By John Manock, Editor, SubCableWorld
The submarine cable industry has had a long and, to say the least, interesting history. It has bounced around from amazing accomplishments to the depths of despair – from the global euphoria of the first transatlantic telegram between Queen Victoria and President Buchanan in 1858, to the disillusionment caused by the cable’s failure a few weeks later, and from media contempt for cables following the collapse of the market in 2002 to recognition to their vital role in delivering the Internet today.
The industry is now in an unprecedented period of growth, with 2019 representing the 6th consecutive year of strong demand for new cables – by far the longest and strongest growth period in the history of the fiber optics era.
So how did this happen? Here are some of the factors conspiring to drive demand for more cables:
Technological advances: For most of the first decade-and-a-half of the 21st Century, technologies for upgrading existing cables brought vast amounts of new capacities to the market. With so many underutilized cables left over from the cable-building boom of the late 1990s and early 2000s, upgrading these cables easily met the demand for new bandwidth. Under these conditions, there was little need of new cables. By the middle of the second decade of the century, however, technological development had shifted to allow for previously unheard of capacities for new cables totaling dozens and even hundreds of Terabits per second – capacities far beyond anything that could be reached by upgrading old ones. Thus vast amounts of new capacity became available on the new cables at a lower per unit cost compared to upgrading old cables. This shifted the economics of bandwidth in favor of new cables.
The need for redundancy: As the Internet became more and more a part of the daily lives of billions of people, and therefore a vital component of many countries’ economies, it became critically important that the Internet would always be accessible. As submarine cable outages are inevitable, the solution for this problem is to have enough cables to reroute traffic around any single outage or, if possible, a combination of outages. Conventional thinking in the submarine cable industry except for the late 1990s and early 2000s was to build as few cables as possible and let them fill up before adding new ones. Building excess capacity, in terms of multiple cables, was negatively referred to as “overbuilding” and was something to be avoided. But now many national governments are encouraging – even mandating – that additional cable routes be developed even if there is plenty of capacity available on existing cables. The need for redundancy is now a major driver of new cable systems.
Fear Of Missing Out (FOMO): FOMO refers to the need to have reliable, high-speed Internet access at all times, otherwise you’re missing the latest news, wacky YouTube videos, critical financial transactions, you name it. While almost all Internet users experience FOMO at one time or another, it takes on a more critical role when it comes to isolated populations. For the submarine cable industry, FOMO is most relevant when it comes to islands and remote coastal areas that can’t be served by terrestrial networks. For many islands in the South Pacific, for example, FOMO takes the form of the islands being put at a serious economic and social disadvantage unless there is high-speed cable connectivity.
For these islands, the fear is missing out on the economic development that connectivity can deliver, as well as social benefits such as tele-educational, tele-health and many other services that can improve the populations’ standard of living. As the small populations of these communities could not justify building a cable based solely on return on investment, some other source of funding was needed, such as the government or an NGO like the World Bank. This funding was not forthcoming until a few years ago, but is happening now and has resulted in many cables being built to connect isolated populations as small as a few thousand, something that was unheard of only a few years ago.
Availability of financing: As everyone in the submarine cable industry is well aware of, financing for new cable systems was very difficult to find following the collapse of the market in 2002. It was impossible to convince any funding source to touch a submarine cable project for several years and was still difficult a decade later. In the past five years, however, money has been flowing into the market and the result is unprecedented growth in the number of new cable projects. The Over-the-Top (OTT) content providers have had perhaps the most obvious impact in this area. Google, Facebook, Microsoft and Amazon have used their vast financial resources to push forward cable projects that meet their insatiable demand for bandwidth. Many large international carriers are cash-rich and are also investing, often with the OTTs, in new cables. Private equity has returned to the submarine cable market as new submarine cables are now profitable due to the tremendous demand for bandwidth. And, as mentioned earlier, governments and NGOs are helping to fund cables to places where the big players don’t go.
The above are just some of the factors behind the growth of the submarine cable market and while they are driving the submarine cable building boom, there is one overarching factor that in turn drives them — Internet demand.
Demand for Internet services has been growing at an astounding rate and shows no letup. Internet demand really took off several years ago as streaming video became widely available. Streaming video has since overtaken cable television as the primary means of accessing entertainment video in many developed economies and throughout the developing world.
While streaming video may have been the first application to drive bandwidth demand to new heights, it will not be the last. Virtualization, the Internet of Things (IoT) and many other high-bandwidth technologies are emerging in the next wave of demand drivers.
So the conclusion is that unless there is a change in the fundamental forces driving Internet bandwidth demand, there will continue to be a need for new cables.
Does this mean that there is nothing for the industry to worry about? Of course not. I have often compared being in the submarine cable industry to being a Boston Red Sox fan: No matter how well things are going, you feel like a disaster is just around the corner.
There are still several threats. Will the market continue to demand new cables in the face of a major geopolitical conflict or global economic crisis? What if there is literally too much money coming into the market? This is a concept that Nigel Bayliff, CEO of Aqua Comms, refers to as “sloppy capital” in a recent interview with SubCableWorld. In the “sloppy capital” model, too many investors enter the market focusing primarily on short-term gains rather than long-term trends. This would have the potential to cause something like a repeat of the 2002 collapse.
The history of volatility in the submarine cable industry has shown us that there are no sure things and we must always be on alert for dramatic changes in market conditions. While there are threats to the continued growth of the submarine cable industry, there are many positives as well and currently there is strong optimism throughout the market. It pays to be wary, however. The key to continuing the good times for the industry is to make good decisions; and good decisions need good data. A classic 1950s science fiction movie ended with the warning, “Keep watching the skies.” Perhaps our industry should “Keep watching the seas” – or, more specifically, watching the data impacting our need for cables under the seas.
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