It has now been accepted unilaterally that submarine cables are the backbone of global economy. Sprawled across the seabed, there are more than 350 submarine cable systems spanning 1.2 million kilometers connecting very close to 100 countries. They remain largely hidden for most of their span, yet for inquisitive minds they are truly fascinating from technology, economics and business perspective, for they enable trillions of dollars of trade and commerce everyday. Hence should Submarine Cables not be a relevant topic of discussion in the recently concluded Work Economic Form (WEF) annual event in Davos, for it resonates so well with the event’s long-held objectives - to improve the state of the world by promoting open borders, global cooperation, and free trade. It could be the melting pot for new submarine cable initiatives to be ideated, debated and group of likeminded decision makers identified that are willing to discuss further. This well intended food for though may resonate with the titans of submarine cable systems going forward.
Unarguably, the best thing about submarine cables is - there is no alternative to it. More-the-merrier seems to be the mantra with voracious appetite for data proliferating globally with 4 billion people yet to have Internet access. The all transforming Internet, the international communications that enables every form of globalization, and the data transport superhighways that connect countries, regions and continents would not have been possible without rapid development of submarine cables, in the last two decades. The world of submarine cables is transforming rapidly with data compiled by Telegeography indicating USD 8 billion investments lined up in 2019-21. This article attempts to identify the perceptible trends in submarine cables that are set to unfold in the next 3-years. Interestingly the 3-year window, 2019-21, will only lead to service readiness for cable systems that have left the drawing board in the last 3-years or few that will leave the drawing board this year, 2019.
- The supply-demand dynamics of submarine connectivity will become increasingly route specific. While it has been so from the beginning, looking at the 15 major submarine cables commissioned in the last 3-years and 20 major submarine cables on the way to operational readiness in the next 3-years, that is estimated to contribute more than 80% of the global submarine capacity, makes the trend more perceptible. Not all subsea routes are equally relevant and remunerative. The significance of major subsea routes varies based on - (1) demand growth rate, (2) YoY price erosion, (3) demand for diverse routes and (4) OTT preference. Interplay of these parameters will determine the extent of success for new cable systems and also economic life expectancy of the vintage or legacy cable systems retrofitted with upgrades. The top-10 subsea routes in best-fit descending order of significance based on the 4 parameters mentioned above would be (1) transpacific, (2) transatlantic, (3) Latam-US, (4) Intra-Australasia, (5) Australia-US (6) Marseilles-Egypt-Djibouti-India-Singapore, (7) Marseilles-East Africa and Portugal-West Africa (8) Brazil-Africa, (9) Brazil-Portugal, and (10) Singapore-Australia. This ranking merits healthy debate and could reshuffle in the course of next 3 years. There are however a sizable number of other routes in Caribbean, Nordics, Mediterranean and Pacific along with domestic routes and cable systems that connect the island countries, archipelagos and overseas territories, that fulfill growing connectivity requirements or provide first time subsea connectivity, but don't really influence global trends.
- OTTs and IIPs will continue to lead the march for new submarine cables.
2 (a) OTTs most visibly include Google, Facebook, Amazon, Microsoft and others in that category of cloud and content providers. For OTTs, aggressive venture with submarine cables is primarily an economic decision related to the scale of bandwidth usage and its growth trajectory, where it proves to be more cost-effective over a span 10-15 years, to build wholly-owned or co-owned cable systems. It also provides the independence to steer the design specifications, and adopt new technology innovations at never before speed and scale. Noticeably Google and Facebook are more aggressively investing as compared to Amazon and Microsoft, though the later two are expected to up the ante and announce participation in new cable systems. Interestingly OTTs are facing criticism for monopolizing submarine cables market, involving telco carriers very selectively or rather selfishly and making them subservient which defeats the purpose of democratizing cable systems to benefit a wider community of capacity consumers. This criticism it seems could breathe new life to consortium cable systems led by group of telco carriers, that has been looked at skeptically for not being flexible or amenable to open access cable systems.
