In an industry now dominated by hyperscalers, subsea wholesalers are struggling to hold their place.

Industry execs at this week's submarine networks conference describe the business model as broken and the task of raising funds for new investment as increasingly tough.

At a panel session, George Nikoloudis, COO of Greek backbone operator OTEGLOBE, said the company is "in a financial war" to raise funds for new cable investments.

He said the hyperscalers' shift from buying bandwidth to investing in cables has limited the ability of wholesalers and small carriers to get a return on their investments.

"Finding money to invest in wholesale is becoming a struggle," he said.

The transformation of the subsea business has been rapid. A decade ago, hyperscalers accounted for a small portion of international data traffic. Now it's more than 70% and growing at around 50% CAGR.

OTT players own 59 international submarine cables, up from just 20 in 2017, says research firm Telegeography.

$11B in new cable investment

Because of their insatiable need for new bandwidth, the internet giants also account for the bulk of cable investment. Around $11 billion in new cable builds is planned for 2024–26, double the previous three years.

But as Amit Vyas, CEO of Aqua Comms India, points out, the investment drivers for the subsea cable operators are different from those of the hyperscalers.

For the OTT giants, cable investment is just a way to satisfy end-user demand at the lowest cost.

"For the wholesale carriers, it's a big financial decision, and the investment has to be justified by the business case. And that's not easy anymore, not in many markets, not in many routes,” Vyas said. 

“So you have to find the right model," he added. "I think we all know that the wholesale model in many markets, in many parts of the world, is broken, and that it needs to be fixed."

"It's very difficult to make money on a lot of routes just doing wholesale," he said.

Vyas said it is less of a problem for larger operators, who have the scale to absorb the cost and risk, but smaller operators would probably have to acquire capacity at a premium rather than investing in new infrastructure.

If there's a positive sign it may be the interest shown in the sector by KKR, one of the world's biggest private equity infrastructure investors.

Like many other investment firms, KKR has taken stakes in mobile towers and data centers.

In its first move into subsea, it invested $400 million in cable construction and maintenance firm OMS last year. 

Projesh Banerjea, director of APAC infrastructure for the company, says it sees the capacity business as "a critical adjacency of the whole digital infrastructure ecosystem."

"It just needs a different financing solution and a neutral party to be able to support the entire industry's infrastructure needs," said Banerjea.

KKR isn't investing directly in cable systems, but through OMS will support the financing of new cable systems as a neutral solution provider.

Banerjea said the telco field isn't on most people's radar, "but to us, this is an absolutely critical part of the ecosystem, and one where we see a need for real investment."