Submarine Telecoms Industry Report Issue 8 by Submarine Telelecoms Forum

SUBMARINE TELECOMS

ISSUE 8 | 2019/2020

INDUSTRY REPORT

SUBMARINE TELECOMS INDUSTRY REPORT

CONTENTS EXORDIUM......................................................... 4 FOREWORD â&#x20AC;&#x201C; ITU.............................................. 6 INDUSTRY REPORT METHODOLOGY............... 8

5. CABLE SHIPS.............................................56 Insider Perspective, Stephen Nielsen............... 58 5.1 Current Cable Ships.................................... 59

1. GLOBAL OVERVIEW.................................10

5.2 Shore-End Activity...................................... 62

Insider Perspective, Eric Handa........................ 11

6. MARKET DRIVERS AND INFLUENCERS...64

1.1 History of Submarine Telecoms.................. 12 1.2 Capacity...................................................... 15 1.3 System Growth........................................... 22 1.4 Evolution of System Ownership and Customer Base........................................... 24 2. OWNERSHIP FINANCING ANALYSIS........26 Insider Perspective, World Bank....................... 28 2.1 Historic Financing Perspective................... 29 2.2 Regional Distribution of Financing............. 30 2.3 Current Financing....................................... 31 3. SUPPLIER ANALYSIS.................................36 Insider Perspective, Paul Gabla, ASN............... 37 3.1 System Suppliers......................................... 38 3.2 Installers...................................................... 40 3.3 Surveyors..................................................... 42 3.4 Recent Mergers, Acquisitions and Insustry Activities.............................................. 43 4. SYSTEM MAINTENANCE..........................46 Insider Perspective, Bruce Neilson-Watts........ 48 4.1 Publicity....................................................... 49 4.2 Reporting Trends and Repair Times........... 50 4.3 Club Versus Private Agreements................ 51

SUBMARINE TELECOMS INDUSTRY REPORT

Insider Perspective, Derek Webster................. 66 6.1 Over-The-Top Providers.............................. 67 6.2 Data Centers............................................... 69 7. SPECIAL MARKETS...................................72 Insider Perspective, Steve Lentz....................... 74 7.1 Offshore Energy.......................................... 75 7.2 SMART Cables............................................ 76 8. REGIONAL MARKET ANALYSIS AND CAPACITY OUTLOOK...........................82 Insider Perspective, Patrick Faidherbe, AQEST... 83 8.1 Transatlantic Regional Market.................... 84 8.2 Transpacific Regional Market...................... 90 8.3 Americas Regional Market.......................... 94 8.4 AustralAsia Regional Market...................... 98 8.5 EMEA Regional Market............................. 102 8.6 Indian Ocean Pan-East Asian Regional Market.............................................. 106 8.7 Polar Regional Market.............................. 110 AFTERWORD.................................................. 114 WORKS CITED................................................ 115 LIST OF FIGURES............................................ 116

SUBMARINE TELECOMS INDUSTRY REPORT

EXORDIUM FROM THE PUBLISHER

Welcome to the 8th edition of SubTel Forum’s annual “Submarine Telecoms Induswtry Report,” which was authored by the analysts at STF Analytics, without whom this report would not be possible.

s always, the annual Industry Report serves as an analytic resource within a quartet of SubTel Forum products including the Submarine Cable Map published every January, the Submarine Cable Almanac published quarterly thereafter, and the virtual Submarine Cables of the World Interactive Map. The Submarine Telecoms Industry Report features in-depth analysis and prognoses of the submarine cable industry and serves as an invaluable resource for those seeking to comprehend the health of the submarine industry. It examines both the worldwide and regional submarine cable markets, including issues such as the new-system and upgrade supply environments, ownership, financing, market drivers, and geopolitical/economic events that may impact the market in the future. The format of the annual Industry Report has been updated once again, adding sections related to SMART cables, polar projects and offshore energy. As such we have attempted to make a more encompassing view of the submarine fiber industry available to you, our readers, and for the fourth time, have produced this report in house with the assistance of STF Analytics, our industry research and data analysis arm. Last year’s report was downloaded over 500,000 times or so and was quoted by numerous business journals and periodicals. We are optimistic, yet confident that this year’s edition stands up to the same scrutiny. We hope you’ll agree.

SUBMARINE TELECOMS INDUSTRY REPORT

We are thrilled that the Secretary General of the International Telecommunication Union, Mr. Houlin Zhao, provided this year’s foreword, discussing the state of the ITU and its submarine cable related initiatives. Thanks especially to Bruce Howe of University of Hawaii who penned for ITU a comprehensive section outlining the uses and evolution of scientific cables around the world. In this annual Industry Report, we have identified $5.74 billion in new projects that are being actively pursued by their developers. Of those, $2.4 billion worth are executed contract-in-force, and $1.25 billion of those new, contract-in-force systems are slated for 2020 alone. We utilized insights from a number of articles from recent issues of Submarine Telecoms Forum Magazine, where necessary, allowing us to better discuss various industry topics. We also received some excellent input from a number of industry super stars, including: • Bruce Neilson-Watts, GMSL • Derek Webster, Andget Limited • Eric Handa, AP Telecom • Patrick Faidherbe, AQEST • Paul Gabla, ASN • Steve Lentz, OSI • Himmat Singh Sandhu & Siddhartha Raja, W orld Bank • Stephen Nielsen, SubTel Forum We would also like to say a special thank you to our sponsors who helped make the annual Industry

A Publication of Submarine Telecoms Forum, Inc. www.subtelforum.com ISSN No. 2640-4311 Report doable: • APTelecom • E-Marine • Hengtong • STF Analytics • WFN Strategies While the crystal ball will rarely be completely clear, one fact remains – that our more than 170-year-old international enterprise continues to be a thriving, exciting and ever-evolving industry. In the coming months, we will continue to strive to make available as much new data as possible in a timely and useful fashion – as we say, an informed industry is a productive industry. Thank you as always for honoring us with your interest in SubTel Forum’s 8th annual “Submarine Telecoms Industry Report.”

PRESIDENT & PUBLISHER:

Wayne Nielsen | wnielsen@subtelforum.com

VICE PRESIDENT:

Kristian Nielsen | knielsen@subtelforum.com

SALES:

Teri Jones | tjones@subtelforum.com | [+1] (703) 471-4902

EDITOR:

Stephen Nielsen | snielsen@subtelforum.com

DESIGN & PRODUCTION:

Wendy Wade | wendy@weswendesign.com

REPORT WRITER: Kieran Clark

Submarine Telecoms Forum, Inc. www.stf-inc.com

BOARD OF DIRECTORS:

Margaret Nielsen, Wayne Nielsen and Kristian Nielsen STF Events, Inc. www.stfevents.com

CONFERENCE DIRECTOR:

Christopher Noyes | cnoyes@stfevents.com | [+1] (703) 468-0554 STF Analytics, Division of SubTel Forum, Inc. www.stfanalytics.com

LEAD ANALYST:

Kieran Clark | kclark@subtelforum.com | [+1] (703) 468-1382

Wayne Nielsen Publisher & President, Submarine Telecoms Forum, Inc.

Contributions are welcomed and should be forwarded to: pressroom@subtelforum.com. Submarine Telecoms Forum magazine is published bimonthly by Submarine Telecoms Forum, Inc., and is an independent commercial publication, serving as a freely accessible forum for professionals in industries connected with submarine optical fiber technologies and techniques. Submarine Telecoms Forum may not be reproduced or transmitted in any form, in whole or in part, without the permission of the publishers.

Liability: While every care is taken in preparation of this publication, the publishers cannot be held responsible for the accuracy of the information herein, or any errors which may occur in advertising or editorial content, or any consequence arising from any errors or omissions, and the editor reserves the right to edit any advertising or editorial material submitted for publication. New Subscriptions, Enquiries and Changes of Address 21495 Ridgetop Circle, Suite 201, Sterling, Virginia 20166, USA, or call [+1] (703) 444-0845, fax [+1] (703) 349-5562, or visit www.subtelforum.com. Copyright © 2019 Submarine Telecoms Forum, Inc.

V O I C E O F T H E I N D U S T RY

SUBMARINE TELECOMS INDUSTRY REPORT

FOREWARD

Houlin Zhao, Secretary-General, International Telecommunication Union

he submarine telecoms cables spanning our oceans are the information superhighways that form the ‘backbone’ of the global ecosystem of information and communication technologies (ICTs). Their construction prizes durability and longevity. Their capacity is unparalleled. Their manufacture and deployment are major undertakings. Submarine telecoms cables are emblematic of the enormous investment required to connect the world. I would like to thank the Submarine Telecoms Forum for offering ITU the opportunity to contribute to this report. The Submarine Telecoms Industry Report aims to offer a global view of the latest innovations in submarine telecoms technology, the latest deployment projects, evolving business relationships, and prospects for the future of the industry. This global view of the industry’s technical and business dynamics helps companies to build new partnerships and advance in unison. This is an objective that ITU is pleased to support. ITU is the United Nations specialized agency for ICT. We coordinate the global allocation of radiofrequency spectrum and satellite orbits. ITU standards are critical to the operation of today’s optical, radio and satellite networks. And we assist developing countries in the application of advanced ICTs. Our global membership includes 193 Member States and some 900 leading companies, universities, and international and regional organizations. ITU is unique in the ICT standards world as the only body to include governments. We are also unique in the United Nations system as the only body to include the private sector. We are in a unique position to bring the benefits of ICT innovation to all regions of the world. The global ICT ecosystem is a remarkable feat

SUBMARINE TELECOMS INDUSTRY REPORT

of engineering, and a similarly remarkable feat of international collaboration. For over 150 years, ITU has provided a neutral platform to bring cohesion to ICT innovation worldwide. The submarine telecoms industry has been integral to this work, participating in the development of ITU international standards for the design, construction, deployment and operation and maintenance of submarine telecoms systems. Our latest standardization project in this domain is addressing transversely compatible DWDM (dense wavelength division multiplexing) applications for repeatered submarine telecoms systems. This project is also covering the characterization and commissioning of ‘open cable networks’, a shift towards the separation of dry and wet plant procurement. I welcome you to join the ITU standardization community. The principles underlying the ITU standardization process ensure that all voices are heard, that standardization projects do not favor particular commercial interests, and that resulting standards have the consensus-derived support of the diverse, globally representative ITU membership. Enabling Infrastructure for Climate Action ICT infrastructure has become enabling infrastructure for innovation in fields such as energy, transportation, healthcare, financial services and smart cities. This infrastructure also has significant potential to support climate action. In recent years, the extraordinary breadth and capacity of the submarine telecoms network has motivated the initiation of an ambitious new project: that of equipping submarine communications cables with climate and hazard-monitoring sensors to create a global real-time ocean observation network.

This network would be capable of providing earthquake and tsunami warnings as well as data on ocean climate change and circulation. Submarine cables are uniquely positioned to glean key environmental data from the deep ocean, which at present is grossly under sampled for monitoring the climate. Equipping cable repeaters with climate and hazard-monitoring sensors – creating ‘Science Monitoring And Reliable Telecommunications (SMART) cables’ – would yield data of great value to climate science, disaster warning and the future of our oceans. Realizing this vision is the primary objective of the ITU/WMO/UNESCO-IOC Joint Task Force on SMART Cable Systems, a multidisciplinary body established in 2012. There was never any doubt that this project was feasible. What was required, however, was a coordinated international effort to mobilize the necessary political and business will to bring stakeholders together to determine their respective roles. Chief on the Joint Task Force’s list of priorities has been devising means for the private sector to drive the sustainable growth of the envisaged SMART cable network. A variety of stakeholders have contributions to make, but telecoms companies are at the heart of the project. They will own and manage SMART cable infrastructure, becoming lead contributors to the advancement of climate science and disaster warning. Telecoms companies and cable manufacturers are the right custodians of this responsibility. These industry players are expert in manufacturing and deploying submarine telecoms cables designed to last 25 years. Their knowledge comes from many years of experience and it is essential that we capitalize on their expertise. Cable manufacturers are best placed to build and install SMART sensors as an integral part of the production process, ensuring the compatibility of SMART sensors with

the engineering of the repeater and its deployment environment. SMART cables are expected to be field-proven by ongoing demonstrations and proposed pilot systems in Europe, Asia-Pacific, and The Americas. The work of the Joint Task Force and experience gained in the field will establish a minimum set of requirements for SMART sensors. This set of requirements will feed into ITU’s international standardization work. The Joint Task Force has contributed a synopsis of its latest report to this issue of the Submarine Telecoms Industry Report. Your feedback on the report would be most welcome. Houlin Zhao, Secretary-General International Telecommunication Union HOULIN ZHAO was first elected 19th Secretary-General of the International Telecommunication Union at the Busan Plenipotentiary Conference in October 2014. He took up his post on 1 January 2015. ITU Member States re-elected Houlin Zhao as ITU Secretary-General on 1 November 2018. He began his second four-year term on 1 January 2019. Prior to his election, he served two terms of office as ITU Deputy Secretary-General (2007-2014), as well as two terms as elected Director of ITU’s Telecommunication Standardization Bureau (1999-2006). Houlin Zhao is committed to further streamlining ITU’s efficiency, to strengthening its membership base through greater involvement of the academic community and of small and medium-sized enterprises, and to broadening multi-stakeholder participation in ITU’s work.

SUBMARINE TELECOMS INDUSTRY REPORT

METHODOLOGY

his edition of the Submarine Telecoms Industry Report was authored by the analysts at STF Analytics, a Division of Submarine Telecoms Forum, Inc. It provides submarine cable system analysis for SubTel Forum’s Submarine Cable Almanac, Cable Map and Industry Newsfeed. For the Industry Report, STF Analytics utilizes both interviews with industry experts and its proprietary Submarine Cable Database, which was initially developed in 2013 and updated with real-time data thereafter. The database tracks some 400+ current and planned domestic and international cable systems, including project information suitable for querying by owner, year, project, region, system length, capacity, landing points, installers, etc. The Submarine Cable Database is purpose-built by STF Analytics’ database administration team, which is powered by My SQL and retained on a Microsoft Azure platform. Data is collected from the public domain and interviews with industry experts and is the most accurate, comprehensive and centralized source of information in the industry. At present, STF Analytics’ Submarine Cable Database chronicles the work of some 18 financiers, 477 cable owners, 22 system suppliers, 12 upgraders, 15 system surveyors and 25 system installers. In addition, it manages data for some 400+ projects, across seven regions and 840+ landing points. To accomplish this report, STF Analytics conducts continuous data gathering throughout the year. Data assimilation and consolidation in its Submarine Cable Database is accomplished in parallel with data gathering efforts. General trending is accomplished using known data with linear growth estimates for up to three following years. For capacity growth, two different ways of determining Compound Annual Growth Rate (CAGR) are used. The first method calculates a CAGR for a given time period – e.g., a CAGR for the period 2014-2018. The second method calculates a rolling two-year CAGR to minimize extreme variance while also showing a useful year-to-year growth comparison. STF Analytics collected and analyzed data derived from a variety of public, commercial and scientific sources to best analyze and project market conditions. While every care is taken in preparing this report, these are our best estimates based on information provided and discussed in this industry.

SUBMARINE TELECOMS INDUSTRY REPORT

Figure 1: Worldwide Map of Submarine Cable Database

SUBMARINE TELECOMS INDUSTRY REPORT

GLOBAL OVERVIEW

SUBMARINE TELECOMS INDUSTRY REPORT

SUBMARINE TELECOMS

INDUSTRY

REPORT 19|20

SUBMARINE TELECOMS INDUSTRY REPORT

INSIDER PERSPECTIVE

“S

ubmarine cables over the last 100 years have played a vitally important role in making the world a smaller place. Today, submarine cables are making the world a smaller connected community as a result of high speed, instant, and effective communications. Submarine cables continue to carry the majority of financial transactions, social media, government communication, and commerce on an unprecedented level. Many readers most likely grew up with radio or black and white television prior to the current technological revolution that’s taken place be it cell phones, high speed broadband at home, streaming videos and near perfect 4K connections from half way around the world and no doubt, have a true appreciation for the evolution that has taken place in the last 50 years. APTelecom see’s submarine cables continuing to play an important role as traffic becomes more direct (ie: less dependency on traditional hub and spoke routes of the USA, UK, Japan, etc. as local content continues to be developed). For example, the Southern Hemisphere is well positioned to continue to build modern and cost-effective, high-end transmission capacity to the rest of the world. This connectivity will promote further trade and commerce and redefine routing traffic in the very near future. Submarine Cable capacity for reasons of diversity in avoiding points of failure and ‘enabling always on’ networks is critical for banking and finance, aviation, and various other industries that utilize cloud computing, artificial intelligence, and are poised to seize on the upcoming 4th Industrial Revolution of automation. Networks are critical to delivering software and services in an advanced and in many cases near real time basis that could have only been imagined some 50 years ago. In many areas of technology, we are even approaching Shannon’s law limits and the theoretical capacity that is possible over submarine cables and terrestrial cables. Looking at the current submarine cable market, prices continue to decline in line with Moore’s Law, yet with the increase in comput-

SUBMARINE TELECOMS INDUSTRY REPORT

ing power doubling and in some cases tripling, coupled with advancements in line card and LTE technology it’s a testament to the research and development teams around the globe in action. Many global submarine routes only offer 100G interfaces replacing the old STM-4 and 10G’s of bygone days. No doubt, 1Tb cards will be available in no time soon. As CEO of APTelecom, its with tremendous pleasure and pride to support many existing and new submarine cable systems in the Asia Pacific, LATAM, and Atlantic regions. From our perspective, the Arctic region will likely have a system built in less than three to five years, the Southern Hemisphere will continue to build out, seeking diversity creating new hubs around the world that rival the likes of Los Angeles, London, New York, and Tokyo. Pressure is building for more cost-effective cables using new raw materials due to build cost pressure to support those rolling out SDN and cloud-based solutions that require five to seven paths on one particular route in order to have secure, diverse, and reliable transmission service linking countries around the world. We hope you enjoy this report and wish you all the best as your likely downloading this PDF which at some point the bits to enable viewing are being delivered over a submarine cable in some depths of the ocean across the planet! ERIC HANDA CEO APTelecom

GLOBAL OVERVIEW

1.1 HISTORY OF SUBMARINE TELECOMS

anic communication methods were realized - submarine cable communication and radio communication. The first attempt at laying a transatlantic telegraph cable was promoted by Cyrus West Field, who persuaded British industrialists to fund and lay

“2020 is the 150th anniversary of the founding of the Eastern Telegraph Company, Sir John Pender’s cable network which would span the entire British Empire by the end of the century. At the end of the 1920s this group of cable companies Figure 2: Landing of the Eastern Telegraph Company’s Britain to India cable at merged with the Marconi wireless interAden with the Great Eastern out to sea ests to form Cable & Wireless. The Telegraph Museum in Porthcurno, Pender’s first cable station and now a world-class museum, will be having various events in 2020 to celebrate their history. The company’s first cable system was to connect Britain to India, and this image is the landing of the shore end at Aden, with Great Eastern out to sea.” —Bill Burns Atlantic-Cable.com

1.1.1 HISTORICAL PERSPECTIVE

Figure 3: The first submarine Cableship Goliath cable in the world was laid in the English Channel in 1850 by the stream tug Goliath. It was a revolutionary event that communication beyond the ocean became possible, although the communication method was telegraph. In 1866, the first commercially successful transatlantic submarine cable was completed between Valentia, Ireland and Heart’s Content, Newfoundland, and submarine cable networks in the world were gradually expanded. (Ash, 2014) In 1876, the telephone was invented, and communication was expanded dramatically, and in 1891, the world’s first submarine cable for telephone was built in the English Channel. In 1901, transatlantic radio communication was successfully demonstrated by Marconi, but it was not until 1923 that two transoce-

one in 1858. However, the technology of the day was not capable of supporting the project; it was plagued with problems from the outset and was in operation for only a month. Subsequent attempts in 1865 and 1866 with the world’s largest steamship, the SS Great Eastern, used a more advanced technology and produced the first successful transatlantic cable. The first transpacific submarine telegraph cable was completed in 1902. It ran between Australia, New Zealand, and Canada via Norfolk Island, Fiji and Fanning Island. In 1906, the submarine cable between Tokyo and Guam was opened to traffic, SUBMARINE TELECOMS INDUSTRY REPORT

and telegraph service with US was inaugurated. However, after that, telegraph and telephone traffic using radio communication increased because of the installation and operating costs. The first transoceanic coaxial submarine cable, including repeaters, was TAT-1 laid across the Atlantic Ocean, and went into service in 1956. In 1963, the first transpacific coaxial cable (COMPAC) connecting Australia and New Zealand with Canada via Fiji went into service. It was followed in 1964, by TPC-1 which connected the US with Japan via Guam and Hawaii. In 1967, INTELSAT-II was launched over the Atlantic Ocean, and satellite communication was inaugurated.