2 (b) While “OTT” as terminology is well understood, its time Independent Infrastructure Providers or “IIP” also gains similar familiarity for the new era of submarine cable leadership they have ushered. The IIPs are not legacy telco carriers and only focused on providing subsea connectivity in a manner that does away with the challenges faced earlier. IIPs are developing submarine cables with distinct geographic focus and at speed never seen before with consortium cable builds. The differentiating factor or IIPs is, they are led by highly recognized industry veterans turned maverick entrepreneurs. There is however a clear demarcation emerging, that of Tier1 IIP and Tier2 IIP. Tier1 IIPs include RTI, Seaborn Networks and Aqua Comms that are developing multiple transoceanic cable systems. Following their heels are nearly 12 Tier2 IIPs, that are focused on smaller geographic footprint or one subsea route. Collectively they developing nearly 30 submarine cables. While 5 cable systems are operational, the rest are expected to be RFS from Q4 2019 onward, reaching a crescendo by Q4 2020, with some lined up for 2021. Some of the Tier2 IIPs seem to slip in raising funds, arrange financing or facing other challenges thereby raising apprehension on submarine cables they are developing.
2 (c) OTT players and IIPs individually, jointly and in consortium with telco carriers are set to own, co-own and operate nearly 40 submarine cables by end of 2021. OTT players other than the top-four that have been apparently dormant so far along with new IIPs armed with equity investment are expected to join the race to build new submarine cables in 2019-20. A notable aspect in this context is, OTTs and IIPs in most cases seem to get along very well, possibly because the OTT players are also IIPs in their own right. This shouldn't give an impression that telco carriers will loose their relevance. While there are indications of withdrawal of telco carries in US and Europe, in other geographies they continue to play an activity collaborating closely with OTTs and IIPs.
- Accelerated transition to 100G, 200G and even beyond. With OTTs set to progressively migrate capacity inventories to cable systems where they have full or part ownership, the avalanche in capacity lease witnessed in the last 3-years will come down in the next 3-years with increase in end-of-term contract terminations. That’s an inevitable heart wrenching truth that telco carriers are well aware of. However the good part is, growing need for additional diverse routes will limit termination of capacity holding in most of the major subsea routes. This is likely to stimulate the market for 100G and even 200G uptake, as majority of submarine cables have implemented 200G upgrades with 96x200G per fiber pair becoming a standard configuration. Growth in 100G evident in transatlantic and transpacific routes in 2018, was primarily lead by OTTs. In 2019 the trend will gain traction across more subsea routes and increasing number of Tier1 and Tier2 telco carriers and large enterprise joining OTTs to buy 100G links.
- Closer integration between submarine cable systems and terrestrial backhaul networks. Customers in their private, public, hybrid and multi-cloud journeys have IT estate hosted in datacenters of their choice. Hence subsea connectivity is leaning more towards connecting captive, cloud and co-location datacenters. Further customers seriously detest administrative and operational burden of managing backhaul associated with subsea connectivity. They expect one-order-one-SLA for rack-to-rack subsea connectivity without exclusions that become performance pitfalls. When this is contextualized with nearly 40 new submarine cables of varying spans will be commissioned in the next 3-years, nearly all of which will aim to provide PoP-to-PoP connectivity, indicates growth momentum for terrestrial backhaul networks. OTTs and IIPs are already investing in terrestrial backhaul that will stimulate growth in dark fiber connectivity from the CLS or datacenter hosting CLS. Thus purpose built metro and long haul dark fiber networks with high fiber count cables connecting CLS, datacenters hosting CLS and other datacenters will gain traction. While OTTs are focused on captive consumption, IIPs will increasingly go for dark fiber lease to create capacity breakout facility in premier datacenters. While this trend is already in action in US and Europe, with APAC also gaining traction in Singapore, Hong Kong, Tokyo and Sydney, more cities are expected have dark fiber networks built in 2019-20.
- Increase in collaboration between submarine cable operators and datacenter providers. Increasing number of submarine cables will land directly in carrier-neutral datacenters and progressively in cities beyond the usual suspects in developed markets. Interestingly a hybrid approach seems to gain traction, particularly in transpacific. Here in Singapore, Hong Kong, Tokyo or Sydney the cable lands in carrier-neutral datacenter, but in US it lands in IIP owned CLS. This will keep alive the debate on short-term and long-term benefits of landing submarine cables directly in datacenters as compared to independent CLS owned and operated by telco carrier, IIP or OTT. Some industry veterans advocate that a CLS provides greater independence and flexibility for 25 years in lieu of one time hardship. Furthermore it is capable of landing 4-6 submarine cables. Thus CLS constructed by IIP can be monetized to offer submarine cable landing as-a-service. However majority of IIPs are not expected to have such business roadmaps and decidedly stay focused on landing cable system(s) they are deploying. With this trend set to gain further traction, the distance from the expected landing point of planned submarine cables would be a major factor for site selection of new multi-tenanted datacenters, at least in select cities in developing markets with sea shores.
