Carriers to Connect China With $500M Cable
A consortium of six carriers have signed on so far: China Telecom Corp. Ltd. (NYSE: CHA), China Netcom Corp. Ltd. (NYSE: CN; Hong Kong: 0906), China Unicom Ltd. (NYSE: CHU), KT Corp. in Korea, Chunghwa Telecom Co. Ltd. (NYSE: CHT) in Taiwan, and Verizon Enterprise Solutions . (See Carriers Build US-China Cable.)
KT has announced Tyco Electronics Ltd. (NYSE: TEL) as project supplier. TeleGeography Inc. analyst Alan Mauldin says it's a big win for Tyco -- its main competitor, Alcatel-Lucent (NYSE: ALU), has been awarded large projects such as the construction of SE-ME-WE-4 connecting Asia with Europe.
The 18,000 kilometer Trans-Pacific Express will provide a direct route between China and the U.S. The existing China-U.S. cable is six years old and has a maximum capacity of just 80 Gbit/s to serve around 30 carriers in the region. Much of the burgeoning Internet traffic between China and the U.S. has to be routed through Japan. According to TeleGeography, the region has seen a 54 percent annual increase in capacity.
The 5.12 terabit cable will launch with a lit capacity of 1.28 Tbit/s, with the remaining capacity available for upgrade as traffic continues to grow. Customers will be able to purchase 10-Gbit/s wavelengths.
Mauldin disputes the notion that the transpacific route is running out of capacity. "This is not being driven purely by supply and demand," he says. The Tyco Global Network-Pacific (TGN-P) cable owned by VSNL was recently upgraded from a lit capacity of 640 Gbit/s to 1 Tbit/s, but it has a total capacity of 7 Tbit/s. (See VSNL Boosts Asia Subsea Capacity.) The Pacific Crossing (PC-1) also has extra capacity.
Mauldin says the move has more to do with carriers wanting more redundancy on their networks and "a political push for direct access to the U.S." from China rather than through Japan. It’s common for carriers to buy wavelengths on a number of different cables to create mesh networks, as Verizon has done on the transatlantic route. (See Ciena Wins Mesh Deal.)
They're also doing it on the cheap. Mauldin says the original design called for a traditional ring system looping around the Pacific, which would cost in the region of $900 million to $1 billion. By opting for a point-to-point system, the consortium was able to drive down the price to $500 million.
It remains to be seen whether the operators will see a return on investment once the cable goes live in 2009. Mauldin says "prices have stabilized more or less," but "if we see a bunch of new cables being built," that could quickly change. With tongue in cheek, he notes that they will be competing with "existing cable operators [that] have been through bankruptcy, they have clean balance sheets -- they can sell bandwidth at whatever price they want."
The Trans-Pacific Express is not the only new route being planned for the region, a sign that competition with VSNL is set to intensify. AT&T Inc. (NYSE: T) is said to be in talks with Telekom Malaysia Bhd. , and an operator in Singapore, to lay a cable linking South Asia with the United States.
— Nicole Willing, Reporter, Light Reading