcernisnotnew;carriershadexpressed concerns about the Egyptian crossing since the 1990sandtheirfearofcatastrophiccableoutageswererealizedmultipletimes,most notably in 2008when Sea-Me-We and FLAG cableswere cut simultaneously, prompting speculation of a politicalor military conspiracy. Frustration increased when Egyptianauthoritiesdelayed the landingofnewcable systems inorder toallegedly accommodate surveillance requirements put in placeby the EgyptianOffice ofMilitary Services and Reconnaissance.

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Cableoperators’ concernwas furtherheightenedby thepoliticaluncertainty accompanying the Egyptian Revolution of 2011.SimultaneouscableoutagesinEgypthaveresultedinthelossofasmuchas80percentofIndia’sinternationalbandwidth.

Various routings have been constructed or proposed in order tocompete against cables passing through Egypt. One of the firstsubmarinealternativeswastheSAT-3/SAFEprojectwhichin2002provided thefirst Europe-Asia connectivity via SouthAfrica butwithgreaterlatency.FiberopticsystemsconnectingIndiaeastwardstarted toappearat approximately the same timebut createdanequally-risky chokepoint in the Strait ofMalacca. Then in 2011,largely as a result of political uncertainty in Egypt, plans werefinalizedformultipleterrestrialnetworksbypassingEgypttotheeast includingEuropePersia ExpressGateway (EPEG),RegionalCable Network (RCN), and Jeddah-Amman-Damascus-Istanbul(JADILink).

BothRCNandJADILinkpassthroughSyriaandhavereportedlybeen impacted by the country’s civil war. EPEG opted for aroute through Iran, and in 2013,Gulf Bridge International (GBI)announcedaterrestriallinkviaIraq.Politicalriskineachofthosecountries, as well as embargo restrictions imposed by the USgovernmentagainstAmericanoperatorsconsidering investmentsintheregion,havepreventedanyoftheterrestrialnetworksfromemergingasaviablesolution.Atthesametime,awiderangeofproblemswith the Egyptian crossing (ranging from economic totechnicalandpolitical)havemadethequestforaneconomically-and technically-viable “Egyptian bypass” one of the submarineindustry’stoppriorities.

Table 16: Existing South Asian Interregional Systems

RFS System Owners

1997 FLAGEurope-Asia(FEA) RelianceGlobalcom

1999 Sea-Me-We-3 Consortium

2002 i2i BhartiAirtel

2002 SAT-3/SAFE Consortium

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2004 TGN-TIC TataCommunications

2005 Sea-Me-We-4 Consortium

2006 Falcon RelianceGlobalcom

2009 Seacom/TGNEurasia IPS(AgaKhanFund)/Remgro/HeraklesTelecom/ConvergencePartners/ShandukaGroup/TataCommunications

2010 I-Me-We Consortium

2011 EuropeIndiaGateway(EIG)

Consortium

2012 GulfBridgeInternational(GBI)/MENA

GulfBridgeInternational/OrascomHoldings

7.6.2 New Systems

ThreeproposedinterregionalprojectsservingSouthAsiahavebeenmentioned publicly: Sea-Me-We-5, BRICS Cable, and the TagareCable.

BhartiAirtel,ChinaMobile,ChinaTelecom,FranceTelecom,SaudiTelecomCompany,andSingtelhavebeenidentifiedastheleadersofthenewSea-Me-We-5consortium,whichisreportedlyconsideringoptions tobypassEgypt. Theprojectwouldbe thefirstSea-Me-We endeavorwith strong influence fromChinese operators, andwouldcompeteagainsttheroughlyonedozeninternationalcablesalreadyservingIndia,aswellastwootherproposedsystems:theBRICScable,whichwouldbethefirstsystemtoprovideadirectlinkbetweenIndiaandtheUnitedStates,andtheproposed“TagareCable.” There are also a handful of other proposals for cablesbetween SouthAsia, theMiddle East, and Europe, typically putforwardbysmallergroupsofoperators,sometimesasabargainingtooltoimprovetermswithotherexistingorplannedprojects.Asof2013noneoftheseotherprojectswasreportedtohavegainedanysignificanttraction.

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Terabit Consulting expects that the most successful projects inSouthAsia and the Middle East will be those that can provideeconomicallyandtechnicallyviablemeansofbypassingEgypt.

Table 17: Proposed South Asian Interregional Systems

System Owners


Sea-Me-We-5 Consortium

TagareCable NeilTagare

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7.7 Pan-East Asia


Much of the existing pan-EastAsian submarine infrastructure iscontrolledbyeitherprivatewholesaleinvestorsoroperatorsfromoutsidetheregion.Intheformercategory,wholesalerPacnetownstwooftheregion’slargestnetworks,EACandC2C,whichitmarketsunderasinglebrandname,EAC-C2C.Amongtheoperatorsfromoutsidetheregionwithlargeinvestments,RelianceGlobalcomofIndiaandTelstraofAustraliahaveownershipintheRNAL/FNALcablesystem,andIndianoperatorTataCommunicationsisamajorshareholderinTGNIntra-Asia.

