Ahead of the curve: Breaking the shackles of distance and scale
Island nations of the Pacific are looking to ride a fresh wave of submarine cable activity. Capacity examines the opportunities.
Broadband rollouts and digital economy are driving submarine cable investment in Oceania. Demand for international bandwidth in the region grew 47% annually between 2007 and 2012 [see Figure 1], according to TeleGeography, although Australia accounted for about 90%.
With deployment of high-speed fibre underway to homes across Australia and New Zealand, activity has centred on new mainline submarine cables. Telecom New Zealand, Vodafone, and Telstra signed an agreement earlier this year to co-invest in the Tasman Global Access (TGA) system, with construction expected to complete in 2014.
Further proposals include Subpartners’ systems to connect Australia to the US (APX-East) and to Indonesia and Singapore (APX-West), as well as Intelia’s Hawaiki cable to connect Australia, New Zealand, Hawaii and the US. These mainline cables include the ability to install optical branching units and spurs, enabling islands along the cable routes to connect to the main trunk.
The prospect of new international cable connectivity has galvanised industry efforts to improve the opportunities available to the 9,000 smaller islands in the Pacific, many of whom missed out on the fibre boom at the turn of the millennium.
Solution of choice
Oceania includes not only some of the remotest parts of the world, but also the least connected. Of the 21 civilian-inhabited sovereign states and territories worldwide not served by international fibre connectivity, more than half are in Oceania. In addition, less than 1% of the population in the Pacific Islands has access to a reliable internet connection.
“Penetration of fixed broadband in these islands is increasing and that is driving a higher level of demand for better access to internet services and obviously demand for a lower cost base,” says Jim Clarke, Telstra’s head of global wholesale. “However, the tyranny of distance associated with some of these locations and the relative low level demand has meant to date they have been served by relatively high cost satellite operations.”
The region’s dependence on satellite and the fact it competes for bandwidth with other markets in Asia means its internet connectivity costs are among the highest in the world. According to the World Bank, a 256kbps broadband internet connection costs $650 per month in Palau, and $430 in Kiribati. Satellite services from the O3b consortium promise faster and lower cost broadband using medium earth orbit satellites. But while O3b recently secured contracts with the American Samoa Telecommunications Authority (ASTCA) and Telecom Cook Islands, it is submarine cables that remain the solution of choice.
"There are some initiatives such as O3b, but they are yet to fly, and so it is not yet clear which islands their capabilities will suit,” says John Hibbard, CEO at Hibbard Consulting. “As a consequence, island focus remains on whether they can get a cable because of its longevity, abundant capacity and potential as a lower cost solution – and one where the solution is structured such that funding may be available.”
A significant factor is that many of countries in the Pacific are typically fewer than one million people. Hibbard says: “Fiji has around 800,000; Solomon Islands about 500,000; countries such as Vanuatu, New Caledonia, and French Polynesia about 250,000; while Tonga has 100,000. So the economics of trying to fund a submarine cable and proving the business case is challenging.”
Oceania also includes ‘micro states’ such as Kiribati, the Republic of the Marshall Islands (RMI), and the Federated States of Micronesia (FSM), which have populations of around 100,000; the Cook Islands and Palau, with populations of around 20,000; and Nauru and Tuvalu, with populations of only around 10,000.
“The island economy doesn’t support the business case for a cable build of its own in traditional economic terms,” says Tim Stronge, an analyst with TeleGeography. “On the other hand, if you look at it in terms of paying several hundred dollars per MB upstream for bandwidth via satellite, then it does begin to make more sense economically. There have also been various government agencies willing to pitch in to make these projects more feasible.”
New Caledonia for example, has received funding from the French government, and fixed broadband and 3G and 4G LTE is being deployed. Intelia is delivering the latter, and has partnered with Australia’s Telstra for Global IP Services. “These islands are best served when it’s a combination of public money plus private investment,” says Telstra’s Clarke.
According to consultant John Hibbard, the involvement of local institutional investors is a growing factor: “The national superannuation funds in Fiji, Papua New Guinea, the Solomon Islands and Vanuatu now see submarine cables as both an investment for their members and a means to support the development of their country. So that’s a double whammy.”