- Steady growth in demand for subsea connectivity service beyond 100G or 200G capacity lease across major subsea routes. This alludes to spectrum and virtual fiber pair that emerged as next-gen subsea connectivity service in 2017 with several procurement contracts and consortium agreements signed in 2018. However only a handful were actually implemented, for the number of cable systems operational with such services were few. With increasing number of 100 Tbps cable systems with 12-24 Tbps per fiber-pair with 8/6/4 fiber-pair set to become RFS in 2019-20, where such services are offered as primary service offering, terabit-scale capacity lease/ownership with spectrum and virtual fiber pair will gain wider traction. With spectrum lease, the option of managed spectrum will gain increasing preference where the SLTE is owned and operated by the IIP with on-demand capacity activation provided as-a-service. This provides advantages of spectrum ownership without operational responsibilities of service provisioning and managing the SLTE. OTTs and Tier1 telco carriers did go for half-fiber-pair and quarter-fiber-pair ownership and gained consortium membership in newly announced cable systems. This trend with get strong tailwind from innovations in SLTE modem, digital coherent optics and system management software for fluidic allocation of optical spectrum.
- Advent of 400G wavelengths. With majority of cable systems that want to remain fit-for-business have completed 200G upgrade that depending on cable vintage usually varies from 60x200G to 120x200G per fiber-pair, with 96x200G being common. At the same time 400G single wavelength transmission across transatlantic span (~6500 kms) was demonstrated by Acacia with the MAREA cable system in December 2018 as major technology breakthrough. The transpacific cables (~10,000 kms) need to wait for 2 more years for optical transmission technology to progress to make 400G upgrades technically feasible. Technical feasibility alone is not sufficient, it needs to be commercially feasible too. It is expected that new cable systems designed in 2019-20 with RFS in 2021-22 will pay due attention to technical and commercial aspects of 400G upgradability.
- Marseilles-Egypt-Djibouti-India-Singapore or Europe-India-Asia subsea route with spiraling demand from OTTs is expected see 3-4 new cable systems announced in 2019. SMW6, as successor to SMW5, is expected to be one of them. The second is expected to led by Reliance Jio along with Google, Facebook and China Telecom. The third is expected to be led by an India centric IIP. These will be propelled by expansion roadmap that likes of Google, Facebook, Amazon and Microsoft have for Middle East and Africa, and growth roadmap for India in the next 3-5 years.
- Growth in short length unrepeatered submarine cables. There is noticeable growth in point-to-point unrepeatered submarine cables between cities in adjoining countries and even within a country with subsea span shorter than 500 kms. These are characterized by high fiber count that ranges from 48 to 176 fibers, though it could go even higher. The routes include London/Dublin-Paris, Toronto-Buffalo (NY), Wall (NJ)-Long Island and Malaysia-Singapore. They offer purpose built connectivity with Dark Fiber at scale as the primary service offering. Some of these cable systems like that being built in Nordics by Eastern Light are festooned (serialized multi-hop) submarine cables and land in multiple countries.
- The count of fiber-pair in submarine cables, repeatered cable systems for avoidance of doubt, is expected to increase from the current maximum of 8-fiber-pair to 12-fiber-pair and even 16-fiber-pair. New cable systems are expected to evaluate the cost effectiveness of higher count of fiber-pair with respect to increased cost of repeaters, one of the most expensive element of submarine cable system. However improvements in repeater design with lower power consumption in silicon photonics and more compact form factor is expected to make the economics work. Understandably ASN and NEC have technical designs available for 16 fiber-pair systems. Without any prejudice whatsoever, Huawei Marine is also believed to have such system designs. However as a trend it’s still to gain traction and prove its merit. The discussions and debates are expected to precipitate in the course of 2019 and pave the way for a new industry trend to unfold. Hence the first 12 or 16-fiber-pair cable is unlikely to be operational before 2022. That’s possibly the right time as average data consumption per active wireless broadband user globally will cross 20GB per month.
