A number of major new submarine cable networks are under construction or are at an advanced planning stage, showing that there is still plenty of life in the sector, despite huge advances in technologies for upgrading existing cables and sluggishness in global capital markets.
An examination of the latest generation of undersea projects suggests that the dynamics which govern the market are changing. Those seeking to build new cables have to be commercially innovative as never before, in order to get a project off the drawing board and profitably into the water. This applies both to consortium-backed projects and those proposed by individual organisations and financed by debt.
The challenge is not simply one of tight capital, although that remains a hurdle. It also relates to the evolutionary stage of the market and the shortage of untried new routes. The only completely virgin opportunities for cable builders are for infrastructure that serves humanity’s more far-flung outposts. For economies of any size, the landing of a new cable will simply be adding to the two, three or several already there, and redundancy – though essential – is not necessarily a sexy selling point on its own.
“We are seeing some new models emerging,” says Julian Rawle, managing partner at subsea engineering company Pioneer Consulting.
Come together
A major influence, he believes, has been Google and its Unity cable, which has been active between Chikura in Japan and California since 2010. When Google first announced it was entering the subsea market, the initial reaction was bemusement, perhaps even scepticism. Why did a search engine developer need to own undersea fibre?
Google’s mould-breaking intervention was motivated by what, as a customer, it saw as the unnecessary complexity and inflexibility of the traditional consortium model. For Unity it set out a new style of consortium, whereby the different members – itself, SingTel, Pacnet, Global Transit, KDDI and Bharti Airtel – collaborated only at the level of the system’s construction, thereafter owning their own fibre pairs and disposing of the capacity as they wished, with no consultation needed and no need for artificially high pricing, caused by unused capacity being banked, rather than sold off.
“People have since looked at Google and the deals it did, and have tried to replicate that,” says Rawle. “We’re seeing other cables now with a limited number of large partners – operators and ISPs – each partner owning one or two pairs of their own, or purchasing spectrum.”
He gives the example of SubPartners, which is planning to sell fibres on its proposed APX-West and APX-East cables out of Australia as a variant on Google’s template.
Another mover away from the norm, believes Rawle, is Seaborn Networks, which is currently building the Seabras-1 system between São Paulo and New York – the first direct connection between those points.
“Seaborn is claiming it will offer consortium-style terms on a private cable, capitalising on the advantages of both models,” he says.
Alcatel-Lucent Submarine Networks is the build partner for Seabras-1. Leigh Frame, COO with the vendor, points to the deal that Seaborn has recently signed with COFACE, the Paris-based credit insurer, as exemplifying its preparedness to embrace the new.
“The COFACE guarantee [which will assure Seaborn of the capital it needs for the duration of the manufacture and installation of Seabras-1] ticks the boxes in how you get a project off the ground,” he believes. “Seabras-1 is an interesting project on a not over-served route, and one that’s been well presented to equity investors. It proves you can make progress with a financed project, as opposed to a consortium-led one, if your approach is right.”
Another example of a successful financed project, says Frame, is the recently completed GlobeNet cable between Brazil and Colombia. He expects similar results for América Móvil’s forthcoming AMX-1 system, a privately-operated system set to run from the US to Brazil via Central America.
Frame believes the subsea capacity sector is generally in rude health, despite the delays being forced on certain projects by a truncated and sometimes troubled financing process.
“I’d say the market is actually more open now than it has been for the past 10 years,” he says. “But it’s only open for a high-quality project on a good route with good market potential, and I have to say with a good construction partner behind you. Banks like the assurance that you have a build partner that will turn up on time and deliver something that will work. It’s an important aspect of funding.”
There is a flip side to Frame’s argument. Until fairly recently, the supplier contract was generally the final piece in the jigsaw of a new cable’s business plan, coming comfortably after financing terms had been concluded. It is far more common in the current market to see supply contracts signed well up front, followed by a long wait before a cable is built, if indeed it ever gets built. It will often be press-released that a supplier has “won” a contract long before the funding process is completed.
“Until a cable is funded, there’s an argument for saying that any supplier contract which is not yet in force is not worth anything,” argues Rawle. “There is, of course, the counter-argument that by signing a contract with a supplier, the cable looks more credible and has therefore a better chance of getting funded.”
Early adopters
Nothing aids an unbuilt cable’s credibility quite so much as healthy advance sales. Emerald Networks is building the Emerald Express, which will be the first major new Atlantic cable in many years if ready for its scheduled launch in Q4 2014, and with latency planned to be lower than 65ms, it will be way ahead of others in performance.
More interesting than its coherent 100G technology, which is rapidly becoming the norm for any new system with pretensions to glory, is its list of contractually committed customers.
