Hyperscalers are altering the submarine cable industry
February 2020
INTRODUCTION
Submarine telecom cables are the spine of the global internet as they carry 99% of intercontinental communications and data transfers.
This article summarises the recent industry events and predicts its future trends in terms of:
Routes
Capacity
Competitive landscape
Business model
Mergers and Acquisitions
Technology
Operations
ROUTES
Recent events
Cloud Providers and Tech Platforms lay their own cables in order to link their data centres, provide diversity, and lower latency (e.g. landings in Virginia Beach: Google’s Dunant, Facebook’s and Microsoft’s MAREA)
America is still the busiest region, especially between the US and Brazil
The Transpacific growth is tempered by the abandonment of the Hong Kong and Chinese portions of the PLCN cable (partly owned by Facebook and Google), due to geopolitics
The Transatlantic region is growing thanks to diversity requirement
EllaLink is laying a direct route from Europe to Latin America
Marseille is becoming a Data Centre Interconnect
The Nordic region is offering lower power costs and renewable energy
EMEA has suffered from tension in the region
Predictions
A. Emerging markets will rise (intra-Asia, Euro-Asia, East-Africa)
B. Melting ice caps will allow cables in the arctic region
C. Demand for regional and local connectivity will grow (e.g. Asia)
D. Further routes will be opened in ‘shallow waters’ (e.g. CrossChannel)
E. Data centre providers will integrate even more closely with submarine cables (e.g. Mediterranean Sea cable landing stations)
TeleGeography’s Submarine Cable Map (February 2020)
CAPACITY
Recent events
The growth in digital content is fuelling the submarine cable market
Data and application services have become distributed and cloud based
The four Tech giants (Google, Facebook, Microsoft and Amazon) constituted 55% of lit global bandwidth in 2018
963Tbps of global international bandwidth was used in 2018, with the strongest growth taking place in Asia (2014-18 CAGR 53%)
The design capacity on major routes increased by 32% CAGR over the period 2016-2019
Submarine cable projects have globally received US$8.5 billion in investment since 2015
Predictions
Numerous connected devices, large amount of data, low latency, and local content will drive demand
Cloud, CDN, edge computing, IoT, 5G, AI, and AR/VR will act as technology enablers
Vertical end-users will include industry 4.0, smart cities, autonomous vehicles
According to the 2020 Cisco Annual Internet Report, total Internet users will reach 5.3 billion by 2023, up from 3.9 billion in 2018
The number of networked devices will increase to 29.3 billion by 2023, up from 18.4 billion in 2018
The 2020 Submarine Telecoms Industry Report predicts that global planned capacity will continue to grow by CAGR 21% through 2022
This forecast depends on technology advances and transpacific developments
COMPETITIVE LANDSCAPE
Recent events
Tech giants have heavily invested and dominate major trans-Atlantic, trans-Pacific, and U.S.-Latin American routes
Independent Infrastructure Providers have appeared (e.g. Aqua Comms, Seaborn Networks, RTI, Crosslake Fibre) and offer competitive SLAs
Data centre providers (e.g. Equinix, Interxion) provide access to landing stations to their customers
Wholesalers face the dilemma of partnering with Over-The-Top service providers (OTTs) - the advantage is to benefit from a more favourable business case whilst the risk is to be left with unsold capacity -
Predictions
Cloud and OTT service providers will expand to new routes
Data centres will integrate even more with landing stations and provide backhaul and interconnection
Traditional Submarine cable companies will focus on niches and find value in other areas (e.g. datacentres, ISPs)
Operators and second-tier OTTs (e.g. Uber) will cooperate
Submarine routes will face competition from LEO satellite constellations in specific segments (e.g. high-speed trading)
BUSINESS MODEL
Recent events
Unit costs are declining
Prices are subject to pressure, but disparities between routes remain for now
Anchor customers and pre-commitment revenues have become critical
The traditional consortium model is ending, due to owning full fibre pairs rather than wavelengths, and to OTTs partnering with carriers
Predictions
New business models will emerge (e.g. fewer consortium members)
The choice of business model (e.g. single owner, multiple owner) will depend on the partners and stakeholders, as well as the purpose and the route
Prices will continue to erode and to converge
New commercial arrangements will appear
MERGERS AND ACQUISITIONS
Recent events
Altibox acquired Submarine cable firm Skagenfiber in December 2019
Seabras 1 cable owners filed for Chapter 11 in December 2019
HC2 Holdings are to sell Global Marine Group to an investment affiliate of J.F. Lehman & Company for US$250 Million
Hengtong Optic-Electric is to purchase Huawei Marine Networks: Huawei’s 51% stake and Global Marine Group’s 49% stake
Digital Colony and EQT bought Zayo for US$14.3 Billion in May 2019
DRT is to acquire Interxion, including their Campus in Marseille, a global hub with numerous Submarine cable systems
Predictions
Distressed assets will emerge
Some telecom operators will offload their Submarine cable assets
Consolidation opportunities will appear
Some players will make vertical integration moves
TECHNOLOGY
Recent events
Channel speeds are increasing above 100Gb/s
Cables are being built with 12 fibre pairs (16 thereafter)
Hyperscalers innovate ; for instance, Google’s Dunant will use a high fibre count (HFC) architecture, with 12 fibre-pairs and space division multiplexing (SDM)
Hyperscalers have been advocating for open cable systems, which allow to use several generations of transponder technology over the long lifetime of submarine cables
Predictions
New technology, including Spatial Division Multiplexing (SDM) and coherent optical transmission modems, will help tackle the Shannon limit
Artificial Intelligence (AI), Machine Learning (ML), and Deep Learning (DL) will be used to optimise network assets
Streaming telemetry over APIs will be used to collect real-time performance data, which, in turn, will enable preventive maintenance.
Networks will be designed to be open and operated so that operators can virtualise their networks end-to-end
Packet switching and aggregation will be integrated into the Submarine Line Terminal Equipment (SLTE)
OPERATIONS
Recent events
System upgrades are challenging
Cables installed at the turn of the century are reaching the end of their economic life
Cable cuts are an ongoing threat
The ship fleet is ageing
Predictions
Upgrades will become independent on one another
Closed cables will be retired
Cable utilisation will increase due to open cables and demand exceeding supply
Cable route planning will be optimised
Predictive maintenance will be performed
Investments will be made in modern repair ships
A new ship cost-sharing model will emerge
The operation and maintenance charge will be become flat
CONCLUSION
Hyperscalers dominate, innovate and transform the submarine telecom industry. Cable operators should focus on niches. They also need to invest in technology and optimise their operations in order to sustain growth.