Ahead of the curve: Where east meets west
International carriers and players are increasingly looking to Turkey as a hub for traffic between East and West. Gareth Willmer looks at the market and the wider Eurasia region's potential as a transit point.
Turkey’s status is growing as a transit route for voice and data traffic between Europe and Asia, with international players showing a growing interest in a market that appears to have all the ingredients to establish itself as a significant inter-regional transit hub.
Gulf Bridge International (GBI) announced in March that it had completed and activated its North Route terrestrial fi bre-optic link between the Gulf and Europe via Turkey, travelling from Iraq and then onwards through to Frankfurt. Other terrestrial cables are also
being rolled out that pass through the country and act as inter-regional conduits.
Alan Mauldin, research director at telecoms market research firm TeleGeography, describes Turkey as both being strategically postioned as a link between Europe and the Middle East for international transit as well as in possession of a burgeoning domestic
market.“Turkey is a big domestic market in its own right and is growing very fast,” he adds.
TeleGeography cites Turkey’s potentially very sizeable but untapped broadband market, with a huge population of about 74 million as at the end of 2011. The analyst fi rm estimates that the country had almost 8 million broadband subscribers at the end of 2012, but a household penetration of below 50% that indicates plenty of room for expansion. Turkey also has a rapidly growing economy, which is becoming increasingly open to foreign investment. “I personally think Turkey will play a very important role when it comes to transit traffic,” says Mohamed Elagazy, SVP of strategy, business development and international relations at GBI. “Turkey is a big market and there’s a need for the big three operators to build a mesh to serve customers.”
He adds that: “It’s a developing country and an emerging market. From an economic point of view, the growth is unheard of. This reflects immediately on the telecoms business – not just voice, but also data.” One reason for Turkey’s growing appeal is the country’s strategic positioning that allows it to act as an alternative to traditional subsea cable routes.
Elagazy points out that little more than 90% of traffi c between Asia and Europe currently passes through the Red Sea corridor via Egypt and that big operators started posing questions in recent years about so many cables travelling through a single route. Cuts
occurred to cables in the region in 2008, while the desire to search for alternative routes was also heightened by the Arab Spring. Many companies started forming cable-based alliances in the Middle Eastern region a few years ago and Elagazy points to Turkey as a common factor in planned roll-outs.
These alliances have been deploying several other terrestrial networks to offer alternatives to the Red Sea route, including the Regional Cable Network (RCN) and the Jeddah-Amman-Damascus-Istanbul (JADI) network that pass through Turkey. Some projects have however faced delays due to ongoing political instability in some Middle Eastern countries, such as the RCN cable in Syria.
Nonetheless, these multiple projects show how Turkey is valued as a transit market and the potential it may have if and when these challenges are overcome. Murat Erkan, general manager of Turkcell Superonline, which is involved in the RCN project, says: “We view the RCN project we created through partnerships with seven operators from fi ve countries in the region as the most important part of our strategy to convert the Silk Road into a fi bre road. When the project comes to fruition, we will provide access from Istanbul to the Middle East via a protected and backed-up terrestrial route.”
And Elagazy believes that “once the issue in Syria is solved, it will put Turkey in a totally diff erent league.”
Centre of attraction
Erkan describes Turkey as an “attraction centre” for telecoms in recent years, with new routes transforming Istanbul into “an important global network intersection point for transit data and internet traffic”.
He points in particular to the rising number of global operators establishing IP transit PoPs in Istanbul, with Turkcell Superonline striking recent deals to cooperate and host PoPs with partners such as Tata Communications, Inteliquent and Deutsche Telekom International Carrier Sales & Solutions (ICSS).
“Within a very short period of time, we are going to experience a market where transit traffi c over Turkey is increased and many global networks are clustered in Istanbul due to their huge traffic capacities,” says Erkan.
Miles McWilliams, head of global sales for IP and CDN at Deutsche Telekom ICSS, which established its new Istanbul PoP in January, points to signifi cant investments going into connecting the Middle East with Europe. He says: “What we see today is a big chunk of traffic leaving Turkey going to Germany and Western Europe. We want to take part in that boom.”