1.1.2 THE OPTICAL AGE In the 1980s, optical submarine cable systems were developed. The first transoceanic fiber optic system was the transatlantic, TAT-8, which was ready for service in 1988. Telecommunications with high quality and high capacity became possible, and optical submarine cable networks were extended all over the world. The first generation of optical systems regenerated the optical signal within the submerged repeaters. In the mid-90s regenerators were replaced by optical amplifiers, which allowed the simultaneous transmission of more than one wavelength. Currently, the main method for international telecommunications is the use of submarine cables; 99 percent of international telecommunications is carried over submarine cables. Antarctica remains the only continent yet to be reached by submarine telecoms cable. In 2017, the Arctic received its first significant submarine cable system. Future such systems, both regional and transoceanic, are in the planning stages. The goal of a northwest or northeast Arctic passage seems within reach. In recent years, many submarine cable projects have been progressing in the world. Communication infrastructure with higher speed and larger capacity is required to support the rapid growth of the Internet and, video transmission, and so demand for new submarine cables is increasing. This trend is expected to continue for the foreseeable future.

SUBMARINE TELECOMS INDUSTRY REPORT

1.1.3 HISTORY OF OIL & GAS SUBMARINE CABLES In the late 1970s, Offshore Telephone deployed a coaxial Oil & Gas cable system followed by in the mid-1990s PetroComâ&#x20AC;&#x2122;s FiberWeb inter-platform fiber cable system. Both systems were in the Gulf of Mexico and both systems failed and were eventually abandoned. (Berlocher, 2009) The first successful Oil & Gas submarine fiber cable was installed in the early 1990s in the North Sea for BP. In 1998, PetroBras developed an offshore platform system in the Campos Basin and in 2001, BP developed the Central North Sea Fiber Optic Cable, a submarine cable that linked the Scottish mainland with offshore platforms. In 2002, Saudi Aramco developed the Offshore Fiber Optic Cable System and in 2008, BP developed the BP GoM cable system, the latter of which becoming the model for future such systems. Since 2001, the total length of all fiber cable in use for Oil & Gas cable systems has increased by over 550 per cent. (Nielsen, 2012) As the industry focuses on utilizing new technologies to increase efficiency and automation as a key strategy to reduce cost and maintain margins, it is expected to drive up the demand for new offshore fiber systems. Worker tracking and safety, remote monitoring, improved seismic mapping, big data analytics and more all require higher bandwidth and lower latency than traditional satellite and O3b connections can provide. The push for efficiency to reduce costs and increase production help to offset weaker oil price when times are tough and maximize revenue when prices are high. As these techniques and processes become more widespread, new submarine fiber optic systems will be required.

1.1.4 THE MODERN ERA Since the 1990s, the submarine fiber market has been characterized by rapid development in optical technology which has improved both network efficiency and system design capacity. Over the last 30 years, the industry has gone from measuring capacity in Megabits in the early 90s to systems with hundreds of Terabits in 2019. One of the biggest contributions to this capacity increase was the development of Wavelength-Division Multiplexing (WDM) â&#x20AC;&#x201C; first

GLOBAL OVERVIEW

introduced on the SEA-ME-WE 3 system in 1999. This technique allows cable systems to send multiple optical wavelengths over a single fiber pair, reducing the amount of fiber needed and eventually bringing down the cost of new cable systems. The introduction of Dense Wavelength-Division Multiplexing (DWDM) allowed many more wavelengths – or channels – to be added on a single fiber pair which further accelerated the increase in design capacity on a single cable. Wavelength capacity has increased at a rapid pace since the early 2000s with 10 Gbps first entering the market around 2003 and 100 Gbps wavelengths appearing as early as 2010. This tenfold increase in wavelength capacity in the span of less than a decade is another major contributing factor to the rapid increase in available global bandwidth over the last 20 years. Alongside the increase in channel capacity, the concept of system upgrades was developed. In the early to mid-2000s, it became possible for system owners to swap out components in the Submarine Line Terminal Equipment (SLTE) to increase capacity instead of the need to build an entirely new cable system. Systems upgrades have since become the most cost-effective way to add capacity along a submarine cable route and can be actioned in a much shorter time frame than developing a new system. Looking ahead, advancements in Artificial Intelligence (AI) managed systems will increase the capability and efficiency of networks as they become increasingly more complex.

1.2 CAPACITY

40%

3,000

1.2.1 GLOBAL CAPACITY

2,500

35%

2,000 Tbps

The world continues to consume ever increasing amounts of data, with bandwidth demand projected to almost double every two years for the foreseeable future. This demand – largely driven by a continued shift towards cloud services, continued explosion of mobile device usage and

mobile technology like 5G – provides numerous opportunities for the submarine fiber industry. Over-The-Top (OTT) service providers continue to post strong earnings reports and grow at a rapid pace, which indicates that this bandwidth demand won’t be tapering off any time soon. For the period 2015-2019, submarine fiber design capacity on major routes has increased at a Compound Annual Growth Rate (CAGR) of 32 percent, including upgrades and new system builds. (Figure 4) This is up significantly compared to this time last year where the CAGR along major submarine cable routes was just 25.6 percent. There were slightly fewer systems installed this year compared to 2018 but a couple very high capacity systems and system upgrades pushed the CAGR higher. With global demand increasing at such a rapid pace, sustaining infrastructure growth will be challenging, potentially causing demand to exceed supply. To date, the industry has been able to keep up with demand— but it will be necessary to continue focus on increasing capacity in order to continue to meet the increasing demand. Further evidence the submarine fiber industry is working to meet global capacity demands is the average new system capacity over the last five years, which has increased by 37 percent. Averaging at just over 31 Tbps in 2014, new systems now average at 42.5 Tbps. (Figure 5) With future systems positioned to take advantage of higher wavelength capacities and potentially more fiber pairs, system capacity

30%

1,500 25%

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Transpaciﬁc Transatlantic Intra-Asia Americas

20%

500 0

CAGR

2015

2016

2017

2018

2019

15%

Figure 4: Global Capacity Growth by Region, 2015-2019

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80 70 60

Tbps

50 40 30 20 10 0

2015

2016

2017

2018

2019

Figure 5: Average New System Capacity, 2015-2019

6,000 5,000 4,000 Tbps

growth is expected to continue to trend upwards. Based on reported data and future capacity estimates, global capacity is estimated to increase up to 79 percent by the end of 2022. (Figure 6) Despite multiple systems planned over the next two years boasting design capacities of more than 100 terabits per second, overall capacity growth will plateau based on currently announced planned system data which indicates a CAGR of just 21 percent through 2022. However, not all announced systems are far enough in the development process to have decided things like fiber pair counts and design capacity so expect to see an increase in projected bandwidth as these details are finalized and new systems are announced. The prevalence of 200G and higher wavelengths will also impact these numbers as several of these currently planned systems are being design with only 100G wavelengths in mind.

3,000 2,000

1.2.2 LIT CAPACITY Since 2014, major submarine cable routes have averaged 18 percent lit of total design capacity. A large capacity buffer is designed for cable systems to deal with sudden spikes in demand, such as handling rerouted traffic due to a cable fault.

1,000 0

2019

2020

2021

2022

Figure 6: Global Planned Capacity Growth, 2019-2022

1.2.2.1 Transatlantic Region

Tbps

600 50% CAGR The Transatlantic region has seen steady design capacity growth over Design 500 the last five years at a CAGR of 29.7 Lit 40% 400 percent due to regular upgrades and a new system each year for the 300 period 2014-2018. (Figure 7) This 30% 200 is down from last year where the 100 CAGR for the period 2013-2017 was 35 percent. On average, the Trans0 20% 2014 2015 2016 2017 2018 atlantic route has maintained a lit capacity at 21.8 percent of total for this five-year period, well above the Figure 7: Transatlantic Capacity Growth, 2014-2018 global average of 18 percent. The markets of North America and Europe. last two years have seen 20.5 and 22.4 percent, Capacity growth in the Transatlantic region respectively. Transatlantic routes are the most competitive globally â&#x20AC;&#x201C; especially those connecting is expected to continue over the next few years through 2022, fueled by new routes across the the two biggest economic hubs in the world of New York and London â&#x20AC;&#x201C; and carry traffic between South and Mid Atlantic, which are under consideration. (Figure 8) Based on publicly announced the highly developed economies and technology

SUBMARINE TELECOMS INDUSTRY REPORT

GLOBAL OVERVIEW

2,000

50%

1,500

40%

1,000

30%

500

20%

CAGR Design

Tbps

planned system information this route will observe a CAGR of 26.1 percent for the period 2018-2022. Additionally, OTT providers continue to focus on building new infrastructure across the Atlantic, which raises the probability that growth will increase more dramatically than currently predicted.

1.2.2.2 Transpacific Region

2018

2019

2020

2021

10%

60% 50%

CAGR Design Lit

40%

Tbps

Like the Transatlantic region, the Transpacific has observed moderate Figure 8: Transatlantic Capacity Growth, 2018-2022 design capacity growth at a CAGR of 25.1 percent for the period 2014-2018. This is about the same as last year 600 where the CAGR for the period 2013500 2017 was 25.6 percent. The region has maintained an average of 15.3 percent 400 lit capacity during this time – below 300 global averages. (Figure 9) In 2014, lit 200 capacity was as low as 12 percent, indicating a short-term capacity overbuild 100 in this region that has only recently 0 begun to recede with 2017 and 2018 2014 2015 2016 2017 observing lit capacities of 17.7 and 18.5 percent, respectively. Like the Figure 9: Transpacific Capacity Growth, 2014-2018 Transatlantic region, OTT providers are looking to expand their infrastructure in this region — especially with 1,500 recently announced systems. 1,200 As one of the more competitive regions in the world – with a diverse 900 number and type of both systems and customers – the Transpacific is 600 expected to increase from its CAGR 300 of 25 percent to 30 percent through 2022 based on publicly announced 0 2018 2019 2020 2021 system information. (Figure 10) New, high capacity systems are beginning to come into service, and lit Figure 10: Transpacific Capacity Growth, 2018-2022 capacity seems to be back on track with global trends. If OTT providers continue to focus on this region, expect lit capacity growth to accelerate to the levels seen in the Transatlantic region.

2022

Lit

30% 20%

2018

10%

40% 35%

CAGR Design Lit

Tbps

30% 25% 20%

2022

15%

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1.2.2.3 Americas Region

Tbps

The Americas region has seen 500 60% CAGR significant growth in the last few Design 400 years, more than doubling in total 50% Lit capacity from 130 Tbps to 415 Tbps 300 along major routes. This region has 40% observed a CAGR of 38.9 percent for 200 the period 2014-2018. (Figure 11) This 30% 100 is up slightly from last year where the CAGR for the period 2013-2017 was 0 20% 2014 2015 2016 2017 2018 36 percent. The region has maintained an average yearly lit capacity of 16.8 percent, Figure 11: Americas Capacity Growth, 2014-2018 slightly below the global trend. Much of this growth has been spurred on by growing markets in Latin America, 50% 800 CAGR with new systems and upgrades in700 Design 40% creasing flow of traffic between these 600 Lit countries and the United States. 500 30% OTT providers have been especially 400 interested in the Brazil-US route, 20% 300 adding several high capacity systems 200 10% in 2017 that have increased the total 100 capacity along this route by over 50 0 0% 2018 2019 2020 2021 2022 percent. Typically, OTT providers have partnered with traditional teleFigure 12: Americas Capacity Growth, 2018-2022 coms carriers that add this capacity to the general market but moving forward OTT providers are begin80% 300 CAGR ning to build cables entirely for their own use. It is unclear whether OTTs 70% Design 250 will one day monetize these exclusive 60% Lit 200 use cables. 50% Based on publicly announced 150 40% information for planned systems, the 30% 100 Americas region is not expected to 20% 50 continue its surge of recent growth 10% as no systems are currently planned 0 0% 2014 2015 2016 2017 2018 for 2021 or 2022. (Figure 12) Based on publicly announced planned system Figure 13: Intra-Asia Capacity Growth, 2014-2018 information this route will observe a CAGR of 19.5 percent for the period opment cycle. Growth in this region is fueled by 2018-2022. growing markets in Latin America â&#x20AC;&#x201C; typically Brazil, While no system is currently planned for 2022, there is still time for some to be announced as cable Argentina and Chiles â&#x20AC;&#x201C; and helped by the expansion of OTT providers in South America. However, systems typically have a two to three-year devel-

SUBMARINE TELECOMS INDUSTRY REPORT

GLOBAL OVERVIEW

1,000 800

Tbps

growth has slowed down since 2018 – potentially because the growth spurt observed from 2016-2018 which added seven cables and 360 Tbps of capacity has satisfied capacity needs for the immediate future.

CAGR

50%

Design

40%

600

Lit

30% 400

1.2.2.4 Intra-Asia Region

60%

20%

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200 The Intra-Asia route has main10% tained minimal to moderate design 0 0% capacity growth since 2014 with a 2018 2019 2020 2021 2022 CAGR of 24.3 percent for the period 2014-2018. (Figure 13) This is down Figure 14: Intra-Asia Capacity Growth, 2018-2022 significantly from last year where the CAGR for the period 2013-2017 was $120 100G 39 percent. $100 10G Growth along this route largely depends on huge infrastructure builds $80 connecting major hubs throughout $60 Asia and Southeast Asia – something $40 that does not happen every year. Lit capacity stays in line with global $20 trends at 18 percent of total. $0 Nearly 300 Tbps capacity is already available along these routes and 520 Tbps will be added through 2022 adding a sizeable increase of nearly 200 percent – departing from the route’s Figure 15: Monthly Lease Pricing on Major Routes historical trends. (Figure 14) There is no indication that demand trends The Transatlantic market is shifting from conalong the routes are changing in any meaningful way, necting population centers for traditional telephone so expect the annual average of 18 percent lit capac- carriers to connecting data centers for OTT proity to continue. viders. As OTT providers like Amazon, Facebook, Based on publicly announced planned system Google and Microsoft continue to expand their information this route will observe a CAGR of 22.7 infrastructure and drive cable development, continpercent for the period 2018-2022. ue to expect new cables that do not follow the more traditional routes between New York and London such as those from Virginia Beach to France and 1.2.3 CAPACITY PRICING Spain, Brazil to Europe and Brazil to Africa. It all starts in the Atlantic. Transatlantic routes Like the Transatlantic routes, Transpacific routes have set trends throughout the history of the will be shaped by the market shifting towards intersubmarine fiber industry and will continue to do connection of data centers instead of connecting so in the future. The New York – London route is population centers. Cloud service providers are dethe most commercially competitive in the world veloping infrastructure in a major way all throughout and will continue to be so through the foreseeable East Asia and the Pacific with numerous new data future as it is the oldest route and carries traffic center builds announced for places like Indonesia, between the two biggest economic hubs.

SUBMARINE TELECOMS INDUSTRY REPORT

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Millions USD

Singapore and Hong Kong. Multiple cloud $5 providers such as Alibaba, Amazon Web Ser$4 vices and Google Cloud have all announced new data center facilities in Indonesia (Mah, $3 2019), Singapore’s colocation market is expected to grow 14 percent by the end of 2019 $2 and nearly double in size by 2023 (Wong, Singapore’s Colocation Market to Nearly $1 Double by 2023, 2019) and the amount of hyperscale data center capacity has increased 0 by 42 percent over the past year in Hong Kong (Wong, Hong Kong’s Cloud Data Center Boom, 2019) Capacity pricing for routes in the AmerFigure 16: Median 100G IRU Pricing on Major Routes icas region will depend heavily on economic health in South America. While these routes may never see the 20 Transpaciﬁc same level of demand as the Transatlantic and Transpacific, they are Transatlantic 15 becoming increasingly important to Indian Ocean OTT provider infrastructure plans EMEA 10 and global economic development as AustralAsia these companies look to increase their 5 presence in places like Brazil, ArgentiPolar na and Chile to take advantage of the Americas 0 growing economies in this region. 2015 2016 2017 2018 2019 Intra-Asia routes will continue to provide paths between three Figure 17: New System Count by Region, 2015-2019 major cities – Tokyo, Singapore and Mumbai. While the Tokyo – SingaOverall, there seems to be a healthy global capacipore route should remain relatively unchanged in ty market, but this is dependent on OTT providers’ the future, the Singapore – Mumbai has the most plans for their excess capacity and how cost-effective potential for growth. As new cables and telecoms development turn towards India’s growing technol- system upgrades and new cables will be implemented. ogy sector, this region is prime for growth. EMEA to Asia routes have been well established 1.3 SYSTEM GROWTH for decades and carry traffic between Europe and Prior to 2017, the world experienced slow growth Asia. However, they are high latency and expensive in new system deployments due to economic unto operate. Threats to the commercial viability certainty and more cost-effective system upgrades. of this route will be planned systems that bypass With a greater demand in new markets and route the Suez Canal to avoid the sustained economic diversity, system deployments experienced a boom and political instability in the Middle East and in 2017. In all, 45 new systems will have been added Arctic routes that connect Europe to Asia via to the global network during the period 2017-2019 – much shorter pathways. Should these alternatives however, new system growth is on the decline since become truly competitive, these routes will be the peak in 2017 indicating a slowdown in system negatively impacted. deployments. (Figure 17)

GLOBAL OVERVIEW

Thousands of KMS

The period 2014-2016 saw an 100 Transpaciﬁc average of under 30,000 kilometers added annually, with 2015 adding only Transatlantic 80 15,800 kilometers. Over 100,000 Indian Ocean 60 kilometers of cable was added in 2017 EMEA while 2018 and 2019 added just over 40 AustralAsia 60,000. (Figure 18) These past three Polar 20 years have raised the industry out of its previous slump, largely fueled by Americas 0 OTT providers system deployments 2015 2016 2017 2018 2019 fueled by their desire for more direct control over their own infrastructure. Figure 18: KMS Added by region, 2015-2019 The next two years will potentially add over Transpaciﬁc 124,000 and 870,000 12% kilometers of addition18% Transatlantic al cable – a potential 9% Indian Ocean indicator of continued 44% healthy growth. 12% 56% EMEA 12% Continuing recent AustralAsia trends, significant 12% system growth through Polar 25% 2022 will take place in Americas the Americas, TransatYes No lantic and Transpacific regions. This growth Figure 20: Global Contract in Figure 19: Planned Systems by Region, 2020-2022 is spurred on by the Force Rate, 2020-2022 infrastructure demands growth compared to historical trends, largely due to of OTTs, and the desire for routes in the South Atlantic and from Europe to Virginia Beach to provide sustained political and economic instability in the region and the saturation of African telecommunidirect access to Ashburn, VA data centers as well cations markets. However, the EMEA region does as new infrastructure across the Pacific to replace show higher growth compared to a year ago indicataging cable systems. These new routes will provide ing increased market activity – especially around the both traffic diversity and connect growing markets Mediterranean and East Africa. in South America and Africa directly. One of the first major hurdles to overcome is the Despite new cable growth along Transpacific routes, overall growth in the Pacific Ocean has con- Contract in Force (CIF) milestone. A system is typically considered CIF when it has secured all project tinued to slow down, with only 12 percent of future funding and has begun cable manufacturing. CIF systems taking place in the AustralAsia. Growth rates are reasonably healthy, with 44 percent of the in AustralAsia has continued to slow with reduced 34 planned systems for the period 2020-2022 having system counts observed year-upon-year since 2016. achieved this milestone. (Figure 20) This is a noticeThis region will continue to trend downwards, as nearly all Pacific Island nations have now been con- able increase over last year’s rate of 38 percent, indicating a positive change in financing and investment nected. (Figure 19) availability. For 2020, 55 percent of planned systems The Europe, Middle East and Africa (EMEA) are already CIF – a further positive sign. and Indian Ocean Pan-East Asian maintain slow SUBMARINE TELECOMS INDUSTRY REPORT

GLOBAL OVERVIEW

1.4 EVOLUTION OF SYSTEM OWNERSHIP AND CUSTOMER BASE

200

Single

Multi In recent years the way people use 150 and access data has changed significantly – shifting from local or personal data 100 storage to cloud-based file services and applications. This has led to some own50 ership paradigm shifts in the submarine fiber industry as data and application 0 services become more distributed and 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 cloud based. Historically, there have been two Figure 21: Single vs Multiple Owner Cable Systems, 2009-2019 different types of system ownership – Consortia and Private. A Consortium is a group of companies coming together 40 to build a cable system in such a way 35 Single that the risk is spread out amongst 30 Multi the members and system management 25 decisions need to be made by commit20 tee so as not to negatively impact any 15 one member significantly. Private cables by contrast are comprised of a single or 10 very few owners and while this reduces 5 the complexity of managing a system 0 2020 2021 2022 it greatly increases the financial risk to any single company. The traditional Consortium model Figure 22: Ownership Type, 2019-2021 has largely become a thing of the past. As the “buy in” for a cable system these days trends systems indicates that cable owners are less willing to take on the risk of a cable system by themselves. towards a full fiber pair rather than a number of Additionally, as OTT providers have entered the wavelengths, the need for all owners to agree on market, they have been partnering with traditional how their system is managed has reduced subcarriers and increasing the number of multiple ownstantially. This new paradigm allows for individual owners to manage their fiber pairs how they see fit er cables – though this will change moving forward. The prevalence of single ownership will return the without worrying about impacting other owners future, as more niche and point-to-point systems on the cable system. This reduces administrative are implemented. Based on currently announced complexity and streamlines network operations. As a result, cables should now be considered either systems, Single Owner cables will climb from 47 percent of new system builds in 2020 to 67 percent Single Owner or Multiple Owner. by 2022. Much of this is driven by OTT providers Historically, Single Owner cables have made who need to control their own infrastructure and accounted for 60 to 62 percent of all cable builds. However, this percentage has been steadily declining may not necessarily have route needs that align with from 60 percent in 2016 down to 57 percent in 2019. traditional carriers. (Figure 22) (Figure 21) Multiple Owner cables help to spread out financial risk so the increase in these types of

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OWNERSHIP FINANCING ANALYSIS

Pre-Sales Post-Sales Performance-Sales

APTelecom a global data telecommunications carrier and consultancy business with expertise in Emerging Markets – (Asia and Africa), coupled with vast industry experience in the commercialization of submarine cable systems and capacity sales on all major routes. APTelecom combines superior quality cost-competitive telecom movement products with strategic advisory and cloud solutions.

