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Could the trans-Pacific capacity bubble burst next year

Posted By TelecomTV One , 07 September 2007 | 0 Comments | (0)
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A senior executive with global capacity provider Level 3 has warned that a potential bubble is inflating on the trans-Pacific route with eight more cables being planned for deployment in an 18-24 month period from next year onwards.

Mike Saunders, Level 3's director of business development for European markets, speaking at the Submarine Cable World exhibition and conference in Singapore, said that operators will need to cooperate and compromise if they are to avoid a scenario eerily reminiscent of the trans-Atlantic cable bubble that saw capacity increase twenty five-fold in the five years to 2003.

Mr.

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Saunders concedes there are real drivers behind the impetus for new builds in Asia in that there are still relatively high revenues available and “everybody agrees on the need for diversity.”

However, current plans would see six new east-west cables – TPE, AAG, Asia Netcom, Flag, Japan-US and Unity – planned for deployment in 2008-9 and another two north-south from Telstra and Pipe Networks mooted in the same period.

From about 2Tbit/s of lit capacity now, the new cables will have the potential, from day one, to unleash as much as 6Tbit/s of lit capacity on to the market – with design capacities “far in excess” of initial lit capacities.

Mike Saunders posed the $64,000 question when he asked, “Can the market deal with a quadrupling of capacity in a way that does not adversely impact the supply-demand dynamics of today? And then answered himself, "Probably not if you dump it all on the market from   day one.”

He suggested that the various cable proposers should collaborate on designs and keep diversity to a practical and affordable level and also that consortia or companies proposing submarine cable systems should consider alternatives such as terrestrial build-out, such as, for example, down the coast of China or across land borders in southeast Asia.

Not everyone though thinks like Mike Saunders and Pioneer Consulting takes a very different point of view. Pioneer's managing partner, Julian Rawle, believes that desire for the diverse routing of different cables is a major factor driving the new submarine builds and the aim is to avoid congested routes such as the east coast of the US and the Suez Canal, by using alternative routes such as traversing the Russian mainland to Asia or crossing the Atlantic via
Greenland.

Julian Rawle is more optimistic about the prospects of the new Australia builds, and suggests there is a real prospect that the country could become a new hub to supply Asia Pacific, but he also concedes that the new festoons will impact the economics of the sector.

He observes, “Cable operators and carriers should not be planning for price increases and the market has got used to the prices we have. New systems will have a downward pressure on bandwidth prices. If those systems talked about come to fruition you will see a second collapse of band-width prices in Asia Pacific.”

In a later panel discussion, Owen Best, the Asia Pacific president of Flag Telecom said there is probably no longer a business case for a pure-play wholesale cable and suggested that partnerships in downstream markets would be a better direction.

“The emphasis of Flag is to head into the enterprise market", he said.

Meanwhile, Wilfred Chan, the CTO of Asia Netcom referred to the Taiwan earthquake of late 2006 and the effect it had on Asia connectivity. He suggest that this and similar natural disasters are key justification for the company's decision to use meshed twin systems – EAC and C2C.

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