“We’ve sold a significant amount – around £100m – of capacity, the most recent deal being with CenturyLink,” says Phillip Magiera, Emerald’s CFO. “We’re finding robust pre-launch demand for our state-of-the-art capacity across the Atlantic.”
The lion’s share of that demand, he says, is coming not from conventional service-provider customers, but more from content and data-focussed businesses. Indeed CenturyLink is buying up capacity specifically to connect its newly-acquired European Savvis facilities with other data centres it operates in the US.
“We did have to evolve our original business plan quite a lot,” says Magiera. “Our initial assumption was that telcos would make up most of the first wave of customers. But we’ve switched focus to content providers and data centres. Those types of customers grow their capacity needs so fast. We’re talking to them about Terabytes of data and there’s no end to their growth in sight. It’s hard at the moment for them to source the kind of transatlantic capacity they need.”
Banks are on Emerald’s target list as well, although they are not now its prime target.
“They are big users of bandwidth, but not in the same class as those in the content market,” says Magiera.
The Atlantic’s older cables were all built in a wholly different commercial atmosphere, he points out.
“It’s a challenge to raise capital now,” he says. “It’s not like it was in the old days. You used to be able to build on promises alone. The financing process has now got to come together over a short period of time, and you may need to co-ordinate finance from different parts of the world – Europe, the Middle East or whatever, depending on the type of finance you are talking about.”
He says Emerald is also having to innovate in other ways, for example in how it prices and delivers its services.
“We’re allowing customers to technology-proof their investment with us,” he explains. “When technology moves on and capacity on our cable increases, customers will be able to take advantage of our upgrade on their own schedule, independently of what other customers are doing. That’s great news for people like content companies. It means they can look confidently ahead for 15 years or so knowing they are in control.”
Old routes, new tricks
There may be no big new routes, but there are those capable of finding thematic variants on well-served ones. With the prospect of SEA-ME-WE 5 adding yet more capacity to the Asia-to-Europe-via-Gulf route, it is interesting to note that the forthcoming Bay of Bengal Gateway Consortium is not Europe-centric, but is instead focussed on taking traffic between Middle East, south Asia and south east Asia.
“This new submarine cable system is a significantly important project for Vodafone,” says Vivek Jhamb, SVP northern Europe and North America region with Vodafone Carrier Services, one of its backers. “BBG will connect the Middle East into both sides of India, Sri Lanka, Malaysia and Singapore which will address our growing business requirement for low-latency, high-capacity, low-cost network links in the region. Additionally, it will provide cost-effective interconnection to other Europe-to-Middle East systems, such as the Europe India Gateway and Europe-Persia Express Gateway.”
A quite different sort of project, but one boasting considerable originality, is Arctic Fibre. It is set to run between Japan and the UK, taking a route through the Canadian Arctic and serving isolated communities there as it goes. To facilitate this daunting challenge it has had to divide the project into two stages, says Doug Cunningham, CEO.
“We’re laying the Arctic portion of the cable first, and expect to have that ready around November or December 2015,” he says. “The full end-to-end system from London to Tokyo should be ready for launch around Q3 2016.”
It is unusual for weather constraints to dictate the installation of a cable, but there is a part of the route that is only ice-free at certain times of the year, says Cunningham.
“We have to make sure it’s engineered for our unique environment – and that is groundbreaking,” he points out. “The landing surveys have been a challenge, and we have to take account of factors like ice scour. We also need to be sure we can repair the network at any time of the year. When finished it will be one of the safest systems in the world on a per-km basis. There’s not much shipping there, or many earthquakes.”
Acts of God and extremes of temperature can force new cable builders to think hard. Tight credit can put their plans on the back burner. But there are yet more reasons why builders of new cables must stay flexible and keep their eye on the ball.
Pump up the volume
Entirely coincidental with the last five years of tight credit markets has been a huge explosion in the capability of existing cables. Capacity demand on a typical major cable is going up by 30%, 40% or even 50% a year, but capacity on systems already in the water has shot from multiples of 10 wavelengths per second to 100, using coherent technology, says Ed McCormack, Ciena VP and GM of international accounts and submarine systems.
“Just three years ago, a lot of cables appeared full or near full, but it turns out there’s headroom after all. This makes the business case on new cables harder – and still further upgrade improvements seem a possibility. For example, it may be possible over time to improve the spectrum efficiency of a fibre, and so get more wavelengths enabled on that fibre.”
Nobody but the optimistic or foolhardy would build a brand-new cable in today’s climate. But luckily for the diversity of the global superhighway, there are plenty who possess one or other of these qualities.