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Pre-Sales

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With a combined 100 years in the submarine cable industry, APTelecom is the preeminent cable system presales sales specialists, with the capability to deliver qualified presales to any system looking to seek funding or expansion. APTelecom has proven capability of selling capacity for new builds and established systems ranging from Asia, Africa, Americas, Europe, and the Middle East.

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OWNERSHIP FINANCING ANALYSIS

SUBMARINE TELECOMS INDUSTRY REPORT

SUBMARINE TELECOMS

INDUSTRY

REPORT 19|20

SUBMARINE TELECOMS INDUSTRY REPORT

INSIDER PERSPECTIVE

he global economy is increasingly digital. The internet and other information and communication technologies (ICTs) are changing the way individuals, businesses and governments operate. Their resilience to natural disasters, and their ability to recover in the aftermath, is thus critical to the resilience of the economy. This chapter discusses the impact of climate events on various types of digital infrastructure. It highlights key considerations for governments and digital infrastructure owners to make their infrastructure more resilient, while maintaining affordability of services. We find that digital infrastructure is vulnerable to various climate risks, but that technology choices and network design can improve redundancy and resilience of networks, by design. Certain infrastructures warrant greater ex ante investment in their resilience considering their criticality in the broadband value chain (submarine cables or landing stations) while others could follow repair and recovery options (mobile network antennas, poles, and towers). The private sector’s motivations to invest in resilience are driven by (i) economic incentives to reduce the risk of their investments by mitigating against climate risk; (ii) serving their client’s needs, adhering to Service Level Agreements, and upholding their reputation; and (iii) serving the interests of their area of operation by providing a critical service during emergencies.31 This last motive ensures the public good provided by this privately-owned infrastructure, acknowledging its mission-critical nature for an economy.

SUBMARINE TELECOMS INDUSTRY REPORT

The importance of telecommunications infrastructure, particularly submarine cables and landing stations is also increasingly highlighted in discussions around national security. In addition to action taken on cybersecurity and the protection of critical online infrastructure, the physical protection of the internet’s underlying infrastructure should also be a policy and industry-wide priority. The private sector, as owners of much of the infrastructure, will need to take the lead in investing in resilience of their assets, while the public sector plays the role of a facilitator and develops the right enabling environment for investment in resilience of critical infrastructures. The public sector’s policy leadership on climate resilience of critical infrastructures is necessary in driving actions across sectors, and fostering a holistic approach to climate adaptation, resilience, and disaster recovery. Given below are some high-level recommendations for the building of greater resilience in global telecommunications infrastructure. HIMMAT SINGH SANDHU & SIDDHARTHA RAJA World Bank

OWNERSHIP FINANCING ANALYSIS

2.1 HISTORIC FINANCING PERSPECTIVE

150

Single

Like the ownership model, system 120 MDB financing is broken down into Multiple Owner versus Single Owner with the Multi 90 addition Multilateral Development Banks (MDB). A Multiple Owner 60 system is typically self-financed where the individual companies come up with 30 the financing by themselves â&#x20AC;&#x201C; gener0 ally without having to seek outside 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 financial aid or rely on capacity presales. A Single Owner system is usually Figure 23: Financing of Systems, 2009-2019 financed through a combination of an investment bank capital and capacity Single 5% pre-sales. Both Multiple Owner and Single Owner 5% systems can receive funding from an MDB. MDB MDBs such as the World Bank and its affiliates are increasingly willing to promote communications Multi infrastructure and to lend in high-risk circumstances where commercial banks will not. MDB interest rates are typically lower than commercial financings and have a more lenient approach to waivers and default scenarios. However, social policy and development goals of those institutions can often 90% impose additional reporting and compliance costs. (Gerstell, 2008) Even so, MDB investment has been sporadic since 2009, accounting for only a handful Figure 24: Financing of System, 1987-2019 of systems. (Figure 23) Generally, Multiple Owner cables use a prospecple Owner systems, while Single Owner and MDB tive system for their own traffic, diversifying risk systems have accounted for five percent of total generally through self-finance among its members investment, each. (Figure 24) and affording a range of expertise. Single Owner In the recent 2015 to 2019 period, the industry cables generally raise a systemâ&#x20AC;&#x2122;s capital for construction and operation of the network, though the has invested nearly $8 billion in submarine telecoms cables. Multiple Owner systems account for securing of such funding can be a challenge. Single 68 percent of total investment, while Single Owner Owner cables also typically rely on sales to third systems are responsible for 23 percent and MDBs parties and these systems tend to require outside have accounted for 9 percent over this time period. equity investment more than Multiple Owner sysSingle Owner and MDB financing have seen a notems. However, this is changing as more OTT providers build systems for themselves as they generally ticeable increase over the last five years compared to historical trends. (Figure 25) do not need to rely on outside sales and use their systems for internal infrastructure. The industry has invested more than $50 billion in submarine telecoms cables since 1987. Over 90 percent of this total investment has been by MultiSUBMARINE TELECOMS INDUSTRY REPORT

2.2 REGIONAL DISTRIBUTION OF FINANCING

Single 23%

2.2.1 MULTILATERAL DEVELOPMENT BANKS The regional distribution of MDB investment for 2004 to present is presented below. MDBs have invested more than $3.2 billion in submarine telecoms cables. Most of this total investment — 55 percent — has been invested in EMEA projects with a focus on systems located primarily in Africa. Only 11 percent of total MDB investment has been made in AustralAsia, with 17 percent invested in the Americas, 15 percent in the Transatlantic and 2 percent in the I ndian Ocean Pan-East Asian region. (Figure 26)

2.2.2 MULTIPLE OWNER SYSTEMS The regional distribution of Multiple Owner investment for 1987 to present is presented below. Multiple Owner systems have invested $31.8 billion in submarine telecoms cables. The largest portions of this total investment — 30 percent — has been invested in AustralAsia projects. Similarly, 21 and 18 percent of total consortia investment has been made in EMEA and Indian Ocean PanEast systems, respectively. The Transpacific region has received 15 percent of Multiple Owner investment, the Transatlantic has received nine percent and the Americas has received seven percent. (Figure 27) Over the last ten years, Multiple Owners have invested nearly $15 billion primarily focusing on the AustralAsia, EMEA and Indian Ocean PanEast Asian regions at 26, 26 and 24 percent, respectively. Systems in these regions are typically much longer in cable length than in other regions and tend to connect more landings which helps account for their large investment percentage. The Transpacific region has seen the next most investment from Multiple Owner systems at 13 percent while the Transatlantic and Americas regions have each received about five percent of the total dollar investment from Multiple Owner systems since 2009. (Figure 28)

SUBMARINE TELECOMS INDUSTRY REPORT

MDB Multi

68%

Figure 25: Financing of Systems, 2015-2019

15%

17%

Transatlantic

2% 11%

Indian Ocean EMEA AustralAsia Americas

55%

Figure 26: Distribution of MDB Investment, 2004-2019

15%

Transpaciﬁc

Transatlantic

9% 30%

Indian Ocean EMEA

18%

AustralAsia 21%

Americas

Figure 27: Distribution of Multiple Owner Investment, 1990-2019

3.2.3 SINGLE OWNER The regional distribution of Single Owner investment for 1990 to present is presented below. Single Owners have invested $18.3 billion in submarine telecoms cables. Most of this total investment has

OWNERSHIP FINANCING ANALYSIS

$15 Transpaciﬁc

Billions USD

been in Americas and Transatlantic systems at 26 and 23 percent, respectively. Similarly, 19 percent of total private investment has been made in the EMEA region followed by 15 percent in AustralAsia 11 percent in the Indian Ocean Pan-East Asian and one percent in Polar projects. (Figure 29) Over the last ten years, Single Owner systems are responsible for $8 billion worth of investment primarily focusing on the AustralAsia, Americas and EMEA regions at 32, 26 and 24 percent, respectively. The next most is the Transatlantic at eight percent followed by the Indian Ocean Pan-East Asian and Transpacific each at four percent with Polar projects accounting for just two percent of all investment. While Single Owners have more development flexibility than Multiple Owner systems, it seems the focus has been on more specific, regional or point-to-point systems. (Figure 30)

Transatlantic

Indian Ocean EMEA

AustralAsia

$3 $0

Americas 2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

Figure 28: Distribution of Multiple Owner Investment, 2009-2019

Transpaciﬁc

4% 26%

23%

Transatlantic Polar Indian Ocean

15%

11% 19%

EMEA AustralAsia Americas

Figure 29: Distribution of Single Owner Investment, 1990-2019

2.3 CURRENT FINANCING

Billions USD

Since 1990, the industry has $15 invested $50 billion in submarine Transpaciﬁc telecoms cables — comprising more 12 Transatlantic than 1.4 million route kilometers $9 Indian Ocean — annually averaging $1.64 billion worth of investment and 47,000 EMEA $6 kilometers of deployed systems. AustralAsia $3 (Figure 31) (Figure 32) Americas From 2015 to present, nearly $8.5 $0 billion was invested in submarine 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 cable projects, or an average of $1.7 billion and 56,400 route kilometers Figure 30: Distribution of Single Owner Investment, 2009-2019 per year. Over the period, 23 percent was invested in AustralAsia systems, 17 From 2014 to present, submarine system financpercent each in EMEA and Indian Ocean Pan-East ings accomplished by MDBs include the following: Asian systems, 16 percent in Transpacific systems, Table 1: Recent Multilateral Development Bank 14 percent in Americas systems, 12 percent in TransProjects atlantic systems and 1 percent in Polar systems. (Figure 33) SUBMARINE TELECOMS INDUSTRY REPORT

32 9 19 0 9 19 1 9 19 2 9 19 3 9 19 4 9 19 5 9 19 6 9 19 7 9 19 8 9 20 9 0 20 0 0 20 1 0 20 2 0 20 3 0 20 4 0 20 5 0 20 6 0 20 7 0 20 8 0 20 9 1 20 0 1 20 1 1 20 2 1 20 3 1 20 4 1 20 5 1 20 6 1 20 7 1 20 8 19

9 19 0 9 19 1 9 19 2 9 19 3 9 19 4 9 19 5 9 19 6 9 19 7 9 19 8 9 20 9 0 20 0 0 20 1 0 20 2 0 20 3 0 20 4 0 20 5 0 20 6 0 20 7 0 20 8 0 20 9 1 20 0 1 20 1 1 20 2 1 20 3 1 20 4 1 20 5 1 20 6 1 20 7 1 20 8 19

Billions USD

Figure 31: System Investment, 1990-2019

Figure 32: System Deployment, 1990-2019

TranspaciďŹ c

16% 14%

16%

17%

Transatlantic

Polar

23%

Indian Ocean

EMEA

AustralAsia

Americas

Figure 33: Regional Investment in Submarine Fiber Systems, 2015-2019

SUBMARINE TELECOMS INDUSTRY REPORT

OWNERSHIP FINANCING ANALYSIS

2014 – Seabras-1 // International Finance Corporation $4 million in Seaborn Networks Holding, which is building the 40Tbps subsea fiber optic cable. This will link Brazil (landing in Sao Paulo) directly with New Jersey in the United States. The total project cost over the next two years will be $509 million. 2015 – Tui-Samoa // Asian Development Bank and others $25 million in partnership with an Australian Grant of $1.5 million and World Bank of $16 million combined to promote a submarine cable system connecting Samoa to regional and global communications infrastructure and improving international broadband connectivity of Samoa. 2015 - eGabon // World Bank $56 million which facilitated financing of the introduction of the ACE submarine cable and the construction of more than 1,000 kilometers of terrestrial fiber optic — a Libreville to Franceville section that runs along the Trans-Gabon railway line; the Koulamoutou/Lastourville and Franceville/Bongoville/Lekoni road sections, as well as the Franceville/Moanda and Moanda/Bakumba/Lekoko sections going toward the border and connecting with the Congo fiber optic project. 2016 - Central African Backbone // African Development Bank $51 million loan to countries in the Central African Economic and Monetary Community (CEMAC) as part of the Central African Backbone (CAB) project, enabling the effective interconnection of the Cameroon fiber optic network with that of Chad and Equatorial Guinea through the submarine cable NCSCS (Nigeria and Cameroon Submarine Cable System); Gabon and Congo are also to be connected. 2016 – SEA-ME-WE 5 // European Bank for Reconstruction and Development $50 million loan to Türk Telekom Group, Turkey’s largest telecommunications company, for a branching unit in Marmaris on the Mediterranean coast, in south-western Turkey. 2016 - Samoa Submarine Cable Project // Asian Development Fund $25; World Bank $16; Gov. of Australia $1.5 million $32.5 million project for a submarine cable system connecting Samoa to regional and global communications infrastructure. 2016 – Palau-Guam // Asian Development Bank $8.53 ADB has approved two loans amounting to $25 million for a submarine cable project which will support the development of a fiber-optic cable system linking Palau to the Internet cable hub in Guam. 2016 - WIOCC // International Finance Corporation IFC will be providing a financial package of up to $20 million to fund the ongoing regional expansion of the Company through the acquisition of additional capacity in Africa, increase connectivity to other fiber optic systems, upgrade its capacity on the EASSy cable and purchase network equipment. 2019 - Improving Internet Connectivity for Micronesia Project // Asian Development Bank The ADB Board of Directors has approved a total of $36.6 million in grants to help fund the delivery of the Improving Internet Connectivity for Micronesia Project. This project will help install a submarine cable connection between Micronesia and a proposed transpacific cable system. 2020 – Cook Islands to Samoa // Asian Development Bank $15; Gov. of New Zealand $20; Gov. of Cook Islands $2 million The Government of Cook Islands has requested the ADB to support a $37 million submarine internet cable project, which will link the islands of Rarotonga and Aitutaki in the Cook Islands to Samoa, where interconnection to the international internet hubs in Fiji and Hawaii will occur.

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SUBMARINE TELECOMS INDUSTRY SEPTEMBERREPORT 2018 | ISSUE 102

SUPPLIER ANALYSIS

SUBMARINE TELECOMS INDUSTRY REPORT

SUBMARINE TELECOMS

INDUSTRY

REPORT 19|20

SUBMARINE TELECOMS INDUSTRY REPORT

INSIDER PERSPECTIVE

Submarine networks never sleep…

he trend has been confirmed over the last couple of years: the number of new submarine cable projects and capacity requirements are increasing steadily, and fast. On several strategic routes, where installed capacities are already very large, we expect growth rates higher than 50% per annum. Capacity requirements are mostly driven by web players, who play a growing part in fueling both the number of projects and volume of investments. While in the early 2000s, traditional telecom carriers were the main investors in submarine network infrastructure, we have seen a profound transformation of the sector in recent years: it is now a volume market, with a world market growth rate of over 10%, driven by the considerable needs of 2.0 players. OTTs, whether independently or as part of a consortium, have become major players in our submarine cable networks industry. Their key objectives: optimize their network infrastructure, provide superior quality of service to their users and improve connectivity between their data centers deployed around the world. However, we witness at the same time a growing demand for regional and local connectivity, the goal being to bring high-bandwidth connectivity to people all around the globe, even in remote areas, allowing them to benefit, beyond basic communications, from modern services such as tele-learning, tele-medicine among others. In these cases, building large pipes is not the priority, and business cases are somewhat irrelevant. In that sense, submarine networks contribute to public service missions.

SUBMARINE TELECOMS INDUSTRY REPORT

A few other factors contribute to the fast-growing need for submarine networks: • An ever-increasing number of users connecting to fixed and mobile internet; • Internet services that are increasingly bandwidth-intensive; • The growing volume of connected objects (including Internet of Things) that contribute to filling existing pipes. In the coming years, 5G network deployments around the world will also have a significant impact on capacity requirements for subsea systems: more and more users connected to the mobile Internet, with consumer bandwidth services. Submarine networks customers are therefore looking for solutions to optimize the cost of building new bandwidth, and in that respect, SDM (Spatial Division Multiplexing) is the latest trend, as it allows to multiply the number of fiber pairs running in a submarine cable, hence offering customers the lowest cost per bit. More generally, the submarine networks industry is continuously looking for technical and operational advances that allow to build more cost-effective and resilient systems. The submarine systems market was worth $2.6 billion in 2016 and is expected to exceed $6 billion by 2023.