Erkan adds that Turkcell Superonline provides nine cross-border connection points to neighbouring countries and says: “We are building a digital motorway that has seamless, fast and state-of-the-art technology.” One company cooperating with Turkcell Superonline as a local transit partner is GBI, which also partners with Turk Telekom through its Pantel division. Elagazy says partnerships with two major companies in Turkey that both reach the borders gives GBI diverse routes through the country. He says one advantage of its route through Turkey and the Gulf countries is that it provides lower latency than some other routes, while he contends that Turkey has a far better regulatory and competitive regime than some of its neighbouring countries that leans towards a European model.
“There’s no doubt that Turkey is ahead of its neighbouring countries,” says Elagazy, adding that “upgrades to networks in Turkey are really amazing”. Elagazy says the market’s growing attraction to businesses bolsters its position: “There’s a need for good prices and quality connections for major enterprises.”
Elagazy says one advantage of the GBI network is its carrier-neutrality, in contrast with consortia models. The company is also differentiated by its ability to provide diversity through both the Turkish terrestrial route and a subsea route via the Red Sea corridor, which Elagazy says provides the opportunity to transfer traffic in the event of a cable cut or other hazards, although he believes Egypt is likely to remain the main route.
Route to diversity
New developments therefore indicate that Turkey is becoming increasingly viable as a terrestrial transit hub, with more diverse and higher latency routes for international carriers. It’s not all plain sailing though. Many refer to the grip that Turk Telekom still exerts despite liberalisation, although the market is opening up through competition from players like Turkcell Superonline, fixed-mobile substitution and an improved regulatory regime.
Wright says Interoute has seen growth in business out of Turkey since extending its fibre-optic network into Istanbul three years ago, but that this has not been as rapid as anticipated even though everything is there for the market to succeed. He says by way of comparison that many times the capacity is being sold out of Moscow, where Interoute established itself just six months earlier.
“The biggest issue is that local tails in Turkey are phenomenally expensive,” says Wright. But he believes the incumbent will have to respond to price regulation over time, while the GBI move should help the transit market open up. “It’s yet to reach the top echelon,” says Wright. “It seems to be a little bit of a slower burner compared with other places, but we’re still positive about it.” One key to unlocking Turkey’s full potential could be its push towards EU accession. “[Turkey is] doing quite a lot to fulfil conditions and one of these conditions is telecoms liberalisation,” says Matthias Maurer, head of product management for internet and content at Deutsche Telekom ICSS. “It’s on the agenda for the Turkish government to become an international hub. I guess they will do everything they can to boost that.”
Elagazy says separately that it could take a year or two for the route via Turkey to become competitive with existing routes. He believes meanwhile that transit prices on the GBI terrestrial route will be 20-30% higher than those on the Red Sea corridor by early 2014, but could adjust to the same level by 2015. “It’s definitely going in the right direction,” says Elagazy about Turkey. “It’s a matter of time before it’s a fully open market.” He says GBI is receiving significant interest from large operators, government organisations and integrators about its North Route cable. GBI has already received big orders on the route and expects new ones to be placed by the end of the year.
Once Turkey establishes itself, it could eventually contribute to a knock-on effect on other Eurasian markets to further connect East to West. Elagazy says GBI is keeping an eye on other countries like Ukraine and Azerbaijan, with the latter potentially playing a positive role from a geographical perspective. Turkcell Superonline’s Erkan also says Turkey plays a key role in shaping the terrestrial fibre route that reaches Central Asia and the Caucasus via Georgia.
“We would like to provide all kinds of support in the making of new cable systems stretching towards Central Asia with fibre infrastructure around the Georgian and Iranian border of Turkey.”
Meanwhile, Peter Evans, senior researcher for Asia at consultancy BuddeComm, says there will be a push over time to increase the capability of countries in general in the Eurasia region to carry traffic between Europe and Asia.
He says the development of further transit networks in the region, aside from those such as the Trans Asia Europe (TAE) cable, “will depend to a large extent on the individual countries and the priority they give to joining in the cooperative ventures that drive this type of cable project. Developing markets like Tajikistan, Uzbekistan and Kyrgyzstan have limited capacity to participate fully in these ventures at the present time; but this will change over time and in due course we can expect a comprehensive network of cables linking into major backbone infrastructure across Eurasia.”
Evans adds: “One of the big attractions of the cables following the Eurasia route is the characteristically low latency performance that they provide for traffic transiting through and between Europe and Asia.