Cable activity builds
Since 2010, the Asia Development Bank (ADB) and World Bank Group have aided the provision of submarine cables. They also initiated the Pacific Regional ICT Connectivity Project. Under the first phase, an 826km submarine leg linking Tonga to Fiji and connecting to the Southern Cross cable is to be commissioned in July. A second phase linking Solomon Islands to the existing Pipe Pacific Cable-1 cable running between Guam and Sydney should complete next year. A third phase is exploring connectivity between Samoa and Fiji.
The collapse of the Pacific Fibre project emphasised the challenges faced by private investors in markets served by a handful of operators controlling both the retail markets and existing international infrastructure. However, other investor-led proposals aim to pick up where Pacific Fibre left off. With a scheduled ready-for-service date of Q3 2015, Hawaiki Cable’s target is to connect every nation in the Pacific Islands. Where funding is not secured in time, a sleeping branching unit will offer the opportunity to implement the spur at a later stage. “We are in the right place at the right time,” states Ludovic Hutier, chief operating officer at Hawaiki Cable. “The Pacific region is booming and we are right in the middle of two super power nations – US and China – eager to develop the telecommunications industry. However, a cable access is only an enabler and local communities will have to develop partnerships, for example with Australia and New Zealand, to bridge the digital divide.”
Telstra and Telecom New Zealand already have strong wholesale relationships across the Pacific region. The latter owns 60% of Telecom Cook Islands, and serves Fiji via the Southern Cross cable, as well as New Caledonia and Papua New Guinea via the Gondwana and APNG2 cables respectively. More than ten other markets in the region are connected via satellite.
“These are very small populations thousands of kilometres apart with a lot of empty sea in between, so the best opportunity for them is to link in with some of the other international cables,” says Telecom New Zealand’s Andrew Pirie, general manager of corporate relations. “But the economics have to be right in terms of volumes. For example, the TGA system means we can ride on the back of the connectivity that already exists and is growing in the Australian market.”
Pirie says that good connectivity into Asia is also an important part of the bigger jigsaw. “Within the world of the internet, the centre of traffic is moving ever so slowly towards Asia. And as the application players build more data centres nearer to this market, we are looking to tap into that potential. We have an abundance of renewable energy sources such as hydroelectricity needed to run the data centres, but we also need good connectivity.” Meanwhile, Telstra has focussed on strengthening its local ties. “We are prepared to offer our customers in Oceania cost-competitive IP transit solutions based on satellite, but where we can, using fibre. In the last three years we’ve seen 25-30% revenue growth as a result,” says Clarke.
Although a fresh wave of submarine cable activity is sweeping Oceania, Paul Budde, managing director at independent consultancy, BuddeComm offers a cautionary note. “More proposed projects get withdrawn than approved, the market remains to a large extent in the hands of the incumbents and there is the sheer cost of cabling an area with so few people.”
Nevertheless, he believes smaller scale projects such as the Tonga submarine leg could see more success, while efforts to ‘fine-tune’ use of infrastructure with different service levels and market applications will be important. “While it is still early days, I see this happening in Fiji as I believe they have the best policies for using the infrastructure for digital economy applications.”
Many see e-commerce as vital to the future of the Pacific’s island nations, but there are other social benefits in meeting latent demand with submarine cable. “The fact that applications such as social networking and video content become available leads to greater contentment of the populous, so this is also an extremely positive sign,” adds Hibbard.
Oceania wholesale rankings
In the spotlight:
The top four spots are dominated by just two companies.
Their stories, however, are quite different. SingTel primarily
offers wholesale service to its own subsidiaries in the
Australian market. SingTel also sells wholesale bandwidth
to 3G/4G mobile data providers, including TPG Internet
(an Optus mobile reseller) and Virgin Broadband Australia
(an Optus subsidiary).
Telstra and Telstra Global, by contrast, provide wholesale
transit to a broader range of companies, including AAPT,
Dodo Internet, the Australian Academic and Research
Network (AARNet), Vocus and M2 Group (which now
includes Primus and TPG).