Some sources estimate that Facebook, Microsoft, Amazon and Google have funded more than 80% of incremental capacity over recent years. Further, one even offered fibre capacity as currency to part-fund a cable landing.
Robert Wallin, MD at Natixis, said: “With the OTTs, they are planning ahead. They have seen how much data they are required to store in their data centres, they also see how this is growing, and they need to be able to secure transport between their data centres regardless of where they are in the world.
“They are planning for their own needs, and not necessarily looking to us as users on an individual basis. As a consequence, they have their own growth forecasts for different parts of the world and they say ‘in X number of years I will need this capacity’, and if it is big enough, they may actually choose to build something just for themselves,” he added.
By way of example, Wallin shared details of an OTT making an agreement with a local telecom operator. In this case, in return for using the telco’s landing, the OTT offered “a couple of fibre pairs as payment.”
Wallin continued to say: “In this case they built it for their own need with spare capacity used as currency.”
The observations were made during the opening session for Virtual Subsea World 2020, taking place 21 - 22 July.
Commenting on the current situation, moderator Laureen Cook, executive TMT advisor for Extelcon, said: “Almost 20% of the world’s fibre is in the hands of four major non-telco operators. It’s pretty amazing that the scales have been tilted by these companies in a relatively short time.”
Cook continued to relay that as much as US$8 billion was invested in new subsea cables between 2015 and 2019, with more than 60% of the systems multi-owner cables, compared to 23% single owners and 9% owned by a multilateral development bank or a PPP consortium-type model.
Despite the emergence of such blanket trends, there are nuances between the four major players.
Laure Duvernay, head of project finance at Alcatel Submarine Networks, said: “We mention the OTTS as a whole. From our experience the four of them are playing a different role and have different involvement in these systems. Two of these are extremely active and come in as direct clients, while the others don’t. The strategy is different.
“If you take the two big ones, their approach to system building a) has evolved and b) is different. They were less present five years ago and now one of them is building their own cable by themselves and the other is actually taking more of a consortium approach.”
In response, commercial operators will also have to adapt.
Jonathan Dann, Md of Greenhill & Co, added: “I think going forward, the commercial operators will have to demonstrate some value add other than the cost of capital. Similar to the data centre industry, the large hyperscalers use third party data centres and own their own centres. And you have the emergence of submarine cable system operators who demonstrate they offer value by having a low operating cost and efficient ways of rolling out.
“For the industry, essentially in the 2000s the idea was a financial arbitrage. That commercial industry will have to pivot to offering a real operating expertise to the big customers,” he added.
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