worldwide submarine cable market analysis and outlook

www.terabitconsulting.com

Worldwide Submarine Cable Market Analysis and Outlook

Michael RuddyManaging DirectorTerabit Consulting


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OutlineRegion‐by‐region

1. Transatlantic (including European market characteristics)2. Transpacific (including East Asian market characteristics)3. North America‐South America4. Australia/NZ Intercontinental5. South Asia and Middle East6. Africa West Coast7. Africa East Coast8. Conclusions / Region‐by‐region report card

Source: The Undersea Cable Report 2011, Terabit Consulting


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TransatlanticUndersea Cable Market Snapshot

• All lit North Atlantic cables have design capacity >1 Tbps– 13 transoceanic strands / 8 systems / 109,375 km

• No new cables since 2003 (Apollo) / Avg. age = 10 yrs. old• 10 deactivated cables ‐ oldest cable now AC‐1 (1998)


$0

$1,000

$2,000

$3,000

$4,000

$5,000

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

$Mil

Investment14.2 Tbps

Total: 31.7 Tbps

LitUnlit

10G Fill: 45%

14.2 Tbps

Total: 73.2 Tbps

LitUnlit

40G Fill: 19%


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TransatlanticTelecom Market and Macroeconomic Factors

• Transatlantic = historical bellwether• After rough period of reorganization (with capacitysold at well below cost) prices have stabilized

• Long‐term challenge: extracting growth from maturemarkets (Eur. + N.A.)– Broadband penetration leveling off at 30‐35 subs per 100inhabitants in most developed markets

– Access speeds are constricted• DSL technology dominates European market

• Transatlantic bandwidth growth will be restraineduntil the arrival of a disruptive technology


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TransatlanticDevelopments and Outlook

• Near‐term: Targeting specialized or niche markets– Project Express (Hibernia‐2) targets HFT market byfocusing on latency

– Northern cables providing intercontinental capacity• e.g. Greenland Connect

• Mid‐term: Logical progression = shift of attentionaway from the London‐New York axis

• Long‐term: Cables’ age (avg. = 10 yrs.) translates torisk that announced 40 Gbps design capacityestimates may be too optimistic– Possibly necessitating new cables sooner than expected


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TranspacificUndersea Cable Market Snapshot

• 2 rounds of deployment: 2000‐2002 (4) and 2008‐2010 (4)• 11 transoceanic strands / 8 systems / 141,533 km

– All but one are terabit‐capable

• Oldest cable = PC‐1 (2000) / Avg. age = 7 yrs. old


$0

$500

$1,000

$1,500

$2,000

$2,500

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

$Mil

Investment11.2 Tbps

Total: 33.1 Tbps

LitUnlit

10G Fill: 34%

11.2 Tbps

Total: 37.9 Tbps

LitUnlit

40G Fill: 30%


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TranspacificTelecom Market and Macroeconomic Factors

• Still significant room for growth in Asian demand– In terms of users, broadband penetration, and speeds

• Which cables will serve China? Still unclear– Recent int’l. bandwidth growth of greater than 200Gbps per year; now in excess of 1 Tbps

0200400600800

1,0001,200

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Gbp

s

Chinese International Internet Bandwidth


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TranspacificDevelopments and Outlook

• Near‐term: focus on Chinese bandwidth, but Asia =full market spectrum1. Maturing Japanese and Asian Tiger markets2. China3. LDCs of Southeast Asia

• Mid‐term: Transpacific capacity market likely drivenby Asian operators– China Telecom’s international bandwidth alone willexceed 1 Tbps in 2013 (currently 0.7 Tbps)

– Western bandwidth players’ experiences (e.g. Google)• Long‐term: 40 Gbps technology meets its match intranspacific– Also: Return to ring systems? (last ring TGN in 2002)


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North America‐South AmericaUndersea Cable Market Snapshot

• All major systems entered service in 2000‐2002• US‐Brazil: 3 continental rings + 1 branched • US‐Northern S.A.: 1 Caribbean ring + 3 branched• 106,813 km (Avg. age: 8 yrs.)


$0$500

$1,000$1,500$2,000$2,500$3,000$3,500

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

$Mil

Investment3.3

TbpsTotal: 12.3 Tbps

LitUnlit

10G Fill: 27%

3.3 Tbps

Total: 21.1 Tbps

LitUnlit

40G Fill: 16%


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North America‐South AmericaTelecom Market and Macroeconomic Factors

• High foreign investment– Telefonica, America Movil, Telecom Italia, Vivendi

• Brazilian demand just eclipsed 1 Tbps– Argentina > 400 Gbps

• Although middle class grew 41% over last 5 yrs.,Brazil still among 10 highest Gini coefficients– Broadband penetration among richest 2.8% ofhouseholds: 85%

– Broadband penetration among upper‐middle 22% ofhouseholds: 50%

– Broadband penetration among poorest 75% ofhouseholds: 10%


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North America‐South AmericaDevelopments and Outlook

• Near‐ and mid‐term: several projects underconsideration by Brazil’s 3 largest telecomcompanies– America Movil (Embratel, Claro) US‐Colombia‐Brazilvia Mex., DR, and PR

– Telefonica (SAM‐2)– GlobeNet (Brasil Telecom/Oi) “supports” Efive’s SAExproject

• Long‐term: economic inequalities will hindergrowth


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Australia/NZ IntercontinentalUndersea Cable Market Snapshot

• 4 long‐haul systems (Southern Cross, AJC, Endeavour, PPC‐1)– 1 ring to N.Amer.; 1 branched to Asia; 1 pt.‐to‐pt. to Hawaii; 1

branched to Guam / Avg. age: 6 yrs. / All terabit+ systems

• Total of 59,476 km (lit)