PAUL GABLA Chief Sales & Marketing Officer Alcatel Submarine Networks

SUPPLIER ANALYSIS

3.1 SYSTEM SUPPLIERS 3.1.1 CURRENT SYSTEMS

ASN Hexatronic

Thousands of KMS

Based on each supplier’s reported Huawei activity by region for the period 2015NEC 2019, companies are keeping a heavy PadTec focus on the Americas, Transatlantic Nexans and Transpacific. ASN and SubCom NSW were the busiest suppliers over this SubCom five-year period. Most of the smaller to Xtera mid-size companies almost exclusively 0 2 4 6 8 10 12 focus on their “home” regions — such as NEC being the most active in the Figure 34: Number of Systems by Supplier, 2015-2019 Transpacific and AustralAsia regions. Huawei Marine, however, bucks the 120 trend by being the most active in the EMEA region, specifically Africa. 100 According to announced infor80 mation on the amount of cable each company has supplied over the last 5 60 years, SubCom takes the lead — with over 100,000 kilometers of cable 40 produced. NEC produced the next most at 68,000 kilometers, with ASN 20 rounding out the 3 busiest companies 0 at 49,000 kilometers produced. These ASN Hexatronic Huawei NEC PadTec Nexans NSW SubCom 3 companies have been very dominant in recent years, being some of the few Figure 35: KMS of Cable Produced by Supplier, 2015-2019 companies that can produce cable at a high enough volume to meet demand for large systems. So, while some companies had a 3.1.2 FUTURE SYSTEMS relatively high amount of activity, they were not alRegional plans will differ slightly compared to reways supplying large systems. (Figure 34) (Figure 35) cent years. The AustralAsia region is no longer drivHexatronic, Nexans, NSW and PadTec are diver- ing the bulk of new system demand as the Pacific sifying their portfolios to include other markets be- island nations are nearly all connected. In contrast, sides submarine fiber – such as offshore wind power there is renewed focus on crossing the Atlantic – al– as these markets can be more lucrative for them. beit taking slightly different routes than the hisOverall, their participation in submarine telecoms torically dominant London to New York. As more is low for the period 2015-2019. owners and service providers look to circumvent Over the last couple of years, there has been a the tumultuous Middle East, expect activity there renewed interest in Transpacific routes and routes to persist in its decline. The Oil & Gas industry will connecting Asia and South America directly to maintain demand off the coasts of Africa and AusEurope. This will involve vast systems, requiring tralia if oil prices cooperate and expect emerging thousands of kilometers of cable. Moving forward, markets in South America to increase activity in the the industry will have to rely on only three compaAmericas and south Transatlantic regions as well. nies to tackle large projects. OTTs are becoming increasingly responsible for SUBMARINE TELECOMS INDUSTRY REPORT

new system demand; especially for the Americas, Transatlantic and TranspaASN cific regions. These companies, specifically Facebook, Google, Microsoft Huawei and Amazon, are consuming bandwidth at an increasingly rapid pace. Rather than buying bandwidth on NEC existing cables, these companies have found it easier and increasingly necessary to build and own international SubCom telecoms infrastructure. 0 1 2 3 4 5 6 7 8 Overall, SubCom will continue to be a strong leader in the supply industry. They have been the most active Figure 36: Planned Systems by Supplier, 2020-2022 and can supply the largest volume of cable and equipment. Looking 5% IT Telekom Malaysia forward, NEC may be ramping up 18% production again while Huawei will Huawei SubCom 31% fade a bit with no major projects GMSL S.B.S.S. currently on the docket. (Figure 36) 5% Every one of these system suppliE-marine Orange ers are composed of industry veter2% 13% 2% Elettra Baltic Offshore ans with many years of experience in the submarine fiber industry. Their 10% 3% ASN 8% 3% innovative technologies and reliable production are what continue Figure 37: Systems Installed by Company, 2015-2019 to drive the telecommunications industry forward into the future. With robust competition between illustrate the part of the fleet that is exclusively numerous companies, continue to expect a healthy owned and operated by each installer, they can also cable supplier industry. make use of “vessels of opportunity”. This allows for a high degree of flexibility to take on any type of project around the globe. 3.2 INSTALLERS Many of these companies overlap in their regional capability. This provides comprehensive installation 3.2.1 REGIONAL CAPABILITIES experience to the submarine fiber industry. With Reported information indicates ASN, SubCom several companies being able to serve each region, a and Global Marine Systems Limited (GMSL) own prospective cable owner can be sure that an expethe largest portion of the global cable ship fleet. ASN owns 7 cable ships, while SubCom and GMSL rienced installer will be available regardless of their system’s timeline. This allows a cable owner a great own 7 each. Combined, these 3 companies account deal of flexibility when planning their new system. for nearly half of the global fleet. E-Marine owns the next most at 5 ships, followed by Orange with 4. ASEAN, NTT WEM and S.B. Submarine Systems 3.2.2 CURRENT INSTALLATIONS all have 3 cable installation ships to their name. Based on announced systems installed for the Elettra, International Telecom (IT) and Kokusai period 2015-2019, ASN is shown to be the busiest Cable Ship (KCS) own 2 each. While these numbers overall by a significant margin. SubCom is the next

SUBMARINE TELECOMS INDUSTRY REPORT

SUPPLIER ANALYSIS

80 70 60 Thousands of KMS

50 40 30 20

pa ci ﬁc

tic la n

s ic a

3.2.3 REGIONAL ACTIVITY

10 al A si a

busiest with Orange, GMSL and IT International Telecom not far behind with the rest of the companies being about equal in system activity. This compares well with regional capability, as those who can serve the most regions tend to be the busiest. However, the number of cable ships owned clearly does not correspond to the amount of system installations performed per company. (Figure 37)

ﬁc

Tr an sp a

at la nt

la r

Tr a

A si

Thousands of KMS

Tr a

The amount of cable installed by region for the period 2015-2019 shows the Americas region as the busiest by Figure 38: KMS Installed by Region, 2015-2019 far. Except for the Arctic region, all regions around the world saw a health 150 amount of new cable added – owing largely to the industry success of 2017 120 and the continued momentum of 2018 and 2019. The Americas have benefit90 ted from emerging markets in South America, the continued desire for more bandwidth and redundancy on 60 the United States to Brazil route — especially when driven by demand from 30 OTT providers — and the fact that it is one of the largest regions in the world. 0 The Indian Ocean Pan-East Asian region has benefitted from multiple large systems put into place from 2017-2018. The EMEA region has experienced a downward trend in recent years, as eco- Figure 39: Planned KMS by Region, 2020-2022 nomic and political instability in the region have caused prospective cable owners to seek installed throughout the region to connect major alternative routes – though it maintains a moderate economic and data center hubs in the United States, East Asia and Southeast Asia. The Transatlantic, level of growth. The Transpacific and Transatlantic Indian Ocean, EMEA and AustralAsia regions will regions overtake the EMEA region due to renewed see moderate growth, as OTT providers and private interest for new routes and improving route divercompanies continue to add infrastructure to these sity. Lastly, a new system was installed in the Arctic regions. The Americas region is expected to see a region for the first time in 2017. (Figure 38) marked decrease in activity as it has been one of the Projections for the next three years indicate a busiest over the last couple years and has already renew trend differing from that of the previous five. The Transpacific region is expected to see the most ceived numerous new cable systems that likely meet the region’s need for the foreseeable future. There activity by far, as several large systems are set to be SUBMARINE TELECOMS INDUSTRY REPORT

are early plans for new Polar systems, but they are the most uncertain – owing to the technical challenges and expenses incurred from dealing with ice. (Figure 39)

3.3 SURVEYORS 3.3.1 CURRENT SURVEYS Based on announced activity, EGS and Fugro have survey experience in nearly every region of the world. Gardline and Elettra are also quite diverse, while smaller companies focus more on specific regions. When looking at the big picture, many of these companies overlap – providing comprehensive global survey capability for the industry at large. While completing a survey is generally the first crucial step for an upcoming system, a surveyor should always be available regardless of the system’s timeline. This allows a cable owner a great deal of flexibility when planning their new system. Of systems surveyed for the period 2015-2019, reported activity shows that EGS has been the busiest surveyor by a large margin and accounts for nearly half of all survey activity by itself. Fugro has performed the next most amount of surveys with Elettra and International Telecom rounding out the top 4. This compares well with regional capability, as those that can serve the most regions tend to be the busiest. (Figure 40)

5% 7%

47%

12%

Gardline

Other

US Govt

Fugro

Elettra

EGS

ASN

14%

Figure 40: Systems Surveyed by Company, 2015-2019

Figure 41: Survey Status of Planned Systems, 2020-2022

3.3.2 PLANNED SURVEYS Completing a survey is one of the first real hurdles on the way to system implementation and only 29 percent of planned systems for the period 20202022 have performed this task. Additionally, only 39 percent of all systems planned for 2020 have com-

SUBMARINE TELECOMS INDUSTRY REPORT

pleted a survey. This means that only a handful of systems planned for 2020 are on track as the timeline for manufacture and installation of a typical submarine cable system is about 18 months from survey end to system completion. This time last year, 47 percent of systems planned for the following year had completed their survey. (Figure 41)

SUPPLIER ANALYSIS

3.4 RECENT MERGERS, ACQUISITIONS AND INDUSTRY ACTIVITIES 3.4.1 ALCATEL SUBMARINE NETWORKS In October of 2018, French optical transports solutions firm Ekinops confirmed that it was holding preliminary talks with Nokia about the possible acquisition of Alcatel Submarine Networks (ASN). There have been no further public announcements made since.

3.4.2 GLOBAL CLOUD XCHANGE On September 16, 2019 Global Cloud Xchange, a subsidiary of Reliance Communications (RCom), filed for Chapter 11 bankruptcy after missing payments of around $350 million. RCom has already pledged to raise around $3.1 billion through the sale of non-core assets to alleviate its levels of debt. On September 25, 2019, Bill Barney stepped down as CEO of RCom to focus on the restructuring of Global Cloud Xchange. He remains the CEO of Global Cloud Xchange.

3.4.3 GLOBAL MARINE SYSTEMS LIMITED On October 22, 2018 HC2 Holdings announced that it was exploring strategic alternatives, including a potential sale, for its Global Marine Subsidiary. As part of the process, Global Marine engaged Deutsche Bank Securities Inc. and ABN AMRO Bank N.V. as joint advisors to explore strategic alternatives for the business. There have been no further public announcements made since.

3.4.4 HUAWEI In June of 2019, Huawei Technologies announced plans to sell its submarine cable business â&#x20AC;&#x201C; Huawei Marine â&#x20AC;&#x201C; after the company was blacklisted by the United States as a security risk in the ongoing trade dispute with China. Hengtong Optic-Electric Co Ltd signed a letter of intent with Huawei Technologies to buy its 51 percent stake in Huawei Marine.

restructuring is to resize and refocus the organization on its core Business Groups to reduce complexity and increase cost effectiveness. The restructuring project affects 939 positions and will see the creation of 296 jobs. The main impact would be in Germany, France, Switzerland and, to a lesser extent, Belgium, Norway and Italy.

3.4.6 PADTEC On January 22, 2019, IPG Photonics Corporation announced that it had signed a definitive agreement to acquire the submarine networks division of Padtec SA, a communications equipment company based in Brazil.

3.4.7 SUBCOM On November 5, 2018 Cerberus Capital Management completed its acquisition of TE SubCom and rebranded the company to SubCom. David Coughlan was appointed as CEO of the new company.

3.4.8 SUBMARINE TELECOMS FORUM, INC. On August 1, 2019, SubTel Forum was officially awarded the certification of Accredited Provider of Continuing Education and Training, a process that was first started some two and a half years earlier. They have partnered with Offshore Analysis & Research Solutions (OARS) to develop the training program. OARS, founded in 2007, is a staffing and training company survey consulting and data services company based in Houston, Texas. They specialize in offshore project services with a long history in oil & gas, submarine telecom, renewables, and hydrography. SubTel Forum and OARS are developing a rigorous training program designed to standardize the approach and reporting of client representation during the implementation of submarine cable systems. The program is set to be released in early 2020.

3.4.5 NEXANS

3.4.9 UNITED STATES CABLE SECURITY FLEET

On January 24, 2019 Nexans announced a restructuring of its European operations. The goal of this

On July 12, 2019, the U.S. House of Representatives passed the National Defense Authorization SUBMARINE TELECOMS INDUSTRY REPORT

SUPPLIER ANALYSIS

Act for Fiscal Year 2020 (H.R. 2500) which would reauthorize the existing Maritime Security Program and newly authorize similar programs for tank vessels and cable vessels. H.R. 2500 would also authorize two new programs patterned on MSP – one for tank vessels, the “Tanker Security Fleet,” and one for cable vessels, the “Cable Security Fleet.” Both programs appear to respond to concerns that there is a risk to national security because of a lack of U.S.-flag vessels to transport fuel and to repair submarine telecommunications cables. The Cable Security Fleet was added as an amendment to H.R. 2500 by voice vote and was sponsored by Rep. Rob Wittman. The amendment would permit enrollment of two vessels commencing in fiscal year 2021 to be paid $5 million per year. Unlike MSP and the Tanker Security Fleet, persons qualified as “section 2” U.S. citizens (i.e. persons eligible to register a vessel in the United States at least majority-owned by U.S. citizens) would have a preference where vessels of equal military utility are offered. Like the tanker program, cable vessels would not have their annual stipend reduced when under charter to the U.S. Government. Unlike the tanker program (and MSP), vessels enrolled in the program will have U.S. domestic trading privileges (i.e. “Jones Act” privileges) when operating pursuant to a national security call-up.

3.4.10 WFN STRATEGIES In May 2019, U.S. Secretary of Commerce Wilbur Ross presented WFN Strategies with the President’s “E” Award for Exports at a ceremony in Washington, D.C. In total, Secretary Ross honored 48 U.S. companies with the President’s “E” Award, the highest recognition any U.S. entity can receive for making a significant contribution to the expansion of U.S. exports.

SUBMARINE TELECOMS INDUSTRY REPORT

SUPPLIER ANALYSIS

HENGTONG MARINE 亨通海洋

Connecting the World

Connecting the Future

SUBMARINE TELECOMS INDUSTRY REPORT

SYSTEM MAINTENANCE

SUBMARINE TELECOMS INDUSTRY REPORT

SUBMARINE TELECOMS

INDUSTRY

REPORT 19|20

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INSIDER PERSPECTIVE

“W

ithout doubt, the headwinds facing the submarine telecom maintenance industry continue to build. Older lower capacity cables look towards retirement while the younger generation of high capacity builds continue to satisfy our unabated appetite for low latency bandwidth. We count cable ships, make assumptions about their capability based on age and ask ourselves “What next?” Well the good news is that the number of cable ships is increasing, albeit slowly. The bad news is they are getting older and from a fleet of 47 (give or take), only 4 have been built in the last decade as direct replacements. But despite our disparaging mindset about ageism, the global fleet continues to support the market. Statistics may indicate time to repair is increasing in some parts of the world but look a little deeper and we will find that protectionism aka cabotage and increased regulation is the root cause of delay. This creates domestic opportunity and new players emerge to solve any emergent issues. With increased competition, unit costs to maintain or repair cables continues to fall as it has for the past twenty years in tandem with capacity pricing. But salaries, steel and fuel are commoditized and we are reaching the limits of what can be achieved through rigorous procurement practice, but there are emergent indicators of change. The next generation of repair platforms will benefit from improvements in marine technology: they will operate with fewer people, burn less fuel, be more powerful and flexible enough to work across industry sectors. A modern ‘repair’ vessel will offer services to the telecom, renewables and oil & gas markets. It is already happening. The traditional cost-sharing models are changing, allowing the vessel operators to streamline investment risk and use their vessel more effectively and efficiently than in the past. With the global proliferation of wind farms, new ideas and ways to solve collective problems are being addressed which can hopefully result in lowering the unit cost of wet maintenance in

SUBMARINE TELECOMS INDUSTRY REPORT

the telecom sector. The current batch of vessels, most of which are based on 1990s technology will need to be replaced by DP2 platforms with more powerful and effective ROVs. It does require more dialogue and knowledge-sharing between the power & telecom sectors but with increased demand for access and rights to the sea floor from different stakeholders, there are overlaps and inevitable compromise results.” BRUCE NEILSON-WATTS, Managing Director Global Marine Systems Limited

SYSTEM MAINTENANCE

4.1 PUBLICITY

11 2 Unsurprisingly, two of the largest regions in the Indian Ocean world generate the most media stories about cable 42 faults. The Americas and AustralAsia regions are TransPaciﬁc not only expansive, but several of the landing sta36 tions contained within each region are also in high EMEA traffic shipping areas and in the case of AustralAsia, AustralAsia there are multiple cables within geologically active areas. The EMEA region has the next greatest Americas number of stories largely due to its sheer size and 48 high number of cables. Historically, the AustralAsia and EMEA regions have had poor reporting but Figure 42: Total Cable Fault Stories, 2013-2019 they have experienced increased coverage since 2017. (Figure 42) 35 The remaining Indian Ocean PanEast Asian and Transatlantic regions have had no reported cable faults with- 30 in the period 2013 to 2019. While the 25 former region simply has fewer cables to manage — in a relatively cable safe 20 region — the latter is one of the most established regions in the world. It is 15 again likely that many faults in these regions go unreported. Specifically, in 10 the case of the Transatlantic region, there is almost always a cable repair 5 2013 2014 2015 2016 2017 2018 2019 ship nearby to quickly restore any damage within days or hours – likely Figure 43: Total Cable Fault Stories, 2013-2019 preventing many faults from even being noticed. A sharp rise in the volume of me20 dia coverage for cable faults has been observed since 2013. This is likely due to an increase in reporting, rather than an increase in cable faults, and almost certainly tied to the rapid rise of internet media reporting. Our global society 15 is more interconnected than ever, with people sharing news faster than at any point in history. Since 2015, there have been between 19 and 32 stories each year. (Figure 43) 10 As the average customer is becom2013 2014 2015 2016 2017 2018 2019 ing more technically proficient – and Figure 44: Average Time Between Fault and Announcement, 2013-2019 quicker to complain to service providers – this has contributed to an increase Figure 1: Total Cable Fault Stories, 2013-2019

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in media coverage for cable faults. 30 As more people are connected to the global submarine fiber network every year, the rise in reported faults by the media is expected to continue. This 25 provides much needed transparency and accountability for the submarine fiber industry. 20 Due to reporting and general awareness of cable faults being on the rise, the time between a fault occurring and a cable owner or operator announcing 15 said fault is trending downwards since 2013 2014 2015 2016 2017 2018 2019 2013 with the current average being Figure 45: Average Reported Repair Time in Days, 2013-2019 about 10 days. (Figure 44) The increased media coverage has prompted cable owners and operators to become more transparent with cable faults. As inter15 net connectivity continues to be an essential TranspaciďŹ c 24 element in our lives, customers will demand transparency from service providers to ensure EMEA they work diligently to address service performance concerns. AustralAsia

4.2 REPORTING TRENDS AND REPAIR TIMES

Americas

15 With progressively faster reporting time, it is very likely that announcement times will average under 10 days in the near future. This not only helps to hold cable owners and Figure 46: Average Estimated Repair Time by Region, 2011-2019 operators more accountable, but also provides reassurance to customers that cable faults are observed in 2019. Several faults this year happened being addressed in a timely fashion. More accurate far north in the Americas during the wintertime with and transparent reporting of cable faults also helps ice and weather considerably delaying successful maintenance agreement zones and private contractors more reliably predict where to distribute assets. repairs or in remote regions in the Pacific that have lengthy travel times. This year was likely an outlier, The average time to repair has been trending and overall the trend should still be downwards. downwards from 30 days alongside media coverThere has been a rising correlation observed beage for the period 2013-2019. As reporting of cable faults consistently increases in frequency and speed, tween frequency and speed of cable fault reporting and a decrease in average repair time. Internet news this should continue to decrease the average repair media reaches more people and informs them faster time even further. The downward trend in cable than ever before. As media coverage of cable faults fault repair time could easily lead to the average extends to a wider audience and provides additional time to repair falling under 20 days over the next transparency, this correlation can be expected to few years. (Figure 45) However, another spike in average repair time was continue.

SUBMARINE TELECOMS INDUSTRY REPORT

SYSTEM MAINTENANCE

Figure 47: Traditional Club Agreements Map

Raising awareness of cable faults will also put pressure on government agencies in charge of issuing permits for cable repair work. Many times, this is the largest hindrance for a repair operation. This increased awareness will have a net positive effect on permit turnaround time, and further decrease the average time to repair for a given fault. While the Americas, AustralAsia and EMEA regions all have a relatively short average time to repair, the Transpacific regional average is longer than all the others combined. With Transpacific systems containing some of the longest uninterrupted route segments in the world, this comes as no surprise. The longer a route segment is, the longer it takes to find and diagnose a fault for proper repair. Most systems in the other regions are broken up into smaller segments, and cable faults can be located and diagnosed much faster. (Figure 46) As reporting accuracy of cable faults continues to increase, this will help bring down the Transpacificâ&#x20AC;&#x2122;s average time to repair. With repair crews getting better information on where faults are likely to occur, their ability to locate and diagnose a cable fault improves dramatically. Accountability and transparency of this sort is healthy for cable owners and operators.

4.3 CLUB VERSUS PRIVATE AGREEMENTS Marine maintenance is a shared service where several cable owners share the service of resources within a defined operational area. The agreement can either be private where the contractor and cable owner agree prices and conditions on a bilateral basis, nothing except for the sharing and priority rules are linked to any of the other cable owners. For the club agreement conditions and prices are linked with all the other participating cable owners.

4.3.1 TRADITIONAL CLUB AGREEMENTS The way that the Maintenance Zone operates is that each owner nominates a representative to act as the main point of contact between itself and the marine service provider and the depot operator. This representative is called the Maintenance Authority for the system and will provide instructions to the ship during the repair and the depot operator before and after the repair. The Maintenance Authority will also retain the detailed as laid records for the system and update them after each repair.

4.3.1.1 2 OCEANS CABLE MAINTENANCE AGREEMENT 2 Oceans Cable Maintenance Agreement (2OCMA) operates in the South of Atlantic and Indian oceans from Cape Town (South Africa) using SUBMARINE TELECOMS INDUSTRY REPORT

Figure 48: Private Maintenance Agreements Map

the facilities of Telkom SA depot. 2OCMA is supported by vessels and facilities from Orange, and possesses base ports in Cape Town, South Africa.

4.3.1.2 ATLANTIC CABLE MAINTENANCE AGREEMENT The benchmark for all maintenance services and the most popular worldwide is the Maintenance Zone. The first Maintenance Zone was set up in the North Atlantic in 1965 and is called Atlantic Cable Maintenance Agreement (ACMA). ACMA defined and continues to set the standards for structure and operating procedures that all other Maintenance Zones around the world now follow. ACMA operates) in the Atlantic, South East Pacific and Northern Europe zones. The agreement utilizes Global Marine depot facilities in Portland UK and Bermuda, Orange marineâ&#x20AC;&#x2122;s facilities in Brest (Northern France) and Subcom facilities in Curacao (Dutch Antilles). Global Marine vessels are nominally based in Curacao and Portland whilst the Orange Marine vessel is based in Brest.

