The Submarine Cable Industry at a Crossroads:

Transcription

1 The Submarine Cable Industry at a Crossroads: A Macroeconomic Evaluation of the Industry s Future Michael Ruddy Terabit Consulting

2 Evaluating and Analyzing the Submarine Cable Market (around the world in 15 minutes) 1. Overview of current subnet market scenario 2. Market forecasting methodology based on macro- and microeconomic criteria 3. Geographic markets: special considerations 4. Market Outlook

3 Part I. Where Are We Now?

4 The Submarine Cable Market in 2010 Source: The Undersea Cable Report 2010 $51 billion, 1.1 million km of fiber optic deployment More than half entered service in Since then, new routes, business models to stimulate the market

5 Terabit-Capable Systems Geographic Distribution of Terabit-Capable, Inter-Regional Systems, as of YE2011 (Includes Highly-Probable Systems) 44 systems 8 serving South Asia/Middle East, 7 in Africa Source: The Undersea Cable Report 2010

6 Terabit-Capable Systems: Ownership Pro-Rata Share of Terabit-Capable, Interregional Systems, as of YE 2011 Route Km % World Consortia 208,553 37% Tata Communications 41,185 7% Pacnet 40,500 7% Global Crossing 35,480 6% Southern Cross Cables 28,847 5% Reliance Comm. 27,425 5% Brasil Telecom 22,000 4% Telefonica 22,000 4% NTT 21,000 4% Telstra 18,525 3% Columbia Ventures 11,700 2% Source: The Undersea Cable Report 2010

7 Economic Nature of the Terabit-Capable Systems The threat of reorganized operators with lower cost bases is somewhat overstated Of the 44 terabit-capable systems, 19 were constructed prior to 2003 Of these, 12 systems (pro-rata) belonged to owners that fell into bankruptcy or to failed ventures that were written down Another 2.5 were sold at (near-fire-sale) discounts Projects with explicit new cost bases = 33% of total Mostly older systems, some with flaws in business case; design capacities are not guaranteed; Opex Conclusion: The reorganization of cables was the industry s worst event ever, but its impact is fading

8 Part II. Deconstructing and Forecasting the Market: A Macroeconomic Approach

9 Three Tiers of Bandwidth Demand Source: The Undersea Cable Report 2010

10 Class A Markets (>10 Kbps per capita) Source: The Undersea Cable Report countries, all with high HDI; mature mkts. US/Canada, Europe, Japan, Australia/NZ, Asian Tigers, Israel, UAE, Panama Total int l. bandwidth 40 Tbps

11 Class A Submarine Routes Source: The Undersea Cable Report 2010

12 Class A Markets: Considerations Markets where international capacity is rarely a constraint: 10+ kbps per inhabitant Fixed broadband DSL = technology of choice ADSL2+ maximum speed = 24 Mbps down, 3.5 Mbps up Cable modem = significant penetration in US, Canada, Benelux, and South Korea FTTH Japan, South Korea = >50% of broadband subs on fiber 3G/4G Avg. iphone speed on US 3G network = Kbps

13 Class A Markets: Considerations OECD markets have leveled off at broadband subscriptions per 100 inhabitants Source: The Undersea Cable Report 2010

14 Class A Markets: Expectations Expect uneven growth in broadband demand Short-term: mortgage crisis has some considering broadband as a luxury good Long-term: penetration has leveled off, but expect a step-change adjustment to access infrastructure (beyond DSL) In Class A markets, purchasers of capacity have shown inelastic demand for primary bandwidth, but elastic demand for redundant paths

15 Class B Markets (1-10 Kbps per capita) Source: The Undersea Cable Report countries Much of Latin America/Caribbean, Russia, North Africa, South Africa, Turkey, Saudi Arabia, Thailand, Malaysia Total int l. bandwidth 3 Tbps

16 Class B Submarine Routes Source: The Undersea Cable Report 2010

17 Class B Markets: Considerations DSL has been the broadband technology of choice However, DSL subscribership has fallen in some Class B markets Some missteps High per-mbps broadband costs in Mexico Demand growth in Class B countries is now coming from 3G deployment Class B Capacity mkts. fared well

18 Class C Markets (<1 Kbps per capita) 115 countries Source: The Undersea Cable Report 2010 Low Human Development Index, widespread poverty Total int l. bandwidth: China 1 Tbps, India 0.2 Tbps, all others 0.3 Tbps

