Subsea cable investment
Following several years of relatively sparse submarine cable development, 2016 ushered in a period of significant global investment in the sector.
Cables with a combined construction cost of $4.9 billion entered service during 2016 and 2017. Operators have set aside an additional $8.7 billion of capex for new cables between 2018 and 2020.
The transpacific route leads the way with $1.8 billion of new cable investment expected in 2018 to 2020.
Source: TeleGeography from announced contract values and own estimates
Expanding the frontiers
Content providers’ investments have largely focused on transatlantic, transpacific, US-Latin America and intra-Asian routes.
Other routes are likely to draw content provider-backed cable construction. In particular, India-Singapore, India-Europe and Europe-Africa may attract interest.
In some countries, content providers may not possess the legal or regulatory authority to land cables themselves and may need to rely on carriers or specialist companies who can operate a cable on their behalf.
While the number of content providers involved in building subsea cables has been limited so far to a handful of US-based companies, new entrants are likely to emerge.
In particular, Baidu, Alibaba and Tencent from China – sometimes collectively referred to as BATs – are expanding their cloud computing platforms globally. While their requirements seem relatively modest at present, they are growing rapidly.
These content providers – or Chinese carriers purchasing fibre pairs on their behalf – could be key members of new cable builds in the future.
From cloud to edge
Cloud computing has funnelled an increasing amount of demand to centralised cloud data centres, but edge computing is emerging as a way to have some comput-ation and storage nearer to end-users.
A key advantage of edge computing is the shorter distance data must traverse, which reduces latency.
Augmented reality (AR), virtual reality (VR) and the internet of things (IoT) are applications that stand to make substantial use of edge computing and have a muted impact on long-haul bandwidth demand growth.
While edge computing may seem the inverse of cloud computing, these techniques should be viewed as complementary, with each method employed strategically based on the tasks required.
Rising uSE and looming cable retirements
Even with the introduction of many new cables and the ability for older cables to accommodate 100Gbps technology, the growth of potential capacity has failed to outpace that of lit capacity.
As a result, the percentage of capacity that is lit on major routes began to rise slowly between 2013 and 2017.
During this period the share of potential capacity that was lit rose from 17% to 30% on transatlantic cables, while the transpacific route increased from 22% to 29%.
As demand continues to rise, operators of older cables must continue invest in capacity upgrades if they hope to remain competitive. However, as spare capacity dwindles, operators may soon be forced to make tough choices.
Cables with a lower-than-average upgrade ceiling will eventually become uncompetitive as annual unit cost of operations and maintenance exceed the annual unit price of capacity on newer cables. Once this threshold is reached, a cable will have reached the end of its economic life, and will be a candidate for retirement.
Even when capacity upgrades are feasible, submarine cable system operators must still assess whether or not upgrades on an aging system are economically justified given its remaining potential capacity.
