Apollo MD Richard Elliot recalls the huge changes he has witnessed in telecoms over the past 10 years, from the demise of bandwidth trading to the rise of Ethernet. Guy Matthews reports.
Elliott was executive chairman of Band-X, a company he co-founded in 1997 as an exchange for the buying and selling of communications capacity.
“The telecoms market of 10 years ago was a very different place,” he recalls. “There were new players like Dynegy and Enron, and quite a few established carriers creating trading departments as well. The industry was at an extraordinary point in its development. It was being driven by privatisation and deregulation, by technological change – the internet being the most obvious example – and by being at the end of one of the longest bull markets the world has ever known.”
The most notable aspect of these boom years, Elliott says, was the growing influence of private equity, with the result that huge amounts of money were poured into telecoms: “Much of this investment was based on the belief that changes in demand would happen in a far shorter timescale than they could ever possibly have done,” he says.
By summer 2001, post-dot com crash, he recollects that things had gone very quiet for bandwidth traders and the telecoms sector in general: “Then along came September 11 and knocked the last bit of stuffing out of the market’s confidence,” he says. “Some tough years followed, at the end of which we were able to sell Band-X as a profitable business. I was glad to have been able to see it through to an honourable conclusion.”
After Band-X, Elliott took time out to work with the Institute of Cancer Research, on its investment and property committee. He was at the same period a non-executive director at Apollo, which turned in due course into a full-time executive role as MD.
“There are currently 14 different cables across the Atlantic, and we have two of them – from London to New York and Paris to Washington DC,” he says. “Luckily, ours are the most modern and handle around 30% of the traffic between the Americas and Europe.”
The Atlantic route is not one, he acknowledges, with a lot of fat to play with: “The business has got to be tightly run and volumes are critical,” he explains. “Success is critically dependent upon taking full and timely advantage of the cost benefits conferred by new technology. The smallest circuit we sell is 10Gb wavelengths, so this is an ultra wholesale business. In 2003, we could do 80 of those wavelengths, and can now do the equivalent of 288 wavelengths, using 40Gb technology.”
It is a fact of global subsea cable economics that the rate of growth in potential capacity, thanks to technological advances, can at times exceed growth in demand – in the instance of the Atlantic route acting as an effective bar on the building of new systems.
“Barring illogical moves by other parties, I’d say the Apollo cable has a decent lifespan ahead of it,” claims Elliott. “It’s a fool who’d say ‘Nobody will build a new transatlantic cable in the foreseeable future.’ However, the motive to do so for now would need to be other than a pure economic one.”
Elliott views many of the dramatic changes that have rocked global telecoms in the last decade as ultimately for the good: “One of the notable features of the last 10 years has been the sad demise of the wholesale voice business, and I don’t miss it,” he says. “That market has had so many problems with bad debts and fraud. In the submarine sector, we are lucky to serve good customers who pay on time.”
He says he now watches the rise of Ethernet exchanges “with interest”: “Although I fear their success may only last as long as there are multiple different flavours of Ethernet,” he qualifies. “I’m also intrigued by the new forces in the market – Skype, Facebook, Gmail, Yahoo et al – all of which will soon have full service media-rich platforms including voice and video, all achieved in such a short space of time.”
Another area of intriguing novelty is, says Elliott, the content delivery market: “It’s small in terms of revenue, but I expect that much of what can be encompassed today by the term CDN will form the building blocks of a new two-tier internet,” he envisions. “Such a two-tier structure might over time supply the significant demand for financial capital to improve both the customer access side of the internet and also to fund investment at the core. The free ride enjoyed on the capital of those injudicious private equity investors in 2000 is coming to an end. All in all, we are privileged to live in exciting times.”