- Progressive software defined network automation with respect to end-to-end service provisioning that spans packet optical platforms of multiple network providers is set to have deep rooted play in subsea connectivity that has been plagued by delivery lead time mismatch between the wet segment and terrestrial backhaul, further compounded by disjoint SLA. Further Tier1 customers are seeking self-service portals for just-in-time capacity activation from their inventory (e.g. spectrum) and the rest of service lifecycle management. Thus new software platforms overlaid on OSS/BSS stacks for inventory management, resource allocation, provisioning and performance analytics will redefine how Tier1 customers order, provision and manage their subsea connectivity with on-demand scalability. IIPs are clearly expected to take the lead in this direction as they have started greenfield without any legacy infrastructure. The impact will be evident in the later half of 2020 when more than 20 cable systems owned or co-owned and operated by IIPs will be RFS.
- It is not necessary that innovations are restricted to optical transmission technology for transoceanic spans and associated network equipment. The regulatory framework of individual countries has to evolve in order to accept new market realities with new massive scale connectivity infrastructure providers that are poised to transform market dynamics, and accordingly redefine policies and guidelines for them to simplify and enable infrastructure development. Essentially who can build submarine cables, who can build, own and operate CLS, primarily for captive consumption needs to be revisited. This aspect will play a big role with respect to submarine cables initiatives where Google, Facebook, Amazon and Microsoft are participating, as they intend to build CLS of their own and not share CLS build by telco carriers. They already own and operate CLS in the US and making steady progress in a focused batch of countries. In the next step is expected to be joint ownership of CLS along with telco carrier co-involved with the cable system. Soaring ambitions is set to go further, with OTTs going for infrastructure license in select countries to independently own and operate CLS.
- Accelerated obsolescence of submarine cables that were commissioned more than 10-15 years back will be more perceptible. Majority of such cable systems are nearing or have reached the limits of upgradability, in their efforts for deferred obsolescence. Furthermore, the upgraded capacity of the entire cable system remains a fraction of what 1-fiber-pair can carry for cable systems operational or to be operational in 2017-21. Add to it the much superior economics of turnkey construction and maintenance of the newer submarine cables that leads to competitive pricing. The obsolescence is expected to be more pronounced for large consortium cables that are monopolized by the landing parties in the respective countries and not focused on providing new services of spectrum and virtual fiber pair. It would also include submarine cables with single telco carrier ownership, as the telco carrier alone will responsible to sell subsea connectivity services. The expected outcome of this trend will be overwhelming preference for open access cable systems being developed by IIPs.
- Along with exciting developments an uneasy truth will become evident in 2019-20 - not all cable systems will see light of the day. It is expected to happen for some of the less promising subsea routes and even the overcrowded subsea routes. Data substantiated revenue forecast is the bedrock of business case for new cable systems. But that's not all that attracts equity investors to commit capital infusion to submarine cables or raise debt finance. The entrepreneurial conviction and career track record of the leader/leadership-team of the IIP who put their credibility on the block also plays a very important role. Where it is not strong enough, the proposal may not appear convincing to equity investors or qualify for debt finance. Hence despite enthusiastic start with marketing blitz some of the submarine cable initiatives will either slow down or deferred indefinitely to be revived later for lack of funding. In some cases delay in obtaining permits with geopolitical sensitivity can lead cable systems to remain floating as near-complete for 2-3 years.
Collaboration between OTTs, IIPs, Tier1 telco carriers, datacenter providers and backhaul network providers will continue to transform the subsea connectivity landscape faster than ever before. Technology innovation from submarine cable systems vendors like SubCom, ASN, NEC and Huawei Marine in conjunction with likes of Ciena, Infinera, Xtera and Acacia will also play a major role. It’s worth revisiting these trends in Jan 2020 and evaluate how many and to what extent did they come true. I would also urge the domain experts of submarine cable ecosystem to provide comments on these trends with agreement or disagreement. The fascinating world of submarine cables propelled by marvels of technology in transoceanic optical transmission that lies hidden on the ocean floors enduring harshest conditions for as long as 25 years is projected to be worth $23 billion by 2023, and will make its unmistakable mark in the face of digitally transforming global economy.