When we’ve gone to market, we’ve sought out people who are trend setters,” says Nigel Bayliff, CEO of Huawei Marine Networks (HMN). “This is a very traditional market, where no one will criticise you for opting for a product from one of the core manufacturers. If you invest in a technology which is new and fancy, and it goes wrong, there’s a big risk. And as an industry, telecoms is risk averse.”
In an industry averse to risk, Huawei Marine has moved into the market with unprecedented force; established in December 2008, it has already contracted projects valued at over $550 million. Recent contracts include the ASSC-1 submarine cable, linking Perth to Singapore; Hibernia Atlantic’s Global Financial Network between New York and London; the BDM cable system linking Indonesia with Malaysia; and the Suriname-Guyana submarine cable system.
New it may be, but Huawei Marine has been able to draw heavily from the experience of its two parent companies, Huawei and Global Marine Systems. Huawei has grown to a dominant position in the equipment supply market since 1987, building significant strength in DWDM, CDMA, GSM and LTE technologies. Global Marine, on the other hand, can trace its history back to 1850, when the very first subsea cable was laid between the UK and France. Global Marine, according to Bayliff, has been a significant player in the marine cable installation and maintenance market for all its 150 year history and in its various incarnations has laid over a third of the world’s submarine cables.
Sinking the opposition
Before Huawei Marine was launched, there were four main turnkey repeatered cable companies on the market. Fujitsu and NEC had a low market share because, Bayliff believes, they each had only two of the three main components: cable, ships and repeaters. “But Huawei and Global Marine were starting to recognise that this market was being dominated by Alcatel Marine Networks and Tyco,” says Bayliff. “It was recognised even by the industry that the competition was disappearing. The decision to launch Huawei Marine was really to add another layer of competition into this marketplace.”
The joint venture was a natural way to introduce further competition, and to build on the skills each parent company already held. Each company has seconded a number of key employees to Huawei Marine, bringing their experience directly into the company. Bayliff was nominated by Global Marine shareholders, while the COO and CFO were nominated by Huawei; the vice presidents who run the functional groups in the organisation are also secondees from the parent companies.
Huawei Marine was able to enter the market with some intellectual property already established, a two-fibre pair repeatered solution. It quickly won a contract in South America which enabled it to prove that IP in a realistic scenario, and established a research and development programme in which it says it has invested “many, many, many millions”. A six-fibre pair repeatered solution was the result and, says Bayliff, this technology “gives us access to the serious turnkey repeatered cable market, the long cables that connect countries and continents together. These projects are a lot higher value, a lot bigger and more long term.”
Having made significant investments into R&D, Huawei Marine regards reliability engineering as its greatest challenge, striving to build subsea cables which will function without intervention for 25 years or more. Like other submarine cable vendors then, it does recognise the dichotomy in the market. While the long life of optical cable systems is one of the most crucial elements for securing a contract, the speed of technological development is such that it can render even the most reliable systems obsolete long before their shelf-life has expired. Bayliff gives an example of the Gemini cable, the last cable crossing the Atlantic to be decommissioned after only 12 years of service. “It was designed and capable of operating for 25 years. But the economics of that system meant that it was no longer profitable to continue to run it because it was a low capacity system.”
With technological changes arriving in the submarine cable industry on a 10 or 15 year cycle, there will be a constant drive to refresh the subsea infrastructure even if it could function happily for another two or three decades.
The era of upgrades
It is therefore no real surprise that cable upgrades are becoming increasingly popular among operators, largely because they are – in comparison to investing in a new subsea cable build – a quick, cheap and easy way to increase capacity. As Bayliff points out, upgrades do stretch the technology of the end equipment and are important to Huawei Marine’s business strategy, but there will always be limits in what they can contribute. The total market for the infrastructure layer is between $1.2 billion and $2.3 billion annually, hovering around $1.6 billion on average. Bayliff estimates that upgrades account for no more than $160 million of total business, around 10% of Huawei Marine’s revenues.
