Wholesale/transport services

Report: Undersea Cable Market Has Sunk

The fact that the undersea cable building boom has ground to a screeching halt may seem like old news, but according to a new TeleGeography Inc. report out last week, the construction of large-scale submarine fiber connections only recently ended (see Submarine Market All Washed Up).

Maybe it's a bit like stopping an oil tanker -- once the decision to stop has been made, it can't be done quickly. At any rate, the end of the submarine cable construction craze was marked only a few months ago when Cable & Wireless (NYSE: CWP) completed its Apollo transatlantic cable and Tyco International Ltd. (NYSE: TYC; London: TYI) completed its Global Network Pacific Ring, according to the study, “International Bandwidth 2003 Volume 1: Submarine Networks" (see Tyco Completes Pacific Ring).

“There’s not much news to report,” says Alan Mauldin, the TeleGeography analyst who authored the report, pointing out that the sector is still plagued by massive over-capacity and dwindling demand. “But finally there are no more cables being built… at least along the major routes… There won’t be anything there for a while.”

Mauldin doesn’t expect that anything will be built along the Atlantic or Pacific routes until at least 2006.

Building projects may have continued after the bubble burst, but the amount of cash going into them has been shrinking dramatically over the past two years. In 2001, $13 billion went into new submarine cable builds. Last year, that number was down to $3.4 billion, and this year a mere $1 billion is scheduled for new submarine cable construction worldwide.

“There’s been a shift to a more conservative business model,” Mauldin says. “Now you only build when you really know you need [the capacity] for sure.”

This is good news in a sector where many once high-flying companies like 360networks Inc., Global Crossing Holdings Ltd., and Flag Telecom Group Ltd. (OTC: FLHLQ) were forced into bankruptcy following massive builds that were never met with commensurate demand (see 360networks Calls It Quits, GlobalX: The Burst Bubble and FLAG Files Chapter 11).

While the end of large builds offers a small shimmer of hope that some of the disequilibrium between capacity and demand in the sector could be evened out, Mauldin warns that it is still very rough sailing ahead. The demand is simply not great enough, he feels, for any of the players in the sector to make a profit.

"There is demand. The problem is that it’s not growing at a fast enough rate… It’s a losing battle.”

Although submarine bandwidth purchases did increase by 30 percent in 2002, that number is down from the 200 percent annual growth rate the sector had experienced for the past several years.

And while demand is dwindling, prices continue their breathtaking dive on most major routes, having fallen by more than 95 percent since 1998, the report states. Strangely, however, companies like 360Networks and Flag emerging from bankruptcy have not, as was widely anticipated, been the most aggressive price-slashers, Mauldin says (see 360networks Comes Out of Chapter 11 and FLAG Emerges From Chap. 11). “That’s not what we’ve seen."

Overall, Mauldin says, it looks as though all the players are frantically seeking a way to make money, and generally lack any sort of consistent pricing strategies. “It’s a mixed bag. People are all over the place and have no idea how to price from month to month.”

So, which companies will survive the current chaos and anarchy of the submarine cable market? With all the bankruptcies and assets changing hands at low-low prices in the space, Mauldin says it’s still far too early to tell. “I wouldn’t want to pick any winners right now."

— Eugénie Larson, Reporter, Light Reading

pwm 12/5/2012 | 12:25:15 AM
re: Report: Undersea Cable Market Has Sunk Looking at the figure it puzzles me how it differs from the figure at TeleGeography own web site - http://www.telegeography.com/r...
The numbers are said to reflect "lit capacity", which I take as corresponding to traffic volume. Then I find it hard to believe, that the projections in this article are almost flat (no traffic growth) from 2002 onwards...
The numbers on TeleGeography's own site seem more in line with anticipated traffic growth.
sub-c 12/5/2012 | 12:25:13 AM
re: Report: Undersea Cable Market Has Sunk Assuming everything in this article is accurate, (with respect to previous post) I can't help but laugh at the short-sightedness of the submarine cable operators. At precisely the time when equipment providers are willing to sell their hardware below cost, they say 'no, thank-you'. Then, in a couple of years when most of the equipment providers will be out of business, these same cable operators will be screaming for fiber and swamp the available suppliers with orders. At which point, the surviving suppliers will be able to name their price.

"...it's unlikely that we'll see any new cables laid across the Atlantic or Pacific before 2006."

And just who will be left to lay the cable? And what then will the cost be?

