& cplSiteName &

Lit Capacity Running Low on Subsea Routes

Light Reading
News Analysis
Light Reading
2/27/2006

It's been a long time coming, but it appears as if the subsea capacity glut in the transatlantic route is finally being worked off, and the major players are in upgrade mode.

News from cable operators like Hibernia Atlantic , Apollo Submarine Cable System Ltd. , and Global Crossing (Nasdaq: GLBC) find the market catching up with the excessive overbuilding of those heady bubble days.

Hibernia Atlantic says it has experienced record-high sales growth in the past year and is now carrying more than 220 Gbit/s on its network. (See Hibernia Touts Sales Growth.) Hibernia’s cable connects Canada to Ireland, with rings extending down to New York and London, and the operator has recently signed a deal with FutureWei , the North American arm of Huawei Technologies Co. Ltd. , to extend its network across eastern Canada. (See FutureWei Expands Hibernia.)

“We’ve blown through the capacity that we had and we’re in upgrade mode now,” says Eric Gutshall, VP of sales and marketing. Hibernia is not alone. “Everyone’s practically exhausting everything they have.”

The fact that deals are being done shows the market is shifting, reckons Alan Mauldin at TeleGeography Inc. . Prices have been plummeting thanks to overcapacity, but “now that cable owners are starting to require upgrades we could start to see moderate price increases...you’re not going to see annual twenty to thirty percent declines anymore.” (See Subsea Market Bubbles.)

Take Level 3 Communications Inc. (NYSE: LVLT), which just bought a huge amount of capacity on the Apollo cable. (See Level 3 Boosts Subsea Capacity.) The operator was up to 85 percent of its lit transatlantic capacity, and reports that its IP traffic has doubled in the last year. The deal with Apollo will give it an additional 300 Gbit/s to play with and the option to acquire another 300 Gbit/s.

According to Telegeography, it’s the largest purchase of lit submarine capacity ever made by a carrier in one go. Although Level 3 won’t delve into details, a spokeswoman says the agreement is a “strategic purchase.” Paired with rumors that a consortium of carriers is looking to buy up a large chunk of capacity, it’s clear that carriers are planning for future growth before prices do turn around. (See Undersea Market Resurfaces.)

“Three hundred gigabits is quite a bit of capacity which they obviously will not need to use at once,” Mauldin explains. “They are trying to set up a long-term arrangement.” The deal gives Level 3 capacity on four different cables and makes it the major tenant on Apollo route, and could signal a shift to long-term strategic thinking that focuses on the availability of bandwidth rather than price.

“There are a lot of carriers out there with significant capacity needs,” says Mauldin, and demand is growing all the time. TeleGeography data shows average transatlantic Internet traffic jumped 42 percent between 2004 and 2005.

Gutshall at Hibernia notes that along with carrier demand -- to accommodate international data services, IPTV and HD streams, and so on -- large organizations like those in the financial sector “are buying up 2.5-Gbit/s wavelengths by the dozens...End-users are in some cases buying more than the carriers.”

While the direct New York to London route remains bread and butter to operators, other cities are looking for connections to the transatlantic routes. Hibernia’s network incorporates 13 “feeder” cities in North America, Ireland, and the U.K. Gutshall says “demand from feeder cities is growing way out of proportion.”

In a similar vein, Global Crossing has enlisted Alcatel (NYSE: ALA; Paris: CGEP:PA) to upgrade the capacity of its Mid Atlantic Crossing (MAC) system, which runs between New York, Florida, and the Virgin Islands and connects to its transatlantic cables. (See Global Crossing Ups Capacity.)

Mauldin believes that all of this activity is good news. “To have some kind of stability in the market is positive for all the players involved,” he says. But “that’s not to say everybody is to going to make a ton of money. Prices are still quite low, in some cases below operational and maintenance costs.”

But now that lit capacity is running low, operators will have to raise prices to cover the costs of upgrading. “It’s going to be interesting to see how dwindling supply affects prices.”

— Nicole Willing, Reporter, Light Reading

(0)  | 
Comment  | 
Print  | 
Related Stories
Newest First  |  Oldest First  |  Threaded View        ADD A COMMENT
Featured Video
Upcoming Live Events
December 3-5, 2019, Vienna, Austria
December 3, 2019, New York, New York
March 16-18, 2020, Embassy Suites, Denver, Colorado
May 18-20, 2020, Irving Convention Center, Dallas, TX
All Upcoming Live Events