2.3 Capacity Pricing: Perspectives of Alex Chase

2.3 CAPACITY PRICING

PERSPECTIVES OF ALEX CHASE

By any measure, the submarine fiber optics market is in a period of unprecedented growth. New cables are being constructed in record numbers. The Over-the-Top (OTT) content providers are crisscrossing the oceans with new cables, while other operators are extending the transoceanic network with regional and local systems deeper and deeper into remote areas that were previously underserved or even unserved by cables before.

In addition, new technologies such as Spatial Division Multiplexing (SDM) are being deployed that allow the cables to provide levels of capacity that were previously unheard of. Whereas just a few years ago transoceanic systems had a design capacity of a few dozen terabits per second, the newest generation of SDM cables have capacities in hundreds of terabits. So, we now have a situation where there is a cable-building spree delivering an unimaginable amount of capacity to the international bandwidth market.

It is easy to say, “Haven’t we been here before?” The answer is, “Yes, we have.” In the early days of the 21st Century we saw the same phenomenon: a cable-building spree coupled with new technologies delivering previously unheard-of amount of bandwidth (although back then the “huge” design capacity was in the dozens or hundreds of gigabits, not terabits).

And we all know what happened back then. The widespread availability of submarine cable capacity drove prices for bandwidth lower and lower. At the same time, bandwidth demand did not take off as expected, as the Internet struggled to come out of the dotcom crash and find its place in the global market. Many cable projects failed, and their owners filed for bankruptcy. The entire submarine cable market crashed in 2002 and it took almost a decade before the market gained the strength it had seen at the turn of the century. So, what are we seeing during the current building spree? The same pattern appears to be playing out. We have a large number of new submarine cables being built

So, what are we seeing during the and each has far more design capacity than earlier cables, just current building spree? The same like in the early 2000s. There is pattern appears to be playing out. We one notable exception, however, when comparing today’s have a large number of new submarine situation with the one in 2002. cables being built and each has far more design capacity than earlier In 2002, there was little demand for the vast amount of bandwidth these cables were cables, just like in the early 2000s. providing. Today, demand for submarine cable bandwidth is seemingly insatiable. This means that, even though there are tremendous amounts of new capacity coming online in the global submarine cable network, demand is strong enough to prevent bandwidth prices from crashing completely. Prices for bandwidth on a “per bit” basis have plunged dramatically. Today, buyers can purchase terabits of capacity on submarine cables for prices that would only have bought them a few gigabits in the early part of the century. The difference is that today’s applications use far more “bits” than in those early days. The bandwidth required for modern applications (streaming video, Internet of Things (IoT), virtualization, etc.) is huge and thus