Thegreatest intrigue surrounding thePan-EastAsian submarinebandwidth market came at the beginning of May, 2012, whenIndonesia’s largest operator PT Telekomunikasi indicated that itwouldsubmitanoffer forPacnetwithexpectedfinancialclosurebymid-year.OnMay21st,Pacnetabruptlyissuedastatementthat“effectivetoday,”long-timeCEOBillBarney“isnolongerservingaschiefexecutiveofficerandtheboardofdirectorsthankshimforhisservicetoPacnet.”Justasabruptly,theCEOofPTTelekomunikasisaidonJune5ththat“wecancelourplantobuyPacnetbecauseitdoesn’tbringaddedvalue to thecompany.” Thusendedabriefcourtshipthatwouldhavehadthepotential tosignificantlyaltertheAsiantelecommunicationslandscape,withrumorsaboundingastothecircumstancesthatshapedtheevents.

Some observers asserted that there may have been operationalconcerns unique to Pacnet while others pointed to the negativeeconomicenvironmentthathadbroughtdownothertransactionssuch asRelianceGlobalcom’sproposed $1.5 billion initial publicofferingofitsFLAGTelecomsubmarinecableunitontheSingaporeExchange,which the companywas forced to abandon in July of2012,statingthatitwould“awaitappropriatemarketconditionstounlockthefullvalueofFLAGTelecomassets.”

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Figure 19: Total Activated Pan-East Asian Capacity (Trunk Segments), 2007-2012

0

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Thedesignbandwidthofexistingsubmarineinfrastructureinthepan-EastAsianmarketisamongthehighestofanylong-haulroutein the world, with confirmed trunk design capacities of almost100 Tbps and the possibility of additional bandwidth with fullimplementationof40Gand100Gupgrades.

Table 18: Existing Pan-East Asian Systems

RFS System Owners

1997 Asia-PacificCableNetwork(APCN)

InternationalCarrierConsortium

2001/2002

EAC-C2C Pacnet

2002 Asia-PacificCableNetwork-2(APCN-2)

InternationalCarrierConsortium

2002 ReachNorthAsiaLoop(RNAL)/FLAGNorthAsiaLoop(FNAL)

RelianceGlobalcom/Telstra/PCCW/Reach

2009 TGNIntra-Asia(TGN-IA) TataCommunications/PCCW/Globe/EVN

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7.7.2 New Systems

Threenewconsortium-ledprojectsconnectingmultiplemarketsinEastAsiaareexpectedtosoonbecompleted:Asia-PacificGateway,AsiaSubmarine-cableExpress,andtheSoutheastAsia-JapanCable.TheAPG and SJC projects are unique because they are the firstsubmarine cable projects not serving theUnited States to attractinvestments from the American Internet giants Facebook andGoogle,respectively.Afourthproject,ledbyaHongKong-basedsubsidiaryofanAustralian investmentfirm,wasalso reportedlybeing explored in partnership with Huawei Marine Networksbeginninginmid-2012.

Thethreenewcarrier-andconsortium-ledprojectswillresultinamajorrealignmentoftheregion’ssubmarinebandwidthmarkets;themajorityoftheregion’slargestoperatorswillhaveequitystakesintheirownnext-generation,pan-regionalsubmarineinfrastructure,thus challenging the wholesale bandwidth models of existingsubmarinecableownerssuchasPacnet,TataCommunications,andRelianceGlobalcom.

Table 19: Proposed Pan-East Asian Systems

System Owners

Asia-PacificGateway(APG) ChinaMobile/ChinaTelecom/ChinaUnicom/ChunghwaTelecom/Facebook/GlobalTransit(TimedotCom)/KT/LGUplus/NTT/StarHub/Viettel/VNPT

AsiaSubmarine-cableExpress(ASE)(includesCahayaMalaysia)

NTT/TelekomMalaysia/PLDT/StarHub

QuestPan-AsianSubmarineCable QuestInvestmentsLtd.

SoutheastAsia-JapanCable(SJC) BruneiInternationalGateway/ChinaMobile/ChinaTelecom/ChunghwaTelecom/GlobeTelecom/Google/KDDI/Singtel/PTTelkom/TelemediaPacific/TOT

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7.8 Polar Route

Long considered outside the realm of practical possibility, theconceptofa trans-Polarcablehasneverbeenmorecrediblewithrespecttoeachofthemajorconsiderations:technology,economics,and geopolitics. There are currently two actively-promotedproposalsfortrans-Polarcables,butasof2013,potentialsourcesoffinancingfortheprojectshavereportedlyremainedsketchy.

