Time to Panic in the Atlantic?

June 23rd, 2009 by · 5 Comments

Telegeography put out a nice article yesterday about the state of transatlantic bandwidth.  While supply and demand have been largely in balance over the last few years, they point out that pricing remains too low to justify new cables and the current systems will hit their theoretical maximums in 2014.  When the bubble burst, the dollars it took to build these cables was mostly written off.  The ‘balance’ right now is on an incremental basis, when you add in the costs of actually laying a new cable across the Atlantic the numbers don’t add up.

They do add up in the Pacific, because pricing there is still much higher.  That’s why TPE got built and why other projects seem to have legs there.  But in the Atlantic, an unstable situation is brewing.  Traffic is growing steadily and pricing is holding firm, but no more fiber is coming anytime soon.  Economics 101 says that means either pricing must go up or technology must advance in ways that change the economics.  Are we due for a shortage? 

Actually, it wouldn’t be a shortage.  What we have right now remains a glut, we just don’t call it that because it isn’t as bad as it used to be.  If people aren’t willing to pay pricing for bandwidth that will support a new transatlantic cable, then it’s just not going to get built.  It will stop being a glut when transatlantic bandwidth can be sold for more than it really costs to build, not what it cost to buy out of BK court.  So such a shortage might actually be what we need to bring supply and demand back into a real balance.  Of course, it could overshoot the mark, but it wouldn’t be the end of the world.  People would simply have to find ways to utilize their bandwidth more efficiently for a while.

But I don’t actually think it will work out that way.  Technological advancements such as 40G and eventually 100G on submarine cables may be unproven and problematic today, but I submit that is largely because nobody is really trying.  After all, if someone were selling it today, it wouldn’t really be needed yet would it?  At some point though, the prospect of rising prices and a looming shortage become powerful incentives.  Before prices rise too far, someone will work the kinks out of the next generation of equipment – and upgrading has a somewhat shorter time scale.  That will not only push the ‘crisis’ further into the future, but it will also increase the total earning power of potential future cables.  We’ll get back into balance eventually, if there even is such a thing in this business.

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Categories: Undersea cables

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5 Comments So Far

  • Dave Rusin says:

    Maybe this go around will be more economically rational … rising prices may not necessarily be a bad thing. Rising prices with rising profits attracts investment.

    Someone has to pay for those proverbial “dumb pipes” … when they are short in supply, they don’t seem too dumb after all.

  • Frank A. Coluccio says:

    Rob, I’m inclined to agree with your final view, that technological advancements will yield more than what is being openly suggested today. A case in point, three years ago I was approached to do diligence on a PMDC (polarization mode dispersion compensation unit) when it was thought that the anomoly was too intractable to tame through conventional, passive methods. The solution I was looking at worked as advertized, but for reasons that don’t matter here it languished and never went anywhere. Lo and behold, during the interim PMD has been addressed and overcome a half-dozen different ways and now we have single wavelengths carrying 100 Gbps as opposed to using 10 or 25 wavelengths to achieve the same end.

    On another point, you have very likely come out with a gem of a one-liner in your post (which made a lot of sense to me in the context written, btw, but taken out of context is something else again) and don’t even know it yet. I’m going to quote you on it and give it an honorary place in my collection of Yogi Berra quotes:

    “If someone were selling it today, it wouldn’t really be needed yet.”


    • Rob Powell says:

      Haha, my theory is that anybody who writes enough public material will eventually manage to produce such sentences. But to be placed alongside the great Yogi… I don’t think I’ve reached that level yet…

      “If people don’t want to come out to the ballpark, how are you going to stop them?”

      • Frank A. Coluccio says:

        I’m glad to see you’re a good sport!

        The item below addresses the point I made earlier concerning advancements in single-wavelength capabilities bringing the state of the art to new levels:

        Verizon Business Completes 100G Trial With U.K. Research and Education Network – May 27, 2009

        A snippet:

        In October 2008, Verizon and Nortel proved 100G transmission could perform with better tolerance for signal distortion than typically found in today’s standard 10G wavelength. A month earlier, Verizon and Nokia Siemens Networks announced they had successfully transmitted data at 100G on a single wavelength for more than 1,040 kilometers, setting a new distance record over deployed fiber and demonstrating better performance than conventional transmission. In November 2007, Verizon and Alcatel-Lucent transmitted a commercial information package – a FiOS video stream – between Tampa, Fla., and Miami at 100G for the first time over a live network.

  • Zed says:

    With regards to rational pricing, what percentage range of buildout CAPEX would yearly OPEX for a subsea cable system reasonably be expected to be for a new build? Buildout CAPEX per kilometer subsea cable system seems to be ranging between US$30 000 to US$50 000 on average. Given an OPEX estimate and by selecting a ROI some modelling could be done regarding the rational pricing of (IP) transit.

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