19 Class C Submarine Cable Routes Source: The Undersea Cable Report 2010

20 Class C Markets: Considerations Mobile networks have formed the core of infrastructure in less-developed countries Weak fixed-line infrastructure Mobile broadband is emerging as the access technology of choice

21 Class C Markets: Concerns Linguistic issues / lack of content Little progress in the fight against poverty means that long-term market growth will be constricted Also: literacy, electrification Volatility: many LDCs were hit hard by commodity crisis in 2 nd half of 2008 examples: Chad, Congo, Nigeria, Yemen, Angola, Azerbaijan, Sudan Many were using commodity revenues to fund telecom development plans

22 Part III. Driving Growth: The BIC Countries (*apologies to Goldman Sachs)

23 China 384m Internet YE09 (29% penetration) 232m between ages (59% penetration) = Much room for growth (86m new users in 09) Bandwidth demand heavily influenced by shift from world s factory to world s laboratory

24 China s Internet Bandwidth 866 Gbps as of YE09 ( 09 growth: 35%; CAGR: 59%) By next year, China s Int l. Internet bandwidth will exceed Japan s Source: The Undersea Cable Report 2010

25 China s ISP Bandwidth Share Source: The Undersea Cable Report 2010 TPE Design Capacity: 5 Tbps

26 Transpac: Fighting Commoditization Pacific: Three very different market segments TPE = China and North Asia AAG = First direct transpacific link to Southeast Asia Unity/EAC Pacific = Japan-US datacenter cable

27 India Beyond outsourcing phase of economic growth supporting itself with resilient domestic economy insulated from global crisis 231 Gbps Internet bandwidth as of YE2009 For the time being, a disconnect between infrastructure and carriers bandwidth Abundance of international capacity potential has taken time to reach the users Large English-language demand makes IP capacity market unique

28 Brazil Brazil s economy has consistently underperformed, but the 2010s may be different Moving beyond world s farmer Progress in wealth distribution has led to an emerging middle class Growth this time has been internally supported 2016 Olympics Design capacity of existing Brazilian systems: 4.5 Tbps Concentrated system ownership: Global Crossing, Telefonica, Oi

29 Emerging Markets to Watch Indonesia Egypt Mexico Turkey

30 Geopolitical and Macroeconomic Phenomena: Their Effect on Submarine Cable Deployment Phenomenon Effect Example Polar ice melt and rush for Arctic Resources Geopolitical struggle for African influence (France, US, China) American rapprochement in Eastern Europe Continued political uncertainty in Middle East US Gov t. relaxing hard-line stance against Cuba Proposals for trans-polar cables becoming more and more credible Realignment of development funds to the continent Russia seeks routes that avoid NATO territory Promotion of diverse Europe- Asia routing Multinationals becoming less fearful of participating in Cuban projects Arctic Link (seeking government subsidy for Alaskan segments) International sponsorship of African fiber networks East coast cables; Rumors of submarine cable along Nord Stream pipeline route Proliferation of terrestrial networks (e.g. via Russia; Turkey) Cable & Wireless participation in Venezuela-Cuba-Jamaica project

31 Part IV. Market Outlook

32 The Submarine Cable Market Outlook Supply of capacity on Class A routes may be exhausted sooner than expected Step changes from broadband, applications Upgradeability not guaranteed Source: The Undersea Cable Report 2010 Well before its exhaustion, expect the consortia to construct their own capacity Margin-based capacity sales model of private systems has always been most attractive to smaller capacity purchasers

33 Submarine Cable Market Outlook (2) Class B routes may show the greatest opportunity Source: The Undersea Cable Report 2010 Reliable, demonstrated demand Higher capacity prices Lower competition (exception: S. Africa)

34 Submarine Cable Market Outlook (3) Class C routes are the most unpredictable Source: The Undersea Cable Report 2010 China, India: Potential for enormous bandwidth requirements; India s cables may suffice for near-term, but China will need more Sub-Saharan Africa: risk of overbuild

35 2010 conference & convention The 7th International Conference & Convention on Undersea Telecommunications Pacifico Convention Plaza Yokohama & InterContinental The Grand Yokohama 11 ~ 14 May