Rather, much of Huawei Marine’s success can be attributed to its stated desire to identify and work with trend setters in the wholesale market. “We have identified people who share our desire,” says Bayliff. He points to Hibernia Atlantic as a prime example of the type of partners they are seeking. In 2009, Huawei Marine upgraded Hibernia to its 40G products, and successfully trialled 100G transmission across 5,570km of subsea cable from Halifax, Nova Scotia to Southport, England. Hibernia has since contracted Huawei Marine to lay its Global Financial Network, using a four-fibre pair repeatered system to link London to New York, initially using 40G technology and with 100G upgrades envisioned in the future.
“Their new cable is very non-traditional, taking the shortest path through water which is shallower than normal,” explains Bayliff. “Because they trusted both Huawei, Global Marine and ourselves, Hibernia worked with us to design this cable using the latest burial techniques and with a specific design of repeater, to achieve this holy grail of the shortest route for a cable and thus the lowest latency.”
Bayliff refers frequently to his 20 years as an operator in the market, working first for Cable & Wireless, and then spending eight years running the network of FLAG Telecom. He has drawn upon that experience to address the issues which are impacting operators in the industry, rather than seeing things solely from the vendor’s perspective. Huawei Marine is allowing operators to upgrade on a per card basis in order to provide immediate capacity. This is designed to assist operators with capital utilisation, rather than insisting that they follow the accepted practice of purchasing several cards in a batch, investing several million dollars on an upgrade which they then have to sell over the next two years.
Causing a splash
Shaking up the usual way of doing things can be provocative, though. “There have been spirited discussions in the market between us and the traditional suppliers,” says Bayliff. “We have tried to be more flexible, and we recognise that telecoms is a very changeable thing. It’s not easy to forecast, in an ecosystem that doesn’t really know where its growth is coming from. We try to make it easier to react to growth than to need to forecast.”
Of course, operators aren’t the only ones in the business that need to forecast. When it comes to the cost of doing business in the future, Bayliff is sanguine, admitting that costs at the basic commodity level will play a major role. The prices of oil, steel and copper are all key factors in the financial viability of submarine cables. Cable ships alone typically burn $20,000 to $25,000 of fuel a day, and it is possible that over time this cost could double.
The different levels of demand for submarine cables across the regions are also affecting most of Huawei Marine’s competitors. NEC has been successful in the last few years, winning several turnkey projects in Asia. Tyco, on the other hand, with traditional grounds in North America and Europe, has seen a significant slowing in the number of cables developed. “We’re now winning a share of the market globally,” says Bayliff. “It’s not necessarily that Huawei Marine is winning against one or any of the particular groups. Rather, the individual other competitors are perhaps not winning because their market area, where they used to dominate, is not necessarily in the right position.”
There is a flexibility in Huawei Marine’s approach which seems to liberate it from the confines of a particular geography, the limitations of an existing technology, or the assumptions of a traditional business model. But buying periods for submarine cables last for up to two years, and the implementation periods stretch between two and three years. The subsea cable industry can, like the very ships which lay those cables, be slow to turn around. As a privately-owned company, Huawei Marine’s financial results are not in the public domain and, as with all new businesses, only time will tell its true position in the market. For sure, though it is doing all it can to lay some new trends in the submarine cable industry.
key facts
History: Huawei Marine Networks was established in 2008 as a joint venture between Huawei Technologies and Global Marine Systems. Committed to the construction of global submarine cable communication networks, it claims to combine state-of-the-art technologies in telecommunications with nearly 100 years of experience in marine operation.
Ownership: Huawei Marine is jointly owned by Huawei (51%) and Global Marine Systems (49%).
CEO: Nigel Bayliff has been CEO of Huawei Marine since July 2009. Previous roles include director of network operations at NTL, and SVP of operations and construction at FLAG Telecom.
Revenues: This information is not available, as Huawei Marine is privately owned. The company has disclosed that it has secured contracts valued at over $550 million since its creation.
Employees: Huawei Marine had almost 300 employees by the end of 2011, with an average work experience of nine years in telecommunications and marine services.
Location: The company is headquartered in Tianjin, China.
Products and services: Huawei Marine provides highly reliable, cost-effective solutions and end-to-end services including project management, installation, and technical support for submarine cable system operators.
Research and development: The company has been investing a minimum of 10% of its annual revenue into R&D, with 10% of that investment used for pre-research to stay at the forefront of new technologies and breakthroughs.