4.3.1.3 MEDITERRANEAN CABLE MAINTENANCE AGREEMENT Mediterranean Cable Maintenance Agreement (MECMA) operates from the Mediterranean Marine Base of La Seyne-sur-Mer (Southern France) on 71,000 km of cables in the Mediterranean zone including the Black and Red seas. MECMA is supported by vessels and facilities from Orange and Elettra, and possesses base ports in Le Seyne Sur Mer, France and Catania, Italy.

4.3.1.4 NORTH AMERICAN ZONE CABLE MAINTENANCE AGREEMENT North American Zone Cable Maintenance Agreement (NAZ) covers an area from the Bering Sea and Alaska in the North to the Equator in the South and from the Americas to approximately 167Âş West Longitude. NAZ is supported by vessels and facilities from Global Marine Systems Limited, and possesses base ports in Victoria, Canada.\

4.3.1.5 SOUTH EAST ASIA/INDIA OCEAN CABLE MAINTENANCE AGREEMENT South East Asia / Indian Ocean Cable Maintenance Agreement (SEAIOCMA) stretches from

SUBMARINE TELECOMS INDUSTRY REPORT

SYSTEM MAINTENANCE

Djibouti to Guam and from Taiwan to Australia and covers an area of approximately one-third of the earthâ&#x20AC;&#x2122;s oceans. SEAIOCMA is supported by vessels and facilities from ACPL, IOCPL and Global Marine Systems Limited, and possesses base ports in Singapore; Colombo, Sri Lanka; and Manila, Philippines.

4.3.2.3 E-MARINE

4.3.1.6 YOKOHAMA ZONE CABLE MAINTENANCE AGREEMENT

The South Pacific Maintenance Agreement (SPMA) covers the southern Pacific region eastward to the Hawaiian Islands. SPMA is supported by vessels and facilities from SubCom and possesses a base port in. American Samoa.

The Yokohama Zone has been one of the major cable maintenance zones in the Asia-Pacific region, covering cables in Northern Asia and Northwest region of the Pacific, and adjacent to the NAZ and SEAIOCMA zones. Yokohama Zone is supported by vessels and facilities from KCS, KTS and SBSS, and possesses base ports in Yokohama, Japan; Keoje, Korea; and Wujing, China.

E-marine covers the maintenance of cables primarily in the Arabian Gulf, Red Sea, Indian Ocean and Arabian Sea. E-marine possesses base ports in Hamriya, UAE and Salalah, Oman.

4.3.2.4 SOUTH PACIFIC MAINTENANCE AGREEMENT

4.3.2 PRIVATE MAINTENANCE AGREEMENTS There are several types of contracts in place for providing private marine maintenance services globally. Private agreements are typically offered by the ship operators and are usually tailored (within the limits of the overall economic model) to the needs of the individual system owner.

4.3.2.1 ATLANTIC PRIVATE MAINTENANCE AGREEMENT The Atlantic Private Maintenance Agreement (APMA) covers an area encompassing the Atlantic and Mediterranean. APMA is supported by vessels and facilities from ASN and SubCom, and possesses base ports in Calais, France and Cape, Verde, Curacao.

4.3.2.2 ASIA PACIFIC MARINE MAINTENANCE SERVICE AGREEMENT APMMSA is supported by vessels and facilities from SubCom, and possesses base ports in Taichung, Taiwan.

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INSIDER PERSPECTIVE

he SS Great Eastern, a massive 22,500ton steam ship crossed the Atlantic Ocean in 1866. In its wake, the six-mast behemoth unspooled 4,300 km of cable, creating the first trans-continental connection and forever changing the world’s communications. The ship was a monster of its time (almost 700 feet in length). It had been originally christened Leviathan a year earlier and was designed as a passenger and cargo ship. After a failed launch due to structural issues, the owners were forced into bankruptcy and sold the ship at auction. Instead, it was loaded with cable and became one of the earliest ships of its kind. More than 150 years later, fleets of cable ships are the workhorses of the still-evolving submarine telecoms industry. While technology has changed and ships are driven by diesel instead of steam and wind, still do the job in basically the same way, if with incomparably greater precision and forethought. The shipside of the industry is also a diverse field, with some providers owning dedicated ships, or hiring other companies that only lay

SUBMARINE TELECOMS INDUSTRY REPORT

cable – not design systems. The cable ships are employed in a variety of ways. Some models are dedicated and outfitted for laying cable. Others, usually smaller and more maneuverable, only repair breaks. Many today are design to serve dual purpose. The ships service laying large, trans-continental systems, small regional connections, or to reach out to oil platforms. The cable ships are an inseparable part of the submarine telecoms industry – without which, the dream of a global network would be impossible. STEPHEN NIELSEN Submarine Telecoms Forum

CABLE SHIPS

5.1 CURRENT CABLE SHIPS 5.1.1 FLEET DISTRIBUTION SubCom owns the most ships at seven, followed closely by ASN, Global Marine and Orange with six each. Combined, these four companies account for half of the entire fleet. This has allowed each of them to implement projects around the globe, and to handle nearly every challenge that arises. E-marine owns the next most at four ships with NTTW WEM and S.B.S.S. owning three each. ASEAN, Kokusai Cable Ship and KT Submarine own two cable ships while the remaining 11 cable ships in the fleet are all owned by separate companies. ASN, SubCom, GMSL and Orange all have a diverse global presence, while the rest of the above companies cater to a regional focus. (Figure 49) As the Atlantic and Pacific oceans are the busiest and highest traffic maritime regions in the world, most of the global cableship fleet is stationed in these two regions. (Figure 50) Many of the worldâ&#x20AC;&#x2122;s most important telecommunications routes cross these two oceans, requiring multiple maintenance vessels to be on hand and installation vessels available for new routes. The Indian Ocean and Mediterranean regions are slightly-less busy and have a smaller coverage footprint. Therefore, fewer ships are necessary to handle the workload required by these regions, resulting in a significantly smaller portion of the fleet stationed there. The overall distribution of cableships dedicated to maintenance agreements versus those available for installation jobs is almost even. Of the global fleet, 21 are dedicated to club and private maintenance zones, 26 are dedicated towards installation work. The remaining 4 are not dedicated to a sole purpose. (Figure 51)

2 11

3 3 4

E-marine

KTS

Orange

KCS

GMSL

ASEAN

ASN

S.B.S.S.

SubCom

NTT WEM

Other

Figure 49: Cableship Fleet Distribution by Company

Mediterranean

Indian Ocean Worldwide Atlantic PaciďŹ c

Figure 50: Cableship Fleet Distribution by Region

Installation 26

Maintenance Not Dedicated

Figure 51: Dedicated Cableship Purpose

SUBMARINE TELECOMS INDUSTRY REPORT

Cableships are stationed around the world in strategic locations reflecting established fault profiles to be able to cover all parts of the world easily.

8 7 6 5

5.1.2 GROWTH AND AGE OF CABLE SHIP FLEET

5.1.3 NEW CABLE SHIPS

3 2 1 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08 20 09 20 10 20 11 20 12 20 13 20 14 20 15 20 16 20 17 20 18 20 19

Figure 52: Cableships Added by Year, 1999-2019 Age Distribution of Cable Ship Fleet 25

Number of Cable Ships

While an average of one cableship has been added per year since 1999, there has been a clear downward trend in new ships being commissioned. The large spike in additional cableships from 2001-2003 was in anticipation of explosive market growth that failed to materialize. Because of a far less busy industry, no cableships were added to the global fleet from 2004-2010. (Figure 52) Most of the cableship fleet is between 15 and 25 years old, with the average age being 23. All but six cable ships are 16 years or older, and one is as old as 47. This indicates that there is room for modernization and calls into question the ability of an aging fleet being able to handle all planned installation activity. As the older ships begin to phase out – there are 12 over 30 years old – there are not enough planned cable ships to replace them which will impact installation and maintenance availability. (Figure 53)

Age

Figure 53: Age Distribution of Cableship Fleet

In September of 2017, KDDI Corporation announced plans to construct a new submarine cable-laying ship. It is scheduled for launch in fiscal year 2019. By utilizing the expertise accumulated through experience in laying and repairing communications cables, the new submarine cable-laying ship will be Japan’s first ship capable of supporting electric power cable installation, in addition to the cables used in communications, observation and resource exploration. In addition, by improving the sailing distance and speed over those of previous KDDI ships, the marine area covered by the ship will expand beyond the current Asia-Pacific region to span the entire globe. Furthermore, the use of retractable azimuth thrusters will improve the weather resistance in adverse conditions, as well as the performance of stationary maintenance operations.

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The KDDI Cable Infinity was successfully delivered to Kokusai Cable Ship – a subsidiary of KDDI Corporation – in June of 2019. Details for this ship are below: Table 2: KDDI Cable Infinity Specifications

CABLESHIP SPECIFICATIONS Gross Tonnage

9,500 tons

Length

113 meters

Breadth

21.5 meters

Ship Complement

80 persons

Service Speed

14.5 knots

Pulling Power

80 tons

CABLE SHIPS

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CABLE SHIPS

As of this report, no new submarine fiber cable ships are currently planned. This is a potential cause for concern as ships being aged out are not being adequately replaced.

5.2 SHORE-END ACTIVITY 5.2.1 CURRENT SHORE-END ACTIVITY The amount of shore-end installations by region for the period 2015-2019 correlates closely to the number of systems per region over the period. The EMEA, AustralAsia and Americas regions are characterized by numerous systems that connect 3 or more landing points. The Indian Ocean Pan-East Asian, Transatlantic and Transpacific are typically characterized by systems taking more direct routes between fewer landing points. (Figure 54)

Figure 54: Landing Distribution by Region, 2015-2019

5.2.2 FUTURE SHORE-END ACTIVITY The amount of shore-end installations by region for the period 2020-2022 diverges compared to the number of systems per region over the period. Systems in AustralAsia will continue with historical trends, providing numerous shore-end installation opportunities. New Transpacific systems will, on average, connect more landing points than normally observed. New systems in the Americas will, on average, connect fewer. However, the overall distribution will stay about the same as compared to the last five years. (Figure 55)

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Figure 55: Landing Distribution by Region, 2020-2022

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hen I went to school, I had books and access to a Library. My children went to school with Laptops and access to the Internet. That is a revolution in just one generation which has social and industrial impact. The revolutionary connected infrastructure that delivered that revolution is predominantly fibre, the nervous system of the internet. We hear the term ‘Cloud’ and the perception that data and processing is performed in the ether. In reality, the ‘Cloud is on the ground’ and mainly in specialized facilities call Data Centers. The Cloud and the Internet would not be able to function without Data Centers which are the heart and lungs supporting all infrastructure including the CPU brains inside servers within rack enclosures. What is a Data Center? I do not want to quote the Wikipedia definition of a ‘Data Centre is a facility used to house computer systems and associated components, such as telecommunications and storage systems. It generally includes redundant or backup power supplies, redundant data communications connections, environmental controls.’ The question of ‘what is’ I want to expand as follows: “a Data Centre is” • Data Driven Critical infrastructure • A Data Factory that processes digital workloads • Moving Photons & Electrons (the Strawberry) processing Applications & Services • Engines of an outsourcing digital revolution • An Asset Class

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If we look at just the potential Data Center Impact from the arriving ‘The Internet of things’ (IoT) as a segment model and think of what a future revolution might look like with today’s crop of emerging technology combined with the context of a data driven society & commercial world then the Data Center landscape will see change. The Data Center sector is very young and in industrial revolution/human terms is still a toddler, aware of the world around it and its place within it while exploring all avenues before finding or being placed on a path. Predicting the future is always going to be subjective and a risky activity. What is clear is that our increasing dependency of all things digital and the massive growth of digitalization are driving volumes and with volumes we will see more commoditization of that Data. Data as a commodity demands ‘Data-as-a-utility’. DEREK WEBSTER Andget LimitedLimited

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6.1 OVER-THE-TOP PROVIDERS OTT providers are an increasingly integral part of the submarine cable system development process. Facebook, Google, Microsoft – and now Amazon – are moving from capacity purchasers to cable owners. Not only are these new players now driving where cables are going, they are helping to push along new innovations inside of the cable systems themselves. New transmission technology to handle higher capacity wavelengths, Figure 56: OTT vs Non-OTT Cable Systems, 2016-2019 increased fiber counts for more overall system capacity and streamlined network management and the push for open systems leading to shared system architecture are just a small sampling of new technologies and ideas these providers are backing. Another major change OTT providers have brought to global networks is shifting the focus from city to city connections to data center to data center connections. Unlike traditional cable owners, companies like Facebook, Google and Microsoft do not necesFigure 57: Systems Impacted by OTT Providers, 2015-2019 sarily need to build infrastructure in locations with a variety of interconnect options. Instead, they favor locations The dramatic growth in demand is creating that provide economic and cost saving benefits to significant challenges for telecommunications reduce the operational expenditure impact of their companies, Internet Service Providers (ISPs) and data center facilities. The arrival of a major OTT OTT Providers. The top segment of many markets provider not only brings new telecoms infrastrucis becoming dominated by large OTT players, such ture to a region but also the cloud services that as Google, Amazon, Microsoft and Facebook who company provides. have become key stakeholders and require large amounts of bandwidth between their data centers in various continents. 6.1.1 CURRENT SYSTEMS IMPACTED OTT providers were the driving force behind 31 A new paradigm emerged in 2016, with OTT providers stepping into the world of submarine ca- percent of systems that went into service for the ble ownership. Many of these companies have such period 2016-2018 – which is down from 43 percent a year ago. (Figure 56) large and complex infrastructure requirements Several factors led to these companies making that it has become more valuable for them to own the decision to build their own infrastructure. One their own cable systems rather than buy capacity of the biggest eye-openers was Hurricane Sandy from a carrier. SUBMARINE TELECOMS INDUSTRY REPORT

hitting New Jersey, USA – a major cable landing hub – in 2012. This storm wiped out critical infrastructure, flooded cable ducts and caused a huge loss of connectivity to Europe for several days – ultimately resulting in millions of dollars in lost business. The aftermath of this storm highlighted the need for increased route diversity and more direct control over critical infrastructure. This help to spur on the surge of OTT backed submarine cable systems. (Figure 57) Additionally, major OTT providFigure 58: OTT vs Non-OTT Cable Systems, 2020-2022 ers had been growing at such a rapid pace that their need for additional bandwidth was beginning to outpace their ability to purchase it in a timely manner. Building their own infrastructure provided both greater control over assets and removed the need to “compete” against other carriers and businesses also trying to buy capacity circuits. As a result of owning and operating their own critical infrastructure, OTT providers can now turn on additional capacity in a matter of days instead of weeks or months when buying circuits from a traditional carrier. While transoceanic cable systems Figure 59: System Investment Driven by OTT Providers, 2020-2022 are expensive – well over $100 million USD just to get across the Atlantic – these assets represent business potential in the to the high financing threshold of these companies billions for major OTT providers. Even the annual – expect this percentage to increase as new cables operations expenditure to manage and maintain the are announced, and other projects die off. Without cable is a fraction of potential revenue. these kinds of backers, future systems will have a much harder time proving their business case and securing funding. 6.1.2 FUTURE SYSTEMS IMPACTED While the top tier OTT providers are continuing For the period 2020-2022, 21 percent of planned systems are being driven by OTT providers. (Figure to develop new systems, there are numerous other companies in this part of the Information Technol58) This indicates that currently observed levels ogy sector. A second wave of these companies may of and OTT driven systems might not continue – decide they need similar infrastructure plans and though this is still a significant chunk of industry follow in the footsteps of their respective market activity driven by just four companies. However, leaders. This could trigger a second wave of and as systems driven by major OTT providers have a OTT driven systems and allow the submarine fiber much greater chance of being implemented – due

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market to continue enjoying its current level of activity even after the top tier providers begin to reach the end of their infrastructure buildout plans. However, no new OTT providers have officially or publicly expressed interest in building submarine cable infrastructure. Of the nearly $7 billion investment for planned systems over the next several years, Figure 60: Enterprise Public Cloud Provider Usage, 2019 nearly one-third that amount Source: Flexera RightScale 2019 State of the Cloud Report is tied up in OTT backed systems. Again, while these companies are not sole owners on every cable system they are a part of, this still represents a significant dollar value that would very likely not exist without their involvement. (Figure 59) While only 52 percent of announced cable systems end up entering service (Clark, 2019), OTT backed systems have thus far proven largely Figure 61: Enterprise Public Cloud Provider Adoption Rate, 2017-2019 immune to this trend as they Source: Flexera RightScale 2019 State of the Cloud Report generally do not announce a system until it is already CIF. It is therefore probable that up to half of non-OTT ing over submarine telecommunications cables. As driven systems will not achieve the CIF milestone a result, data center providers have become more and further highlight the dominance of the OTT involved with the submarine fiber industry, espeproviders on the submarine fiber industry. cially around cable landing stations where they can capitalize on interconnection and colocation opportunities â&#x20AC;&#x201C; especially in those areas where multiple 6.2 DATA CENTERS cables come ashore to a single location. In January 2019, Flexera surveyed 786 enterprise 6.2.1 CLOUD ADOPTION technical professionals about their cloud computing Cloud adoption is at an all-time high as compaadoption. Of these respondents, 94 percent have nies continue to shift towards both cloud storage adopted the use of cloud computing in some fashion and cloud computing to drive their business. Amwith organizations leveraging five different cloud azon Web Services and Microsoft Azure lead the services on average. Spend on enterprise cloud is way in enterprise adoption with no sign of slowing growing significantly with companies planning to down. (Figure 61) These cloud services are global in nature and inevitably their traffic will end up travel- spend 24 percent more on public cloud in 2019 vs SUBMARINE TELECOMS INDUSTRY REPORT

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2018. In all, 13 percent of respondents spend more than $12 million on public cloud services on an annual basis while 50 percent spend more than $1.2 million annually. (Flexera, 2019) These numbers show that the cloud computing market continues to accelerate overall. As this market grows, so will data center providers and the need to provide robust telecommunications networks that allow enterprise customers to efficiently manage their traffic anywhere in the world. A key part of this will be the integration of data centers with cable landing stations to more efficiently provide backhaul and interconnection opportunities on international telecommunications routes.

6.2.2 DATA CENTER MARKET EXPANSION AND INTEGRATION The cost for implementing a new data center can be steep. Depending on overall size and location building a new data center can cost anywhere from $6.5-$10 million per megawatt (MW). (Diaz, 2019) In 2019 alone, data center provider Equinix plans to spend nearly $2 billion to open 12 new International Business Exchange (IBX) and expand 23 existing IBX facilities. (Lima, 2019) Non-OTT data center providers, Equinix, Digital Realty Trust and Interxion, will continue to benefit from submarine cable construction activity as proximity to a cable landing station can provide numerous interconnection opportunities that can help make the high cost of a new data center build worth it. While non-OTT data center providers do benefit from submarine cable infrastructure, they are not driving new builds and are strictly interested in the interconnection opportunities that being involved with cable landing stations provides. For Equinix and other carrier-neutral providers, locations with only a single cable system are not attractive growth options. In the future, expect data center providers to continue integrating more closely with submarine cables. Bridging the gap between terrestrial and submarine traffic is one of the most critical components of international connectivity. Traditionally, submarine fiber systems would come ashore at a cable landing station, negotiate deals for back-

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haul connectivity to a data center – which was not always close by – and from there negotiate interconnection services to other carriers and providers. This added network latency and complexity – both of which are greatly reduced when data center and cable landing station facilities are integrated more closely. As new ideas and technologies are developed towards this effort, network efficiency and reliability will increase.