$0

$200

$400

$600

$800

$1,000

$1,200

1993

1995

1997

1999

2001

2003

2005

2007

2009

$Mil

Investment1.9

TbpsTotal:

8.8 Tbps

LitUnlit

10G Fill: 21%

1.9 Tbps

Total: 16.0 Tbps

LitUnlit

40G Fill: 12%


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Australia/NZ IntercontinentalTelecom Market and Macroeconomic Factors

• Australia/NZ intercontinental demand exceeds500 Gbps

• Residential broadband connections of 8 Mbps +approaching 50% of total, although bandwidthcaps prevail

• National Broadband Network– $40 bil capex– 1 Gbps to 93% of population

• NBN has potential to catapult Australia to thefore of broadband deployment– Opportunity: SKC Express? (Sydney‐Kansas City, KS)


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Australia/NZ IntercontinentalDevelopments and Outlook

• Near‐term: Pacific Fibre– Unveiled Mar. 2010 / Pacnet MOU signed July 2010 /Pacnet MOU lapses Feb. 2011

• Mid‐term: For the National Broadband Network tofunction properly, greater price erosion ofinternational capacity necessary– But the “big three” (Telstra, Singtel Optus, TNZ) aredominant in intl. capacity markets

– exception PPC‐1/TPG• Long‐term: National Broadband Network haspotential to dramatically increase int’l. demand– Possibility of becoming disruptive technology


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South Asia and Middle EastUndersea Cable Market Snapshot

• 3 active Europe‐Asia systems / 2 India‐Singapore systems / 4 Mediterranean‐India builds – 140,910 km / Avg. age: 6 yrs.

• Plus two primarily African systems


$0$200$400$600$800

$1,000$1,200$1,400$1,600$1,800

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

$Mil

Investment4.1

TbpsTotal: 33.2 Tbps

LitUnlit

10G Fill: 12%

4.1 Tbps

Total: 35.6 Tbps

LitUnlit

40G Fill: 11%


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South Asia and Middle EastUndersea Cable Market Snapshot (Cont’d.)

• Sea‐Me‐We‐5 schism (2007): I‐Me‐We and EIG– I‐Me‐Oui / England‐I‐G?

• 2011: GBI/MENA co‐build• West Asia Crossing, FOG‐2, ITC Cable, TGN Gulfall under consideration



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South Asia and Middle EastDevelopments and Outlook

• Near‐term: solving cable situation in Egypt– Delays imposed by Egyptian Government

• Edict from Egyptian Office of Military Intelligence Servicesand Reconnaissance?

– Compounded by Egyptian Revolution of 2011• Mid‐term: Indian international Internetbandwidth: still relatively low (500 Gbps)– India’s National Broadband Policy (2004) called for20 mil broadband users by 2010; actual = 10 mil

• Long‐term: as in other regions, issues of incomeinequality have severe impact on consumermarket


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African West CoastUndersea Cable Market Snapshot

• 4 lit systems– SAT‐2 (1993), SAT‐3/SAFE (2002), Main One (2010) , Glo‐1 (2010)

• 5 transoceanic strands / 52,793 kilometers• WACS under construction (2012 RFS); ACE target RFS 2012


$0$200$400$600$800

$1,000$1,200$1,400$1,600

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

$Mil

Investment 0.5 Tbps

Total: 4.8

Tbps

LitUnlit

10G Fill: 10%

0.5 Tbps

Total: 7.9

Tbps

LitUnlit

40G Fill: 6%


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African East CoastUndersea Cable Market Snapshot

• Three systems / 27,800 km– TEAMS (2009), Seacom (2009), EASSy (2010)


$0$100$200$300$400$500$600$700$800

2006

2007

2008

2009

2010

$Mil

Investment 180 Gbps

Total: 6.7

Tbps

LitUnlit

10G Fill: 3%

180 Gbps

Total: 7.6

Tbps

LitUnlit

40G Fill: 2%


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Sub‐Saharan AfricaDevelopments and Outlook

• African end‐user infrastructure: primarily mobilehandsets– Smartphone services slow to take off

• Avg. bandwidth per person well below 1 Kbps• Low Human Development Index limits PCpenetration

• Near‐term overbuild seems evident, but questionis which model will succeed in LDC markets– Consortium, carrier, or investor?


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1Conclusions

Undersea Cable Market Report CardFill @ 10G

Fill @ 40G

Cable Age (Avg.)

Intl.Bwidth

Broad‐band Key Issue

Transatlantic 45% 19% 10 Very High

Max out @ 35% / pop.

Awaiting disruptive technology

Transpacific / Asia 34% 30% 7 Jpn, Chn

>1 TbpsVaries but low overall Chinese demand

N. America‐S. America 27% 16% 8 Brazil

>1 TbpsPoorest 75% : low Income inequality

Australia/NZIntercon. 21% 12% 6 500+

Gbps High National Broadband Network / Pac Fibre

South Asia/ME Intercon. 12% 11% 6 India >

500 GbsLow

overallIndian broadband penetration / Egypt

African West Coast 10% 6% 7 (soon

lower) Low Very low Overbuild / Demand from mobile

African East Coast 3% 2% 2 Kenya

15 GbpsExtremely

lowOverbuild / Human Development Index



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Questions and CommentsSource:

Terabit Consulting’s Undersea Cable Report 2011 (May, 2011): Highlights to be posted at www.terabitconsulting.com

Michael RuddyManaging DirectorTerabit Consulting, Inc.Cambridge Riverview Center245 1st St., 18th FloorCambridge, Massachusetts 02142 USATel: +1 617 444 8605email: [email protected]

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