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The Submarine Cable Conundrum

Paul Budde

The boom and bust cycle of submarine cable deployment can be traced back to the 19th century. However it doesn't look as though we have learned a lot in those 150 years.

One of the problems is that it generally takes two years to plan these international projects and two years to deploy the system. And even before the process commences there are often an initial two years when the potential builders are contemplating their plans. This means that new cables need to be planned at times when there is little demand for new capacity.

For those last 150 years most of these international cables have been deployed by the incumbent telecommunications companies of the nations that profited from such deployments. They shared the costs and through non-compete agreements they could use the capacity within their traditional national monopolies. Being good engineering companies they also allowed for plenty of redundancy and even on top days such as Christmas and Mothers' Day they still had plenty of spare capacity. However they argued that they couldn't use that capacity to lower their international prices as that would make the network unreliable.

So capacity often remains artificially restricted in order to keep the prices high. Most of the time when new projects are approaching realisation the existing player(s) starts dropping the price — the boom and bust cycle.

With the arrival of the Internet in the mid-1990s there was a sharp increase in the demand for capacity and as the cable operators stuck to their monopolistic pricing private joint ventures started to enter the market. However these companies were severely affected by the dotcom crash as they had built their business cases on the future growth of the Internet.

As it turned out the dotcom crash was just a blip on the radar and Internet use has continued to grow exponentially — and with the arrival of broadband this is set to continue. But it is still a business of forward planning and coping with the competition of the existing cable operators.

So if these new systems are planned at the wrong time (no significant increase in demand) then new players get into trouble (2000). But at the right time there is sufficient demand to ride the next wave.

Australia and New Zealand are in a unique position. They are English-speaking islands and the main countries they connect to (culturally and linguistically) are the USA and the UK, so there will always be a high demand for long-distance connectivity. In places like Japan, Korea and China, however, the traffic stays mainly within the country (linguistic boundaries) and so there are few international capacity problems.

With the government sponsored national broadband plans in these countries (the NBN and the UFB) there is the potential for many new business opportunities. For examples it is envisaged that overseas companies could use the ubiquitous cheap and fast broadband networks available in these countries for the use of data hosting services. However this will not happen if they don't have good international links. If Australia and New Zealand get their fast broadband networks off the ground it will create an enormous incentive to also invest in international capacity.

So this means it is time to prepare to catch the next wave.

By Paul Budde, Managing Director of Paul Budde Communication – Paul is also a contributor of the Paul Budde Communication blog located hereVisit Page
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