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“T

he last two years have seen the announcement of only a few new offshore fiber optic projects serving the oil & gas industry, along with the completion of projects initiated prior to 2015. Despite this hiatus, fiber optic communications for offshore assets have proven their merit and will continue to be developed. Several of the major oil & gas producers remain committed to using fiber optic communications to serve offshore developments. As new oil & gas developments are entering the planning stages, further interest in fiber optic communications can be expected. The level of investment in communications infrastructure for offshore oil & gas production assets has always been dependent on the overall investment in those assets. From 2011 to 2014 the price of oil remained around $110 per barrel. Offshore developments were attractive. Communications upgrades, which could improve productivity, were more easily justified. The drop in the oil price, which occurred during the second half of 2014, put some projects on hold and resulted in the dissolution of more speculative projects. A reduction in telecommunications projects then resulted from the overall drop in offshore activity. During the period from 2015 to 2017, projects started in 2014 or earlier were completed, including: additional connections to the BP Gulf of Mexico System, the North West Cable System in Australia, a private system in Newfoundland, and further development in the North Sea. By 2017, the reduction in active projects became clearly noticeable, as seen in the few construction announcements during 2018 and 2019, which included continued network expansion in the North Sea and ENI’s completion of a fiber optic cable installation in Mexico. Since 2014, the price of oil has been marked by substantial volatility and no new “benchmark” price has been established. From a low of less than $30 per barrel in mid-2016, the price has recovered to an average of about $57 per barrel through the first three quarters of 2019.

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This makes planning and investment difficult, whether for entirely new production facilities or improvements to existing facilities. Communications systems, which are often seen as operating costs rather than strategic investments, fall into the latter category and struggle to gain traction. Nevertheless, the major energy producers are beginning to adjust to this volatility and some new investments are proceeding. A consortium of companies forming the Mozambique Rovuma Venture has made a public request for high speed fiber optic services. While the primary objective is to serve the onshore gas compression plant, it is assumed that a subsea cable will be needed to reach this remote location. As the Rovuma gas fields are located offshore, connections to offshore assets may be added there in the future. Another recent development is in Guyana, where ExxonMobil has issued an RFI for environmental and regulatory support for a fiber optic project to serve the Stabroek field. However, the number of publicly announced projects does not tell the whole story. Several of the energy producers remain committed to fiber optics and consider them an essential part of any new development. A few undersea telecommunications systems have been installed with stubbed Branching Units for future offshore connections. A number of developing but as yet unannounced projects provide a reason for optimism. The subsea telecommunications industry has also undergone a shift over the last five years, most notably as a result of the Over The Top (OTT) providers driving a significant portion of investment in new cables. Smaller, regional cable systems continue to be developed, but must often search for revenue. As a result of these shifts, the two industries will need to find new ways to work together. Shared infrastructure, that is cable systems that provide end-toend capacity as well as connections to offshore assets, may become more popular. The Gulf of Thailand, Tampnet North Sea and Vocus North West Cable System are all examples of this. Availability of resources is another challenge,

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with undersea cable factory capacity and cable ships being close to full utilization for several years now. Early and careful planning will be essential, as will flexible business models with multiple revenue sources, but this will come as no surprise to anyone familiar with either of the two industries. In conclusion, I believe that fiber optics for offshore oil & gas production will remain a small but viable piece of the overall subsea cable system marketplace. “

STEVE LENTZ Director of Network Development Ocean Specialists, Inc.

7.1 OFFSHORE ENERGY

7.1.1 OIL PRICE HISTORY

$120

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The offshore energy industry provides its own and separate sub-section of the global submarine fiber industry. Offshore Energy Telecoms is a niche market, but it has become increasingly important as offshore platform operators have started to require higher capacity and more reliable telecommunications systems. This market space is primarily driven by the offshore oil & gas markets and is very closely tied to the price of oil.

Figure 62: WTI and Brent Crude Combined 5-Year Price History, 2014-2019

The Brent Crude and West Texas Intermediate (WTI) crude oil grades are the most popularly referenced pricing benchmarks for oil around the world. Brent Crude is a blend of oil extracted from the North Sea while WTI is a blend of several United States domestic oils produced and mixed mainly in the Midwest and Gulf Coast regions. The Brent Crude benchmark is widely used on a global level while the WTI is the main benchmark for oil in the United States. Looking at the average quarterly price of a barrel of oil via the West Texas Intermediate benchmark, oil prices reached their peak in 2014. Prices soared to well over $105 per barrel during this time. After that, prices sharply declined and finally bottomed out at just over $30 per barrel in Q1 2016. (Figure

62) This steep decline — which started in the latter half of 2014 — is the primary reason 2015 saw few new systems implemented. Ongoing international trade disputes and global regulatory changes have contributed to the relatively stagnant pricing. Many systems either died outright or were pushed back to 2019 and beyond.

7.1.2 SYSTEM GROWTH Over the past five years, system investment has been on an upward trend despite the crash in oil prices around 2014 and due to the industry’s push to employ new technologies. There was a noticeable decrease in new system activity observed in 2017 – SUBMARINE TELECOMS INDUSTRY REPORT

this time a likely result of the 2016 12 price crash – but as prices recovered, 2018 implemented seven systems. No 10 new systems have been implemented so far in 2019 and all previously an8 nounced systems for this year are no 6 longer in development. This is likely a result of the price of oil weakening 4 once again and uncertainty surrounding global trade disputes. 2 Despite no system activity in 2019, there are plans for several new sys0 2017 2018 2019 2020 2021 2022 tems through 2022. (Figure 63) Newly planned systems are larger in scope Figure 63: Offshore Oil & Gas Systems per Year, 2017-2022 than have historically been observed. As the Oil & Gas industry embraces new technology and data driven proof climate monitoring, tsunami warning systems or other cesses, more offshore facilities are being connected research purposes. than ever before. Systems that would previously have only connected the main hub facility are now branch- 7.2.1 INTRODUCTION ing out to connect secondary platforms so that these Tsunamis crashing onto the shore, causing enoradvances can be implemented on a larger scale. mous damage and taking lives. Rising sea levels There is expected to be over $2.6 billion worth swallowing island and coastal communities. Warmof potential investment in submarine fiber systems ing oceans stirring up extreme weather and melting through 2022 – more than doubling existing investice caps. Better monitoring and study of the deep ment amounts. However, as there is currently a high oceans can help us better prepare for and mitigate amount of uncertainty and an extremely busy comall these issues, yet at present scientists and disasmercial submarine fiber market driven by Over-The- ter managers have few ways to do so. That could all Top (OTT) providers, it is highly likely that some change, thanks to the submarine cables that already of these planned systems will be delayed past their exist in the world today. current RFS date. These cables crisscross oceans and seas worldwide, enabling global telecommunications. These cables are also in a perfect position to collect scien7.2 SMART CABLES tific data from the oceans in which they reside by The following section is provided by the Joint Task serving as a “backbone” for environmental sensors Force for SMART Cables. The Joint Task Force is that can be integrated into the cables. The sensors composed of members from the International Telecomcan then transmit the data to worldwide research munication Union, the Intergovernmental Oceanographic Commission of the United Nations Educational, centers, providing the world with data on tsunami Scientific and Cultural Organization (UNESCO/IOC) and earthquake warnings, ocean temperature, and ocean bottom pressure. and the World Meteorological Organization (WMO). For instance, earthquakes on the ocean floor This section was written by Bruce M. Howe, who is the Joint Task Force Chair as well as Professor and Chair of can cause destructive tsunamis; the 2004 Boxing Ocean and Resources Engineering, University of Hawaii Day tsunami in the Indian Ocean caused billions of dollars of damage and over 240,000 fatalities. at Manoa. Science Monitoring And Reliable Telecommunications (SMART) cables are those cables that have By integrating sensors into cable systems that can additional environmental sensors added for the purposes detect both the causal earthquake and the resulting

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Figure 64: Typical SMART Cable Design

tsunami wave while enabling the transmission of the sensor data to land-based early warning centers, managers can receive advance warning long before the resulting tsunami arrives on land. False tsunami warnings pose their own problem. Since the U.S. tsunami warning system began in 1949, 75% of the evacuations of Hawaii’s coastlines have been unnecessary, with direct and indirect costs of millions or tens of millions of dollars per event. This is also true for other coastlines in the Pacific basin and elsewhere. In addition to the benefits of tsunami warnings, sensors on cables can provide crucial data on ocean temperature and deep ocean circulation, both of which have global impact. Measurements of ocean bottom pressure—which provides information on the flow of water in the ocean—and temperature will help researchers understand and predict how sea levels will rise as the world warms and land ice melts into the oceans. These measurements will also contribute to a better understanding of ocean circulation patterns such as the deep currents transporting heat between the polar regions, which are now known to be a major cause of Antarctic ice melting. The concept of integrating environmental sensors into commercial submarine telecommunications cables is called Science Monitoring And Reliable Telecommunications (SMART) cables—an initiative led by the Joint Task Force (JTF) sponsored by three United Nations agencies. Although the concept has existed in some form for several decades,

the International Telecommunication Union (ITU), the Intergovernmental Oceanographic Commission of the United Nations Educational, Scientific and Cultural Organization (UNESCO/IOC), and the World Meteorological Organization (WMO) established the Joint Task Force (JTF) on SMART cables in late 2012. JTF is now advancing the SMART cables initiative (see (Howe, et al., 2019)). This article will discuss the technical, financial, legal and implementation aspects of SMART cables as well as the work being done to bring the overall initiative to fruition.

7.2.2 SMART FUNDAMENTALS The fundamental premise of SMART cables is integrating environmental sensors into commercial submarine telecommunications cables. The crucial objectives are: (a) to obtain long-term ocean bottom measurements of temperature (to measure climate trends), pressure (to capture sea level rise, ocean currents, and tsunamis) and seismic acceleration (for earthquake and tsunami warning, and seismology), (b) to have little or no impact on the operation of the telecommunications system that hosts the sensors, (c) to require no special handling or deployment methods, and (d) to be sufficiently reliable that 95% of all sensors operate for a minimum of 10 years with no maintenance. SMART cables would make use of the global subsea fiber optic network. More than 1.2 million km of cable and 400 independent subsea cable systems all SUBMARINE TELECOMS INDUSTRY REPORT

over the world are operated, maintained, and periodically renewed by the telecommunications industry. Although it is impractical to place sensors into deployed cables, sensors can be introduced during manufacturing into the repeaters on new cables (see Figure) during replacement or expansion operations, which occur on 10-25 year time scales. This provides the opportunity to introduce sensors on new cable systems on this time frame to slowly build an enduring, sustained ocean and earth observing network. Figure. Repeater housing showing two possible sensor mounting locations: (a) on the end of repeater housing under the bell housing or (b) in an external pod. Seismic accelerometers are mounted inside the pressure housing (c).

7.2.3 PAST TO PRESENT The GeO-TOC system, installed in 1997 midway between Guam and Japan using the retired TPC-1 communications cable, anticipated the development of SMART cables by almost two decades yet included all essential SMART cable features: a three-axis accelerometer, pressure sensor, and precision thermometer. These were incorporated into an in-line pressure housing which was deployed from a cable ship in a conventional manner. In the first decade of the 2000s, attention shifted to regional scale observatories such as NEPTUNE/ ONC in Canada, DONET in Japan, and the OOI Regional Cabled Array (RCA) in the United States. Bespoke components were developed for interconnection, power delivery, and communications. Sensors are installed on separate platforms connected to the nodes using ROVs. Each of these employed commercial telecommunications cable and repeaters for the backbones. Following the Tohoku earthquake and tsunami of 2011, Japan undertook rapid development of the S-net system incorporating many of the functions essential to a SMART cable, with 150 observation nodes along 5,700 km of cable divided into six independent subsystems (Kanazawa, et al., 2016). Each

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node has multiple sensors within, connected in-line with the telecommunications cable (but no telecom traffic, just data). The result provides evidence that SMART cables are close to being feasible using currently available technology. Another in-line ocean bottom sensing system with pressure and acceleration was developed by the University of Tokyo (Shinohara, Yamada, Sakai, & Shiobara, 2016). In 2015, this was deployed off Sanriku with three nodes and a length of 105 km. This simpler and lower cost design was commercialized using an industry standard repeater housing; it could be adapted as an initial demonstration and/or be a starting model for a SMART repeater.

7.2.4 NEW DEVELOPMENT As described, many of the necessary SMART system attributes are already developed or â&#x20AC;&#x153;closeâ&#x20AC;?. More work needs to be done on high voltage isolation, serial add/drop communications, reduced size and power, sensor integration, and overall guaranteeing fail-safe operation of the repeater in the event sensor faults. These are very much surmountable engineering tasks, though all of must be done in a manner that is consistent with the 25-year

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expected operating life and 8,000-m deployment depth of a commercial repeater (Lentz & Howe, 2018). In the initial wet demonstration and/or pilot systems, requirements can be relaxed but the ultimate goal is to have system suppliers fully integrate SMART capability into their qualified proprietary designs, so a prospective buyer can simply check a box to select it as a system option; (Webster & Dawe, 2019), discuss this from a buyers perspective. Successful operation of shorter SMART cables will be needed before sensor functions can be introduced into the longest cables. Regional systems with lengths of a few hundred km up to several thousand km are ideal for the inclusion of sensor capabilities because these systems have sufficient design margin and can usually accommodate additional fibers to carry sensor data. Ocean spanning cables of more than 6,000 km are more challenging and will be for the future. Data from SMART cables are expected to be open and freely accessible. Data generated by SMART cable sensors will be transmitted to a shore station where it may be stored in raw form, processed, and transmitted onward to data repositories, national agencies, and academic institutions.

7.2.5 LEGAL OUTLOOK Because SMART cables combine science and telecommunications into a single cable, they do not fit neatly into existing international legal frameworks. SMART cable projects will be carried out in the exclusive economic zones of individual cooperating nations—the coastal regions of an individual nation over which the nation has legal jurisdiction—and the high seas. As the dual-use cables concept turns from development to deployment, the collective international understanding of their legal status will be refined based on concrete examples, routes, and uses. JTF pilot projects are explicitly intended to validate the technology and business case for dual-purpose cables and create a climate where oceanographic sensor-enabled telecommunications cables are a recognized part of maritime infrastructure. In doing so, they will habituate the industry to such projects and reduce the perceived legal and business risk of this concept.

The submarine cable community can assist this process by developing specifications and standardized components to be included on telecommunications cables. This will provide all parties involved with a clear understanding of the capabilities of dual-purpose cables, thus reducing the potential for concerns by otherwise cooperative nations that such projects could stray from their stated scientific goals.

7.2.6 COSTS Based on a 10-year life cycle for cables (a quite conservative assumption), we calculate that an eventual steady state of 30 systems comprising 160 Mm of cables (4 times around the world), and 2000 SMART repeaters with sensors would cost $40M/ year. This equates to 3 systems per year and 200 repeaters, with each repeater costing about $200K and $20K/year. By sharing the submarine cable infrastructure and associated costs with telecom, SMART cables can collect sustained, globally distributed, and fixed in space, ocean observation data. With longer timelines and a broader range of goals, government-backed cables represent a good opportunity for SMART cables. For example, the Tsunami Act 2017 gives NOAA the responsibility to consider “…integration of tsunami sensors into Federal and commercial submarine telecommunication cables.” Early engagement with potential projects is important for ensuring that future cables’ configurations are compatible with SMART requirements and to arrange funding. Multilateral development banks are a possible source of funding, as they fund connectivity projects between developing countries as well as projects related to climate and disaster mitigation; they see the advantage of “two for the price of one.” For comparison, the US NOAA DART Tsunami buoy program budget is $27M/year, comparable to the incremental cost for a SMART cable that spans the Pacific region where most of the US DART buoys are located. The Argo program, with 4,000 expendable floats, costs about $32M per year to maintain. The NSF funded OOI cost approximately $400M for the fabrication phase, with operating costs of approximately $44M annually. NOAA estiSUBMARINE TELECOMS INDUSTRY REPORT

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mates it spends approximately $430M annually to operate and maintain its ocean, coastal, and Great Lakes observing systems.

7.2.7 ONGOING AND FUTURE PLANS The first deployment is anticipated to be a demonstration system that does not interface with the telecommunications portion of a cable, but instead focuses solely on sensor functionality. Offthe-shelf components may be used to reduce development costs, even if these are physically larger than would be for a fully developed SMART cable. The demonstration system could be deployed as a branch of a commercial cable system, connected to an existing cabled observatory, or reuse a portion of an out-of-service cable. The National Institute of Geophysics and Volcanology (INGV) obtained funding in June 2019 to deploy a wet demo on their Catania ocean observatory. Following the demonstration system, full development of SMART-enabled repeaters must be undertaken by one or more system suppliers. The resulting repeater design will undergo qualification tests and sea trials after which it will be available for use in commercial telecom systems. An initial pilot system is being planned between New Caledonia and Vanuatu. It is explicitly SMART, 300-km long, with two repeaters. A majority of the required funding has been obtained as part of a French innovation project (Radio New Zealand, 2019). Additional funding is being sought. After these confidence-building measures, deployment of a major SMART cable system will take place. A regional cable, ~2,000 km in length and containing ~20 repeaters, is ideal as it is manageable both in scope and cost. Successful operation on this scale will provide a conclusive demonstration of the value of SMART cables and ensure they have no impact on the telecommunications performance of the cable system. A system being proposed by ANACOM (Telecom regulatory agency, Portugal) connecting Lisbon-Azores-Madeira-Lisbon explicitly includes optical fiber sensing and SMART capability. Such a system will convert the currently “deaf, dumb and blind” cables into environmentally aware systems that can proactively mitigate manmade and natural hazards serving not just cable

SUBMARINE TELECOMS INDUSTRY REPORT

protection needs but important societal needs and development goals. Indonesia is adopting SMART cables as an element of their cable-based tsunami warning system that is currently under design. In this case, the geographical extent of the Indonesian archipelago dictates sharing infrastructure and cost with telecom in order to obtain the necessary spatial coverage at an affordable cost. Other cables with SMART/science capability are being considered: for cables along Latin America and in the Caribbean, and from Chile to Asia (the InterAmerican Development Bank is supporting efforts to include SMART capability) and even Antarctica; and across the Arctic Ocean. As the phased implementation of SMART cables progresses, confidence will grow and deployment around the globe will become ubiquitous.

7.2.8 CONCLUDING REMARKS We have presented an overview of the Joint Task Force (JTF) on SMART cables and its activities. The future will likely see ITU supporting this community with international standards (ITU-T Recommendations) to ensure interoperability and to reduce costs by using common specifications worldwide. SMART cables are already technically feasible, and we are in the process of proving this via demonstration and pilot systems. Their estimated costs are similar to those of existing ocean observing systems. Their benefits to society are clear: in the short term, improved tsunami warning systems can save lives. In the long term, monitoring the ocean will help mitigate the effects of climate change. The submarine cable community has a chance to contribute with the JTF to this global effort by proactively supporting the effort, surmounting challenges as they arise, within the UN Decade of Ocean Science for Sustainable Development and taking action to advance societal goals within the UN Global Compact. If we don’t act now, before we know it, we will be facing global temperature rises above 2 degrees Celsius and meters of sea level rise. There will be no turning back. These are real dangers that will forever change our world. There is no excuse for inaction.

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REGIONAL MARKET ANALYSIS AND CAPACITY 82

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SUBMARINE TELECOMS

INDUSTRY

REPORT 19|20

ithin the submarine cable industry, Regional Systems are at the same time a unique challenge and a strong indicator of the tendency of the global market. Because they connect various and different countries and markets, they bring much more complexity and problems to be solved than any single pointto-point system. This is one of the main reasons why they present a unique and difficult challenge. Each country is obviously different with its specific population, habits, social norms, services needed and specific expectations from any new submarine cable landing in the country. On top of that, laws are never the same from one country to another and getting a permit for each landing of a regional system is always a new adventure. To bring more complexity, the laws may change during the lifetime of the project and the politicians and governments in power in each respective country may also change. But the markets that the new systems are supposed to link are also subject to potential big changes. The local economy of each country may flourish or not and accordingly, the demand in data to be transferred may vary. As an example, some systems have indeed been recently promoted on the basis of a similar growth for each of the market they were connecting but as one of this market was suddenly hit by an economic and financial crisis, the whole business model of the system was suddenly drastically modified and had to be reconsidered accordingly.