There is a strong geopolitical aspect to the trans-Polar projects:overall,cableshavebeenproposedbyinvestorsfromeachof thethreelargestpowerspresentintheArctic(Canada,Russia,andtheUnitedStates),althougheachhasvaryingdegreesofsupportfromtheir home governments. Given the strategic importance of theArcticregionwithregardtopetroleumandgasdeposits,freshwater,seafood,andtransport,itisexpectedthatgovernmentsupportforeachprospectiveprojectwilleventuallyincrease,withtheprojectsallowingforgovernmentstoexpandtheireconomicandpoliticalinfluenceintheregionaswellassurveillancecapabilities.

Table 20: Proposed Polar Systems

System Owners

ArcticFibre ArcticFibre,Inc.

RussianOpticalTransArcticCableSystem(ROTACS)

GovernmentofRussia/PolarnetProjectLtd.

The Arctic Fibre system, led by Canadian investor DouglasCunningham,wouldconnectJapan,Alaska,andtheUnitedKingdomvia northern Canada, with the possibility of future expansion toChina. The projectwould provide a route betweenNorthAsianand European markets, avoiding what company representativesidentified as “problematic areas” including the Luzon Strait, theSouthChinaSea, theSuezCanal,andtheMediterranean. Alow-latencypathof168millisecondswouldbecreatedbetweenLondonandAsiandestinationsincludingTokyo,Seoul,andShanghai.TheprojectwouldalsoseekgovernmentsupporttoprovideconnectivitytoArcticcommunitiesinCanadaandAlaskaaswellastheproposedCanadianHighArcticResearchStation.

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ROTACS and its predecessor, Polarnet, have been underconsiderationsinceatleast2002,andcanbeconsideredasthefirstserious proposal forArctic connectivity, having completed routesurveysin2003.Theproject,connectingEngland,northernRussia,and Japan, was effectively shelved between 2005 and 2011, butcommentsfromtheRussiangovernmentin2011indicatedthatthegovernmentwouldlenditssupporttotheproject.

Despite the lack of progress in actually constructing any of thesystems,TerabitConsultingdoesbelievethatatrans-Polarprojectwill eventually succeed, perhaps capitalizing on what TerabitConsulting has identified as potential demand for a submarinecablebetweenRussia’sPacificcoastandNorthAmerica.

where it’s never been done before

http://www.wfnstrategies.com

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8. Conclusion

In 2013, the submarine communications industry will mark 25years of transoceanic fiber optic communications. Although theindustry’sgreatestrevenuescameduringthedot-combubble, itsgreatest successes from the perspective of global developmentarguablycameduringthelastfiveyears,asfiberopticconnectivitywaslandedontheshoresofless-developedcountriesthathadbeendependentexclusivelyonlow-bandwidthsatelliteconnections.

More than 20 nations and territories still remain without fiberconnectivity,butfinancingfromawidevarietyofsourcesincludinggovernments, multilateral development banks, operators, andother investors seems likely to reduce that number in the near-future.Additionalopportunitiesforunderseainvestmentwillalsomaterializeinmarketsservedexclusivelybyonefiberopticunderseacable,whichasof 2013 includedBangladesh,Belize,RepublicoftheCongo,DemocraticRepublicoftheCongo,EquatorialGuinea,FrenchGuiana,TheGambia,Guinea,Guyana,Liberia,Mauritania,Myanmar,Namibia,Nicaragua,SierraLeone,Suriname,andsomeislandeconomies.

MuchoftheinvestmentinnewunderseabandwidthwillbedrivenbywhatTerabitConsultinghasidentifiedasthe“BICS”economies–Brazil,India,China,andSouthAfrica,withthelatterservingasacornerstoneforcontinuingSub-SaharanAfricaninvestment.Therewillalsobeanincreasedfocusondirectdestinationsthathaveyettobeconnected. Overall, the industrycanremainconfident thatinvestmentinnewsystemswillaverageatleast$2billionperyear,withaverageannualdeploymentofatleast50,000kilometers,andcontinuedgrowthindemandforsystemupgrades.

Having achieved a level of stability that some observers fearedwould never be possible after the dot-com bubble burst, thesubmarinecommunicationsindustrycanlookforwardtoahealthymarketplaceandcontinuedcontributiontotheplanet’seconomicandhumandevelopment.

2013 submarine cable market industry report

Documents

submarine telecoms forum

critical articles

ridgetop circlesuite

written permission

case of brief quotations

list of figures

figu 7figure18

table of contents1