Crouching Google, Hidden Cables

After all, with much existing capacity still unlit in both the North and South Pacific, what is one to make of actual and proposed builds from the likes of Verizon, Tata Communications, Reliance, Pacnet, the Telekom Malaysia-helmed Asia America Gateway, Pipe Networks and Telstra? Plus plans for massive upgrades on existing cables such as Australia-Japan Cable and Pacific Crossing?

Milling around the conference halls at last week’s Pacific Telecommunications Council meeting in Honolulu it’s fair to say that no one was in denial about the fact the 2001 bubble was based on similar causative factors to those that exist now, nor the fact that there is trepidation that industry players will march steadfastly and damagingly into another one.

One common sentiment was that it is unlikely that every single announced upgrade or build will go ahead. Another was that things are different now, and financing is considerably harder to get, thus acting as a brake on inferior plans. 

That certainly seems to apply in the case of perhaps the most left-field of all the new builds, Pipe’s Australia-Guam build. Pipe’s cable has undergone a very public and prolonged gestation period as the company sought to write enough business to cover the cable cost. 

With five announced customers and several more significant unnamed ones, Pipe didn’t confirm the existence of the cable plan until it could point to enough business. Somewhat amazingly, brokers have now upgraded their targets for Pipe’s ASX listed stock, apparently endowing the planned cable with zero risk and almost unlimited upside. Pipe has, as it were, passed its test with flying colours.

Another factor promoting the economics of new builds has gone less remarked ... the fact that vendors such as NEC, Huawei, Alcatel-Lucent and Xtera have dramatically improved the cost efficiencies and productivities of their technologies.

I helped moderate a session at PTC that featured representatives from several of these vendors and it’s clear from their testimonies that the price-productivity trends that have so infused and fuelled other parts of the telecoms business such as HSPA and DSLAM ports are also now manifesting themselves in wet long haul.

This in turn has promoted the viability of builds on second and third-tier routes: for example, Hawaii to French Polynesia, Singapore-Batam-Jakarta and Sydney-Noumea. It’s quite interesting that these days you can build a multi-thousand kilometre cable with change from $US200 million or even as little as $100 million, when, not so long ago, you were talking $1 billion a time.

Of course that’s not to say that everything is rosy and you can just lay it and the business will come. I was a little surprised at the hostile reaction I received in a panel session when I suggested that some of the builds on thinner routes were vanity projects based more on national prestige and political expediency than actual real business cases.  

A fair percentage of the industry is fanatically evangelistic about submarine cables and conveniently forgets the fact that you can’t fill those pipes if you don’t have favourable regulatory and investment reforms in the access network at the other end as well as basic preconditions such as mass PC literacy and affordable services. 

From a political point of view, broadband is a fashion in that it's a problem if you don’t embrace it, and a opportunity if you do. However, nothing can take away from the fact that this year’s pet project can easily become next year’s white elephant.

But, of course, in other cases, new builds on thin routes will actually liberate and unleash repressed market forces.