On top of this unique challenge, Regional Systems are also a very interesting and strong barometer of our global submarine cable market evolution from a geographic and an economic perspective. Geographically, the impact of regional systems isn’t indeed limited to the region itself. In particular, the success of a regional system may surely affect the regions role in the larger cable net. As an example, this is particularly obvious with the whole European Nordic region with more and more projects being announced and developed in the last months in Denmark and Norway thanks to those implemented previously in Finland. And one can already anticipate that this will help to contribute to the future development of the Arctic region. Economically, because most of the Regional Systems are at the moment developed and proposed by the Content Providers which are looking for connecting their own Data Centers, they fully confirm this trend of our industry that has been in place for the last five years. Any change of this trend will certainly be seen through a change in the ownership and approach of the Regional Systems. In summary, each region is unique, and a Submarine Cable System will not only affect the region it belongs to but others as well. Then, compiling the following studies of the regional systems will provide the trends for the Submarine Cable System Industry in its entirety. PATRICK FAIDHERBE Managing Partner AQEST

SUBMARINE TELECOMS INDUSTRY REPORT

8.1 TRANSATLANTIC REGIONAL MARKET REGIONAL SNAPSHOT:  Current Systems: 18  Capacity: 697 Tbps  Planned Systems: 4  Planned Capacity: 490 Tbps

SUBMARINE TELECOMS INDUSTRY REPORT

8.1.1 CURRENT SYSTEMS

20 21

20 20

20 19

20 18

20 17

20 16

20 15

20 14

20 13

20 12

20 11

20 10

20 09

20 08

20 07

20 06

20 05

Growth on the Transatlantic route skyrocketed from the late 1990s through 2003. After a 12-year drought, the Transatlantic 20 region has seen a new cable every year for the last 5 years. (Figure 66) Two major causes of the development 15 slowdown were a glut of capacity and the financial crash of the early 2000s which was brought on by overinvestment in the submarine cable industry. With investment on 10 the rise again, and systems aging out in the Transatlantic route, new systems are beginFigure 66: Systems in Service -Transatlantic ning to come online. The MAREA system installed in 2017 tapped into the exploding Mid-Atlantic of the United States and across the demand from OTT providers, with one of the key South Atlantic, the Transatlantic route has enjoyed selling points being massive bandwidth available â&#x20AC;&#x201D; 160 Tbps potential â&#x20AC;&#x201D; on a modern submarine fiber steady growth. system on a route full of aging cables. Additionally, this cable provided an alternative path to increase 8.1.2 FUTURE SYSTEMS route diversity, and more directly connect Europe During the last boom of Transatlantic system deto important data centers in Ashburn, Virginia. The velopment, the average system length was roughly SACS and SAIL cables installed in 2018 continue 12,000 kms with most systems taking similar routes this push for alternative routes and connect South between Europe and the US. America and Africa directly. With the rise in demand for low latency sysDue to increasing capacity demands along the tems, planned systems for 2019 and beyond avernorth Transatlantic between the New York and age roughly 8,000 kms based on their announced Europe, and the desire for new connections to the routes. (Figure 67) The change in customer reTable 3: Transatlantic Systems, 2001-Present RFS YEAR

SYSTEM

CAPACITY (TBPS)

LENGTH (KMS)

2001

FA-1 North/South

12820

2001

GTT North/South

12111

2001

TAT 14

9.38

15453

2001

TGN Atlantic

12670

2003

Apollo

12700

2015

GTT Express

4600

2016

AEC-1

5536

2017

MAREA

160

6600

2018

SACS

6300

2019

HAVFRUE/AEC-2

108

8179

SUBMARINE TELECOMS INDUSTRY REPORT

REGIONAL MARKET ANALYSIS: TRANSATLANTIC

20 21

20 20

20 19

20 18

20 17

20 16

20 15

20 14

20 13

20 12

20 11

20 10

20 09

20 08

20 07

20 06

Thousands of KMS

quirements from purely bandwidth to 250 bandwidth and low latency has driven developers to plan routes averaging 29 percent shorter than previous systems 200 from the early 2000s, with proposed systems claiming to drop up to 40ms latency due to being shorter by an aver150 age of 4,000 kilometers in addition to providing much needed infrastructure. However, some of the proposed South 100 Atlantic systems are considerably larger than the more traditional Transatlantic systems and will address different needs Figure 67: KMS Added - Transatlantic than the region is used to. There are currently four planned systems set to be ready for service for the period 2020-2022 in the Transatlantic region. Only one 25% of these planned systems are along the northern route between Europe and the United States, No further illustrating the desire to move away from traditional Transatlantic routes. There are two sysYes tems planned between Brazil and Africa and one system planned between Brazil and Europe. Brazil continues to work on getting its own international 75% connections without going through the United States, while tech giants such as Microsoft and Facebook want connections between Europe and Figure 68: Contract in Force â&#x20AC;&#x201C; Transatlantic, 2020-2022 the Ashburn, Virginia data centers. Three-fourths of planned Transatlantic systems have achieved the all-important CIF milestone. (Figure 68) This indicates healthy growth in the region and solidifies the idea that new cables and new routes are highly desired.

Table 4: Transatlantic Planned Systems RFS YEAR

SYSTEM

CAPACITY (TBPS)

LENGTH (KMS)

2020

Dunant

6400

2020

EllaLink

10119

2020

SABR

6200

2021

SAEx1

14720

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8.2 TRANSPACIFIC REGIONAL MARKET REGIONAL SNAPSHOT:  Current Systems: 14  Capacity: 672 Tbps  Planned Systems: 8  Planned Capacity: 350 Tbps

SUBMARINE TELECOMS INDUSTRY REPORT

8.2.1 CURRENT SYSTEMS

20 22

20 21

20 20

20 19

20 18

20 17

20 16

20 15

20 14

20 13

20 12

20 11

20 10

20 09

20 08

20 07

20 06

20 05

25 The Transpacific market has been like that of the Transatlantic in recent years, showing relatively little growth year-up20 on-year. New systems have been added sporadically, however most of the capac15 ity increases have been from upgrades. Lately, OTT providers and those seeking route diversity have been driving new 10 system growth. From 2002-2015, only four systems 5 were added to the region. (Figure 69) The industry crash of the early 2000s certainly played a large part in this limFigure 69: Systems in Service - Transpacific ited growth, but the fact that there had been no new systems on the Transpacific Transpacific systems. As a result, there is a potential routes from 2010-2015 is largely due to existing explosion of growth possible through 2022. systems being able to upgrade their capacity for relatively little cost and push potential competitors out of the market. 8.2.2 FUTURE SYSTEMS As with the Transatlantic market, until very No systems were added at all to this region from recently the Transpacific has been almost fully 2010-2015. Since then, the region has experienced saturated, with little room for growth other than steady growth with at least one system added each route diversity and cutting down on existing latency. year for the period 2016-2019 and eight systems Lately, however, new systems are being explored in a planned through 2022. similar manner to the Transatlantic with the region The amount of cable in the region nearly tripled seeing at least one new cable every year since 2016. during this period of growth and has seen over Demand from OTT providers and desire for route 120,000 kms of cable added since then. (Figure 70) diversity are the primary drivers behind these newer Average system length in the region is just under

Table 5: Transpacific Systems, 2001-Present RFS YEAR

SYSTEM

CAPACITY (TBPS)

LENGTH (KMS)

2008

TPE

25.6

16163

2009

AAG

28.8

20547

2010

Unity

76.8

9486

2016

Faster

9000

2017

SEA-US

15400

2018

Hawaiki

15000

2018

NCP

13618

2019

JGA North

9500

2019

PLCN

144

12900

SUBMARINE TELECOMS INDUSTRY REPORT

REGIONAL MARKET ANALYSIS: TRANSPACIFIC

Thousands of KMS

16,500 kms, owing to the Transpacific 400 region having some of the longest routes 350 in the world. Between the massive systems required to span the region, and 300 the easy availability of cheap capacity 250 upgrades, the historically static nature of the region comes as no surprise. Re200 cently, however, there has been a noticeable uptick in system activity. 150 There are currently eight planned sys100 tems set to be ready for service for the period 2020-2022 and only 25 percent of them have achieved the CIF milestone – Figure 70: KMS Added - Transpacific a far cry from last year’s 56 percent CIF rate. (Figure 71) Nearly all these systems are trying to bring large capacity increases along their respective routes, but many of them are di25% rectly competing along the same or similar routes. With the average system length of all planned No systems for the Transpacific market remaining around 16,500 kilometers, shorter cable lengths Yes are not necessarily possible for systems that are exploring new routes. 75% These new systems provide a bonus of increased route diversity – especially along the southern part of the region. A few of the systems that are not yet CIF are backed by OTT providers. This Figure 71: Contract in Force – Transpacific, 2020-2022 takes them out of direct competition with other planned systems and removes some of the financial risk from having to sign on outside investors. Table 6: Transpacific Planned Systems RFS Year

System

Capacity (Tbps)

Length (kms)

2020

BtoBE

108

16000

2020

HKA

13000

2020

Jupiter

14000

2021

SAPL

17600

2021

Southern Cross NEXT

12500

2022

Asia South America Digital Gateway

25000

2022

Australia - New Zealand Chile

12000

2022

H2 Cable

21700

SUBMARINE TELECOMS INDUSTRY REPORT

8.3 AMERICAS REGIONAL MARKET REGIONAL SNAPSHOT:  Current Systems: 62  Capacity: 713 Tbps  Planned Systems: 7  Planned Capacity: 90 Tbps

SUBMARINE TELECOMS INDUSTRY REPORT

8.3.1 CURRENT SYSTEMS

Characterized by steady growth since the early 1990s, the Americas region has continued to enjoy frequent additions over the last 10 years – going from 34 cables in 2008 to 50 cables in 2018. After ten years of steady growth, with an average of about two systems being ready for service per year, the region is currently undergoing another boom in development with fours systems implemented in 2017, five systems in 2019 and eight additional systems planned to be ready for service by the end of 2020. (Figure 72)

70 60 50 40

Unlike most of the other markets, the Americas region has consistently observed medium to high levels of growth. Since 2005, new cable development has consistently added an average of just over 4 percent more kilometers per year. Breaking from the average, there was a 7 percent increase in 2009, an 11 percent increase in 2014, a 12.5 percent increase in 2017

and an 8 percent increase in 2019. By and large, the region has seen steady growth until 2017 when an unprecedented 12.5 percent growth rate was observed. Looking forward, this higher than average growth rate will not continue through 2021, with the number of planned kilometers for 2020 only resulting in a 3 percent increase in kilometers added and no new systems currently planned for 2021 or later. (Figure 73)

Table 7: Americas Systems, 2010-Present

Figure 72: Systems in Service - Americas

8.3.2 FUTURE SYSTEMS

RFS Year

System

Capacity (Tbps)

Length (kms)

2014

AMX-1

17800

2015

PCCS

6000

2016

Guantánamo Bay Cable

1500

2017

Junior

390

2017

Monet

10556

2017

Seabras-1

10750

2017

Tannat

2000

2019

ARBR

2700

2019

Austral

2900

2019

Crosslake Fibre

2019

Curie

10000

2019

Guantánamo Bay Cable 2

1200

SUBMARINE TELECOMS INDUSTRY REPORT

REGIONAL MARKET ANALYSIS: AMERICAS

20 21

20 20

20 19

20 18

20 17

20 16

20 15

20 14

20 13

20 12

20 11

20 10

20 09

20 08

20 07

20 06

20 05

Thousands of KMS

There are currently seven systems 250 planned for 2020 though only 29 percent of those cables have achieved their CIF milestone. (Figure 74) Additionally, there 200 are no cables planned for 2021 and beyond. The last few years have been relatively busy compared to historical trends 150 for the Americas region and may have satisfied infrastructure needs for now. With a development rate that has re100 mained steady since 2001, productivity in 2020 will be higher than historical norms should most of these planned systems Figure 73: KMS Added - Americas come into force. However, the next 12-18 months are busy for the industry at large. With a finite number of cable ships to accomplish so many projects, several systems for this region could end up being delayed a year or more.

29%

No Yes 71%

Figure 74: Contract in Force â&#x20AC;&#x201C; Americas, 2020-2022

Table 8: Americas Planned Systems RFS Year

System

Capacity (Tbps)

Length (kms)

2020

AU-Aleutian

1456

2020

Galapagos Subsea System

1000

2020

Hudson Bay Link

2020

Kanawa

1746

2020

Ketchikan - Prince Rupert

2020

Malbec

2500

2020

Tannat Extension

2020

WALL-LI

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8.4 AUSTRALASIA REGIONAL MARKET REGIONAL SNAPSHOT:  Current Systems: 61  Capacity: 660 Tbps  Planned Systems: 4  Planned Capacity: 22 Tbps

SUBMARINE TELECOMS INDUSTRY REPORT

8.4.1 CURRENT SYSTEMS

RFS Year

100

System

Capacity (Tbps)

Length (kms)

2016

APG

10400

2017

ATISA

7.2

280

2017

MCT

1425

2017

SKR1M

3500

2017

Tasman Global Access

2300

2018

ASC

4600

2018

Hawaiki

15000

2018

SEAX-1

250

2018

Tui-Samoa

1470

2019

Indigo Central

4850

2019

Indigo West

4600

2019

NATITUA

2500

SUBMARINE TELECOMS INDUSTRY REPORT

Table 9: AustralAsia Systems, 2014-Present

80 The AustralAsia market has been characterized by a massive amount of growth 70 in a relatively short amount of time. 60 Since 2007, it has been one of the busi50 est regions in the entire world â&#x20AC;&#x201C; though recently it has slowed down. 40 Growth from 2001 to 2005 was neg30 ligible, and while there was a moderate amount of activity in 2006, the real 20 growth spurt occurred from 2008 to 10 2009. (Figure 75) The biggest factor contributing to growth in the region is emerging markets in Southeast Asia, with Figure 75: Systems in Service - AustralAsia countries such as Indonesia, Singapore and Hong Kong being the recipients of OTT provider driven systems promises to sustain new data center growth as mentioned in section growth in the region for the foreseeable future. The 1.2.3 of this report. region should continue to enjoy this steady growth The industry crash of the early 2000s certainly for at least the next year as all four systems planned influenced the later timing of the regionâ&#x20AC;&#x2122;s boom, for 2020 are likely to be implemented. but the rising markets of Southeast Asia and their It is important to note that at this time last year, ardent desire for international connectivity largely eight systems were planned for the next two years overrode such concerns. The widespread adoption in the AustralAsia region compared to only four sysof mobile and cloud services throughout the region tems for 2020 and none for 2021 and beyond. This combined with the recent surge of data center and

REGIONAL MARKET ANALYSIS: AUSTRALASIA

reinforces the view that the AustralAsia region is beginning to slow down from its historically rapid growth.

350

8.4.2 FUTURE SYSTEMS

250

Thousands of KMS

300

After the huge growth spurt from 200 2008 to 2009, the AustralAsia market has seen a steady amount of growth in 150 the amount of cable added per year. Since 2010, the region has seen an 100 average of 9,000 kms added per year, with an average system length of 5,000 kilometers. The next year – 2020 – may Figure 76: KMS Added - AustralAsia be one of the last significant opportunities for growth in the region as there are currently no systems planned for 2021 and beyond. As submarine cable systems typically require a 25% two-year development cycle from the time they are announced, it is unlikely many systems will be anNo nounced for 2021 by the end of this year. (Figure 76) There are currently four planned systems set Yes to be ready for service for the period 2020-2021. Two of these cables are relatively smaller projects, 75% connecting island nations to major hubs while the other cables span large swathes of the region or are back by OTT providers. Of these planned systems, 75 percent are considered CIF. (Figure 77) This Figure 77: Contract in Force – AustralAsia, 2020-2022 healthy CIF rate indicates that the growth rate for the region’s immediate future may be sustainable. However, considering how busy the industry in general is through 2020, some of these systems may be delayed due to supplier and installer availability constraints. The remaining system that is not yet CIF is an OTT backed system and will almost certainly be completed.

Table 10: AustralAsia Planned Systems RFS Year

System

Capacity (Tbps)

Length (kms)

2020

Coral Sea

4700

2020

HK-G

3900

2020

Manatua

3600

2020

SJC2

144

10500

SUBMARINE TELECOMS INDUSTRY REPORT

101

8.5 EMEA REGIONAL MARKET REGIONAL SNAPSHOT:  Current Systems: 115  Capacity:817 Tbps  Planned Systems: 9  Planned Capacity: 936 Tbps

102

SUBMARINE TELECOMS INDUSTRY REPORT

103

8.5.1 CURRENT SYSTEMS

RFS Year

System

Capacity (Tbps)

Length (kms)

2015

NCSCS

12.8

1100

2016

C-Lion 1

144

1172

2017

AAE-1

25000

2017

Ceiba-2

290

2017

Greenland Connect North

4.8

680

2017

SEA-ME-WE 5

20000

2019

Eastern Light

2019

Orval

560

104

SUBMARINE TELECOMS INDUSTRY REPORT

Table 11: EMEA Systems, 2014-Present

150 Characterized by steady growth since the early 1990s, Europe, the Middle East and Africa have all seen an increase in 120 development over recent years. This has been one of the most consistent growth regions in the world, owing to its size as well as the important “crossroads” of the 90 Mediterranean Sea and the Suez Canal. While system count has remained relatively steady – with an average of 60 3 systems ready for service every year since 2002 – the actual lengths of these systems can vary. (Figure 78) The primary Figure 78: Systems in Service - EMEA factor behind these growth spurts are the SEA-ME-WE systems, as well as large the steady system count, inter-regional projects like coastal systems ringing Africa. In actual number this cause a huge surge in kilometers installed with of systems accomplished, the EMEA region is the most consistent region in the world. It has a growth 2010 to 2012 seeing the most recent growth spurt for the region. pattern that is seemingly immune to the industry’s boom and bust pattern seen over the past 15 years. The EMEA region sees a consistent, annual addi- 8.5.2 FUTURE SYSTEMS tion of smaller regional systems. These complement As mentioned previously, the EMEA region is the large, multi-region projects like SEA-ME-WE, uniquely characterized as a region of steady activity, ACE, EIG and WACS to name a few. These large with bursts of highly ambitious, region-spanning projects span multiple regions of the world, rathsystems every few years. er than smaller, inter-country routes and are the The rate of kilometers added per year shows biggest projects the industry tackles. Each system an average increase of 6 percent annually. Recent of this kind comes in at well over 10,000 kms per bursts of 28 percent, 15.5 percent and 18 percent route — sometimes beyond 20,000 kms. Despite have been observed in 2010, 2012 and 2017, respec-

REGIONAL MARKET ANALYSIS: EMEA

20 22

20 21

20 20

20 19

20 18

20 17

20 16

20 15

20 14

20 13

20 12

20 11

20 10

20 09

20 08

20 07

20 06

20 05

Thousands of KMS

tively. However, the last 5 years have seen 350 a lower average annual increase of only 3.8 percent. While 2020 and 2022 could 300 add up to 7.5 and 3.7 percent more cable 250 2021 is projected to add less than half a percent. (Figure 79) Unlike the Ameri200 cas and AustralAsia regions, the EMEA region is not looking at a considerable 150 drop-off in system activity after 2020. There are currently nine systems 100 planned to be ready for service for the period 2020-2022. Currently, 44 percent of these systems have achieved the CIF Figure 79: KMS Added - EMEA milestone. (Figure 80) With nearly half of these nine systems being considered viable now, the initial impression positive. Unfortunately, the EMEA region continues to be rife with economic uncertainty and political instability, casting a cloud over any prospective projects.

44%

56%

No Yes

Figure 80: Contract in Force â&#x20AC;&#x201C; EMEA, 2020-2022

Table 12: EMEA Planned Systems RFS Year

System

Capacity (Tbps)

Length (kms)

2020

BlueMed

240

1000

2020

DARE1

4747

2020

Eagle

120

16650

2020

Englandcable

240

700

2020

Equiano

120

2021

IFC-1

120

492

2021

Orient Express

1300

2022

PEACE

12000

2022

Simba

SUBMARINE TELECOMS INDUSTRY REPORT

105

8.6 INDIAN OCEAN PAN-EAST ASIAN REGIONAL MARKET REGIONAL SNAPSHOT:  Current Systems: 27  Capacity: 411 Tbps  Planned Systems: 5  Planned Capacity: 270 Tbps

106

SUBMARINE TELECOMS INDUSTRY REPORT

107

8.6.1 CURRENT SYSTEMS

108

RFS Year

System

Capacity (Tbps)

Length (kms)

2011

EIG

3.84

15000

2011

MACHO

2012

LION-2

1.28

3000

2012

SEAS

2000

2016

BBG

8040

2017

AAE-1

25000

2017

SEA-ME-WE 5

20000

2019

MARS

700

SUBMARINE TELECOMS INDUSTRY REPORT

Table 13: Indian Ocean Pan-East Asian Systems, 2010-Present

35 The Indian Ocean Pan-East Asian region has been on a steady path of 30 development since the boom following 25 the submarine cable industry downturn in the early 2000’s. It has enjoyed mostly 20 consistent growth since 2003 despite its small size, largely due to it being an 15 important crossroads region between the 10 busier EMEA and AustralAsia regions. The region has experienced periods of 5 rapid development, followed by a brief period of dormancy. The years of growth have been largely driven by trans-regionFigure 81: Systems in Service - Indian Ocean Pan-East Asian al systems such as SEA-ME-WE 3, 4 and 5, FLAG, Falcon and AAE-1 to name a few. This has resulted in 3 distinct development tems in 2017, and the five systems planned for the spikes in 2006-2007, 2009 and 2015-2017. (Figure 81) period 2020-2022 potentially add nearly 44,000 Local development is largely small systems linking kilometers of cable. (Figure 82) With Australia lookIndia east to Indonesia or west to the Middle East ing for more route diversity from its western coast and beyond, providing new connections for the and an increasing desire for connectivity between countries that ring the Indian Ocean. Asia and Europe, this steady growth could continue beyond 2021. Additionally, OTT providers are exploring routes from the United States to India 8.6.2 FUTURE SYSTEMS With two new systems added in 2017 none in 2018 and will potentially bring more system development to the region. and 4 systems planned through 2021, new system Two of the systems planned through 2022 in this development will continue at a sporadic pace. This region have achieved the CIF milestone. (Figure 83) continues to follow the feast-or-famine style of sysTwo systems are planning to link South Africa to tem development that is the historical norm. India, two other routes are smaller, intra-regional The region enjoyed the addition of 2 major sys-

REGIONAL MARKET ANALYSIS: INDIAN OCEAN PAN-EAST ASIAN

300

250 Thousands of KMS

200

20 22

20 21

20 20

20 19

20 18

20 17

20 16

20 15

20 14

20 13

20 12

20 11

20 10

20 09

20 08

20 06

100

20 07

150

20 05

systems while the last system seeks to provide yet another submarine cable between Singapore and Europe. Business cases for these systems may be difficult to prove, hampering efforts to secure funding. While these systems would expand route diversity in the region two of them are competing with each and it is very likely at least one of these systems will not hit their target RFS date.