This is brilliant, hold onto your money while the price is low, let all your suppliers go out of business, then wait until 9-months before you need it and cut a PO. PRESTO! New fiber all the way across the Pacific. SHAZAM! A new submarine network across the north pole.

The only thing this scenario will create is a step-function in demand, and a corresponding increase in costs to the cable operators. It was just 3 or 4 years ago that cable operators couldn't get equipment providers to return their phone calls unless they were spending more than $500M.

Am I wrong? What does history tell us?

amauldin 12/5/2012 | 12:25:13 AM
re: Report: Undersea Cable Market Has Sunk The lit capacity data does not refer to traffic in any way. Lit capacity here refers to equipped fibers capable of carrying traffic. In other words the data shows how wide the road is, not how many cars are travelling down it.

Thanks for pointing out that one page of the web site needs to be updated with the data from our new study. For more information about our study, you can download the Executive Summary of the report from the web site.
lightmaster 12/5/2012 | 12:24:56 AM
re: Report: Undersea Cable Market Has Sunk arch_1,

You are thinking of terrestrial systems when you assume 160 lambdas and 10 gig. The technology is very different. There are no power lines, no "huts" for high powered EDFAs, etc.
arch_1 12/5/2012 | 12:24:56 AM
re: Report: Undersea Cable Market Has Sunk I need some help with the basics, here.

If I read the graphs correctly, There will be 3.5Tbps oof lit capacity across the atlantic in 2006.

It seems to me that this is roughly the bandwidth for a single pair of fibers. (160 lambdas @ 10Gbps.)

The typical submarine cable has lots of fibers, yes? and surely, they put amplifiers on all of the fibers? If so, we will not need a new cable for at least a decade, and the entire traffic can run on a total of just over two DWDM multiplexors.

arch_1 12/5/2012 | 12:24:25 AM
re: Report: Undersea Cable Market Has Sunk I asked about DWDM on undersea cables, and lightmaster replied:

"You are thinking of terrestrial systems when you assume 160 lambdas and 10 gig. The technology is very different. There are no power lines, no "huts" for high powered EDFAs, etc."

I did some research today. Check out these links:


This describes a transatlantic cable completed in 2001 and capable of carrying 2.56T on four pairs using DWDM. It uses repeaters. Also check out:


This describes undersea repeatered gear that can run 5.12Tbps for 9000KM. Basically, there are power lines, EDFA repeaters, and "huts" after all.

So I think my first guess was correct: the cable that has already been laid can handle far more bandwidth than this study thinks will be needed before 2006.

Here is another depressing thought:

If you are a router vendor, the estimated demand for transatlantic bandwidth in 2006 is equivalent to approxiately 350 ports of OC-192, assuming it's all router traffic. That's about ten big routers.
pwm 12/5/2012 | 12:24:05 AM
re: Report: Undersea Cable Market Has Sunk OK amauldin - "lit capacity" refers to equipped fibers capable of carrying traffic. Then in each cable there may be "unlit capacity", i.e. un-equipped fibers (dark fibers) that form a spare capacity, which will in turn determine when a new cable needs to be laid (in line with previous posts). In other words the data shows how many lanes are open so far, not how wide the road is (to use your own analogy).

Why would a cable operator lit the capacity (invest in costly line cards /terminals) before the traffic demand is present ? Why doesn't lit capacity follow traffic demand closer (apart from some short lead period that the operator wants to minimize) ?

flanker 12/5/2012 | 12:01:48 AM
re: Report: Undersea Cable Market Has Sunk Yes, everyone on this thread is confused. An undersea cable may be designed to handle 2.56 Tb of capacity on 4 or 6 fiber pair, but this capacity will never be lit day one.

I did not find the explanations so far particularly accurate. An undersea cable inaugurated day one is lit on at least one pair with a few 10 Gb transponders.

This represents perhaps 10, 20 or 40 Gbps of capacity. Furthermore, some of the "total capacity" is actually crossover capacity in case a transponder (or a fiber) fails.

So, a cable with 2.56 Tb of capacity can only transport 1.28 Tb of working traffic (say 128 x 10G channels, or 64 10g channels per pair on two working pairs).

In any case, nobody lights 128 channels day one. It costs money to purchase, install, maintain and power these babies. so basically, working traffic increases, and the cable operator installs 10g transponders on an "as needed" basis.

Anyway, the poster who mentioned that another cable on a major route will not be needed for quite a while is correct. BUT, a lot of carriers build undersea cable with the expectation that the cable will meet its business model with only 20% of its capacity sold. Invariably, new capacity is built - due to competitive pressures -before is is actuially needed.

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