Figure 82: KMS Added - Indian Ocean Pan-East Asian

40%

No Yes

60%

Figure 83: Contract in Force - Indian Ocean Pan-East Asian, 2020-2022

Table 14: Indian Ocean Pan-East Asian Planned Systems RFS Year

System

Capacity (Tbps)

Length (kms)

2020

IOX

8850

2020

METISS

3000

2021

Orient Express

1300

2021

SAEx2

13900

2022

Eagle

120

16650

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8.7 POLAR REGIONAL MARKET REGIONAL SNAPSHOT:  Current Systems: 1  Capacity: 30 Tbps  Planned Systems: 4  Planned Capacity: 120 Tbps

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REGIONAL MARKET ANALYSIS: POLAR

8.7.1 CURRENT SYSTEMS

8.7.2 FUTURE SYSTEMS

The first true Polar submarine fiber system in industry history was installed in 2017. Previous systems, such as Svalbard, had only ever brushed the Arctic region. At 1,200 kilometers over 6 landing points, Quintillion Subsea Phase 1 marked the first successful and fully Arctic submarine fiber system in the world. Interest in Polar projects has been at an alltime high the past few years, as cable developers are looking to take advantage of the dramatically shorter routes that can be achieved through the Arctic Circle. The Quintillion Subsea system has proven that a fully Polar system can be done for future systems that look to tackle this particularly difficult region. Polar systems have particular challenges to overcome during their development cycle, and only have small windows of time throughout the year during which work can be accomplished. This both extends the development timeline and increases the cost.

These systems are focused on routes in the far north of Canada, linking up local communities or bridging the gap between Europe and Asia. Arctic Connect is an attempt to link Europe to Japan by going over top of Russia. One of the main goals for Polar systems connecting Europe to Asia is to dramatically reduce existing latency. Currently, data must either go through the United States, or through the Suez Canal and Indian Ocean. This has required systems totaling at least 20,000 kilometers in the past. However, future Europe to Asia Arctic routes are planned for about 10,000 kilometers â&#x20AC;&#x201D; potentially cutting latency in half. Additionally, systems exploring Arctic routes avoid the troubled Middle East region and circumvent potential privacy concerns in the United States.

Table 15: Polar 2017-Present RFS Year

System

Capacity (Tbps)

Length (kms)

2017

Quintillion Subsea

1200

Table 16: Polar Planned Systems RFS Year

System

Capacity (Tbps)

Length (kms)

2021

Arctic Connect

10500

2021

EAUFON

1800

2021

Katittuq Nunavut

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2400

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AFTERWORD Kieran Clark

he OTT providers such as Amazon, Facebook, Google and Microsoft are completely transforming the submarine cable market. They are no longer reliant on Tier 1 network operators to provide capacity and are simply building the necessary infrastructure themselves. This is likely to have a long-term impact as the largest consumers of bandwidth are essentially exiting the market and creating their own network. Oil & Gas companies are increasingly making a push for fiber connected platforms as they continue to adopt new technologies and modernize their production process to increase productivity and reduce their operating costs. This is made possible using the reliable, high bandwidth connectivity that only fiber systems can provide. Close cooperation between submarine cable suppliers and offshore Oil & Gas companies will be necessary in order to develop cutting edge networks that can meet both operational and economic requirements – all of which will provide additional business opportunities to the submarine fiber industry. The submarine fiber market continues to grow through 2020 at a similar rate to that observed since 2016. Some regions have begun to slow their pace with fewer systems planned beyond 2021. There are some overbuild concerns considering the rapid pace of system development over the last few years, but many cable systems that are reaching the end of their economic and technological lifespans will need replacing. As systems continue to age out on established routes like New York to London – where 77% of currently in-service systems are older than 15 years – there will be several opportunities to replace this aging infrastructure with modern cable systems. Additionally, the advent of new and disruptive tech-

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nologies could prove attractive enough to build new systems on routes with cables less than 10 years old. Lit capacity has continued to stay within historical norms with some key routes even observing an increase in lit capacity percentage. This means that despite new cables being built with huge amounts of capacity there is not necessarily a capacity overbuild. Many of the OTT backed systems – where a huge chunk of this new capacity is coming from – are not selling capacity to the open market which should further reduce fears of a capacity glut. In fact, the lack of a sizeable chunk of new capacity being added to the global network could prompt traditional telecoms carriers to build additional systems themselves to keep up with their growing capacity needs. As always, the ability to predict the future of this industry is tenuous at best. Submarine telecoms have traditionally had a boom and bust cycle resulting in high year-to-year volatility. While there are numerous indicators that point towards healthy growth for the next 18 months even a slight push in the wrong direction can have a massive impact. Political disputes like the recent Huawei concerns with the United States are a prime example of the kind of situations that could negatively impact this industry. While a specific, short-term outlook will always be difficult to predict, over the long term the world will always need more capacity and new cable systems to feed society’s ever-increasing need for bandwidth. Humbly yours,

Kieran Clark is the Lead Analyst for STF Analytics, a division of Submarine Telecoms Forum, Inc.

WORKS CITED Ash, S. (2014). The Development of Submarine Cables. In D. Burnett, Submarine Cables: The Handbook of Law and Policy (pp. 19-40). Leiden, Boston: Martinus Nijhoff. Berlocher, G. (2009, September). Subsea Fiber in the Energy Industry. Submarine Telecoms Forum Magazine, pp. 11-13, at 11. Clark, K. (2019). BUILDING A PREDICTIVE MODEL TO DETERMINE PROBABILITY OF SUCCESS IN DEVELOPING A SUBMARINE CABLE SYSTEM. SubOptic 2019. New Orleans: SubOptic Association. CNBC. (2017, July 7). Retrieved from https://www.cnbc.com/2017/07/07/equinix-ceo-how-my-data-center-reit-serves-clients-like-burger-king. html Diaz, H. (2019, March 13). Think You Want to Build Your Own Data Center? Retrieved from DataCenter Knowledge: https://www.datacenterknowledge.com/data-center-world/think-you-want-build-your-own-data-center Flexera. (2019). RightScale 2019 State of the Cloud Report. Flexera. Gerstell, G. S. (2008, March). SubTel Forum. Retrieved from Financings of Submarine Fiber Optic Networks: The Building Boom and the Need for Financing: http://subtelforum.com/articles/products/magazine/ Howe, B., Arbic, B., Aucan, J., Barnes, C., Bayliff, N., Becker, N., . . . Weinstein, S. (2019). SMART Cables for Observing the Global Ocean: Science and Implementation. Frontiers in Marine Science, 6, 424. doi:10.3389/fmars.2019.00424 Kanazawa, T., Uehira, K., Mochizuki, M., Takashi, S., Fujimoto, H., & Noguchi, S. (2016). S-net Project: Cabled Observation Network for Earthquakes and Tsunamis. SubOptic 2016. Dubai: SubOptic Association. Lentz, S., & Howe, B. (2018). Scientific Monitoring And Reliable Telecommunications (SMART) Cable Systems: Integration of Sensors into Telecommunications Repeaters. OCEANS’18/MTS/IEEE Kobe/Techno-Ocean 2018. Kobe: OCEANS’18/MTS/IEEE Kobe. Lima, J. M. (2019, May 8). Equinix to invest nearly $2bn in building and expanding 35 data centres. Retrieved from Data | Economy: https://data-economy.com/equinix-to-invest-nearly-2bn-in-building-and-expanding-35-data-centres/ Mah, P. (2019, June 11). How the cloud is fueling Indonesia’s data center growth. Retrieved from Data Center Dynamics: https://www.datacenterdynamics.com/analysis/how-the-cloud-is-fueling-indonesias-data-center-growth/ Nielsen, S. (2012, September). Important and Necessary: The Rising Requirement of Oil. Submarine Telecoms Forum Magazine, pp. 7-14, at 7. Radio New Zealand. (2019, September 17). New Caledonia to lay ‘smart cable’ to Vanuatu. Retrieved from Radio New Zealand: https://www.rnz.co.nz/international/pacific-news/398985/new-caledonia-to-lay-smart-cable-to-vanuatu Shinohara, M., Yamada, T., Sakai, S., & Shiobara, H. (2016). Installation of new seafloor cabled seismic and tsunami observation system using ICT to off-Tohoku region, Japan. SubOptic 2016. Dubai: SubOptic Association. Webster, S., & Dawe, S. (2019). SMART Cables: A specification to enable informed investment. SubOptic 2019. New Orleans: SubOptic Association. Wong, W. (2019, February 13). Hong Kong’s Cloud Data Center Boom. Retrieved from Data Center Knowledge: https://www.datacenterknowledge.com/asia-pacific/hong-kong-s-cloud-data-center-boom Wong, W. (2019, June 11). Singapore’s Colocation Market to Nearly Double by 2023. Retrieved from Data Center Knowledge: https://www.datacenterknowledge.com/colocation/singapore-s-colocation-market-nearly-double-2023 Sandhu, H. S., & Raja, S. (2019). No Broken Link: The Vulnerability of Telecommunication Infrastructure to Natural Hazards. World Bank Group.

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LIST OF FIGURES Figure 1: Worldwide Map of Submarine Cable Database........................................................................................ 7 Figure 2: Henry Ash Lithograph of Cableship Faraday laying an Atlantic cable in 1884 from Nova Scotia to Ireland, and on to England and France................................................................................. 13 Figure 3: Cableship Goliath.................................................................................................................................... 13 Figure 4: Global Capacity Growth by Region, 2015-2019...................................................................................... 15 Figure 5: Average New System Capacity, 2015-2019............................................................................................. 16 Figure 6: Global Planned Capacity Growth, 2019-2022......................................................................................... 16 Figure 7: Transatlantic Capacity Growth, 2014-2018.............................................................................................. 16 Figure 8: Transatlantic Capacity Growth, 2018-2022.............................................................................................. 17 Figure 9: Transpacific Capacity Growth, 2014-2018............................................................................................... 17 Figure 10: Transpacific Capacity Growth, 2018-2022............................................................................................. 17 Figure 11: Americas Capacity Growth, 2014-2018................................................................................................. 20 Figure 12: Americas Capacity Growth, 2019-2022................................................................................................. 20 Figure 13: Intra-Asia Capacity Growth, 2014-2018................................................................................................. 20 Figure 14: Intra-Asia Capacity Growth, 2019-2022................................................................................................. 21 Figure 15: Monthly Lease Pricing on Major Routes................................................................................................ 21 Figure 16: Median 100G IRU Pricing on Major Routes........................................................................................... 22 Figure 17: New System Count by Region, 2014-2018............................................................................................ 22 Figure 18: KMS Added by region, 2014-2018........................................................................................................ 23 Figure 19: Planned Systems by Region, 2019-2021................................................................................................ 23 Figure 20: Global Contract in Force Rate, 2019-2021............................................................................................ 23 Figure 21: Single vs Multiple Owner Cable Systems, 2009-2019........................................................................... 24 Figure 22: Ownership Type, 2019-2021.................................................................................................................. 24 Figure 23: Financing of Systems, 2009-2019.......................................................................................................... 29 Figure 24: Financing of System, 1987-2019............................................................................................................ 29 Figure 25: Financing of Systems, 2015-2019.......................................................................................................... 30 Figure 26: Distribution of MDB Investment, 2004-2019......................................................................................... 30 Figure 27: Distribution of Multiple Owner Investment, 1987-2019........................................................................ 30 Figure 28: Distribution of Multiple Owner Investment, 2009-2019........................................................................ 31 Figure 29: Distribution of Single Owner Investment, 1987-2019........................................................................... 31 Figure 30: Distribution of Single Owner Investment, 2009-2019........................................................................... 31 Figure 31: System Investment, 1990-2019.............................................................................................................. 32 Figure 32: System Deployment, 1990-2018............................................................................................................ 32 Figure 33: Regional Investment in Submarine Fiber Systems, 2014-2018.............................................................. 32 Figure 34: Number of Systems by Supplier, 2014-2018......................................................................................... 39 Figure 35: KMS of Cable Produced by Supplier, 2015-2019.................................................................................. 39 Figure 36: Future Systems by Supplier................................................................................................................... 40 Figure 37: Systems Installed by Company, 2015-2019........................................................................................... 40 Figure 38: KMS Installed by Region, 2015-2019..................................................................................................... 41

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Figure 39: Planned KMS by Region, 2020-2022..................................................................................................... 41 Figure 40: Systems Surveyed by Company, 2014-2018.......................................................................................... 42 Figure 41: Survey Status of Planned Systems, 2019-2021...................................................................................... 42 Figure 42: Total Cable Fault Stories, 2013-2019..................................................................................................... 49 Figure 43: Total Cable Fault Stories, 2011-2019..................................................................................................... 49 Figure 44: Average Time Between Fault and Announcement, 2013-2019............................................................. 49 Figure 45: Average Reported Repair Time in Days, 2013-2019............................................................................. 50 Figure 46: Average Estimated Repair Time by Region, 2011-2019........................................................................ 50 Figure 47: Traditional Club Agreements Map......................................................................................................... 51 Figure 48: Private Maintenance Agreements Map................................................................................................. 52 Figure 49: Cableship Fleet Distribution by Company............................................................................................. 59 Figure 50: Cableship Fleet Distribution by Region................................................................................................. 59 Figure 51: Dedicated Cableship Purpose............................................................................................................... 59 Figure 52: Cableships Added by Year, 1997-2019.................................................................................................. 60 Figure 53: Age Distribution of Cableship Fleet...................................................................................................... 60 Figure 54: Landing Distribution by Region, 2015-2019.......................................................................................... 62 Figure 55: Landing Distribution by Region, 2020-2022.......................................................................................... 62 Figure 56: OTT vs Non-OTT Cable Systems, 2016-2019........................................................................................ 67 Figure 57: Systems Impacted by OTT Providers, 2015-2019.................................................................................. 67 Figure 58: OTT vs Non-OTT Cable Systems, 2020-2022........................................................................................ 68 Figure 59: System Investment Driven by OTT Providers, 2020-2022..................................................................... 68 Figure 60: Enterprise Public Cloud Provider Usage, 2019...................................................................................... 69 Figure 61: Enterprise Public Cloud Provider Adoption Rate, 2017-2019............................................................... 69 Figure 62: WTI and Brent Crude Combined 5-Year Price History, 2014-2019........................................................ 75 Figure 63: Offshore Oil & Gas Systems per Year, 2017-2022................................................................................. 76 Figure 64: Typical SMART Cable Design................................................................................................................. 77 Figure 65: SMART Cable Deployment Costs Over Time........................................................................................ 78 Figure 66: Systems in Service -Transatlantic........................................................................................................... 86 Figure 67: KMS Added - Transatlantic.................................................................................................................... 87 Figure 68: Contract in Force - Transatlantic............................................................................................................ 87 Figure 69: Systems in Service - Transpacific............................................................................................................ 92 Figure 70: KMS Added - Transpacific...................................................................................................................... 93 Figure 71: Contract in Force - Transpacific............................................................................................................. 93 Figure 72: Systems in Service - Americas................................................................................................................ 96 Figure 73: KMS Added - Americas.......................................................................................................................... 97 Figure 74: Contract in Force - Americas................................................................................................................. 97 Figure 75: Systems in Service - AustralAsia.......................................................................................................... 100 Figure 76: KMS Added - AustralAsia.................................................................................................................... 101 Figure 77: Contract in Force - AustralAsia............................................................................................................ 101 Figure 78: Systems in Service - EMEA.................................................................................................................. 104 Figure 79: KMS Added - EMEA............................................................................................................................ 105 Figure 80: Contract in Force - EMEA.................................................................................................................... 105 Figure 81: Systems in Service - Indian Ocean Pan-East Asian.............................................................................. 108 Figure 82: KMS Added - Indian Ocean Pan-East Asian........................................................................................ 109 Figure 83: Contract in Force - Indian Ocean Pan-East Asian................................................................................ 109

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LIST OF FIGURES (continued) List of Tables Table 1: Recent Multilateral Development Bank Projects....................................................................................... 33 Table 2: KDDI Cable Infinity Specifications............................................................................................................. 60 Table 3: Transatlantic Systems, 2001-Present......................................................................................................... 86 Table 4: Transatlantic Planned Systems................................................................................................................... 87 Table 5: Transpacific Systems, 2001-Present........................................................................................................... 92 Table 6: Transpacific Planned Systems.................................................................................................................... 93 Table 7: Americas Systems, 2010-Present............................................................................................................... 96 Table 8: Americas Planned Systems........................................................................................................................ 97 Table 9: AustralAsia Systems, 2014-Present......................................................................................................... 100 Table 10: AustralAsia Planned Systems................................................................................................................. 101 Table 11: EMEA Systems, 2014-Present............................................................................................................... 104 Table 12: EMEA Planned Systems......................................................................................................................... 105 Table 13: Indian Ocean Pan-East Asian Systems, 2010-Present........................................................................... 108 Table 14: Indian Ocean Pan-East Asian Planned Systems.................................................................................... 109 Table 15: Polar 2017-Present................................................................................................................................ 112 Table 16: Polar Planned Systems.......................................................................................................................... 112

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REFERENCES BP. (2018). BP Energy Outlook - 2018 Edition. BP. Retrieved from https://www.bp.com/content/dam/bp/en/ corporate/pdf/energy-economics/energy-outlook/ bp-energy-outlook-2018.pdf ExxonMobil. (2018). Exxon 2018 Outlook for Energy. ExxonMobil. Retrieved from https://cdn.exxonmobil.com/~/media/global/files/outlook-for-energy/2018/2018-outlook-for-energy.pdf Giorgio Biscardini, R. M. (2017). 2017 Oil and Gas Trends. Retrieved from Strategy&: https://www.strategyand. pwc.com/trend/2017-oil-and-gas-trends

Figure 16: System Surveyor Activity, 2013-2018........................ 17

LIST OF FIGURES Figure 1: WTI 30-Year Price History, 1988-2018......................... 7 Figure 2: Brent Crude 30-Year Price History, 1988-2018........... 7 Figure 3: WTI and Brent Crude 30-Year Price History, 19882018.............................................................................. 8 Figure 4: WTI 5-Year Price History, 2013-2018........................... 8 Figure 5: Brent Crude Five-Year Price History, 2013-2018......... 8 Figure 6: WTI and Brent Crude Combined Five-Year Price History, 2013-2018........................................................ 9 Figure 7: Henry Hub Five-Year Price History, 2013-2018........... 9 Figure 8: System Investment by Year, 1998-2018...................... 13 Figure 9: System Owners, 2013-2018......................................... 13 Figure 10: Number of Systems by Year, 2013-2018................... 14 Figure 11: Number of Systems by Year, 2018-2022................... 14 Figure 12: Systems by Region, 2018-2022................................. 14 Figure 13: Dedicated vs Managed Systems, 2018-2022............ 15 Figure 14: System Supplier Activity, 2013-2018......................... 16 Figure 15: System Installer Activity, 2013-2018......................... 16

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