Feature

Asia and the rising subsea levels

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The Asian subsea cable sector has been abuzz with conversation. According to some regional players, the subsea transit prices are increasing, depending of course on the route in question.

Speaking to Fabrizio Civitarese, CEO at Aqua Net, he says "we have seen on some intra-Asia routes as well as some trans-Pacific routes that the price year-on-year has actually been quite stable if not increased on some of the newer cable systems".

"This is a quite an interesting phenomenon if you consider that generally bandwidth prices have been declining."

This trend, according to Civitarese, is being driven by a number of factors, creating the perfect conditions for such a trend to arise. The biggest reasons include high-demand (partly due to the Covid-19 pandemic) compounded by a shortage of supply on certain routes, which in turn is as a result of upgrades that have been delayed, new cables that were supposed to be ready for service but have run into problems, as well as licensing issues and delays.

One such example of a system that has faced  delays is the Pacific Light Cable Network (PLCN) connecting the Philippines, the US and Taiwan. The 12,971km, 144Tbps system is owned by Facebook (Meta) and Google and has faced many regulatory hurdles.

Due to go live 2020, that same year, Team Telecom – the telecoms security group set up in Washington in April by an executive order from President Donald Trump – recommended that the last leg of the PLCN not be allowed to go into operation due to the cable’s connections to Hong Kong and Huawei.

Since then however, Kevin Salvadori, vice president of network investments at Facebook (Meta), confirmed that the still-to-be-launched PLCN is still progressing.

At the same time, Matt Walker, chief analyst at MTN Consulting, also reminds us that the surge in data centre facilities in the region may also be playing a part in the trend.

"The influx of new data centres and expansion of cloud regions in Asia could be driving subsea transit prices higher. You have to connect together all those facilities, after all," he says.

"Asia is probably overdue for some new cable investment. Facebook and Google are driving some new cables in the region (Apricot, Bifrost, Echo) but most of the capacity won’t be online until around 2024. So, if subsea transit pricing has risen, then it may take a couple of years to stabilise."

Speaking to Brianna Boudreau, senior research manager at TeleGeography, she says they've seen a slightly different story.

"Looking at our data, we actually have not seen a surge in wavelength prices within and connecting to Asia. On intra-Asia routes, both 10Gbps and 100Gbps wavelength prices have continued to steadily decline, a reflection of new supply, lower unit costs, and increasing competition."

Interestingly on trans-Pacific routes, specifically those connecting the US to Asia, she does admit that the recent pace of price erosion has slowed compared to previous years, but they "have not seen any increases in price".

Similarly, she says that on these routes, it is a "reflection of limited supply, delays in new submarine cable systems, and approaching cost floors".

Civitarese says that on some trans-Pacific and intra-Asia routes, we will not see the usual year-on-year price decline, for at least another two to three years until more cables are built, bringing more capacity.

"Even then it really depends on how much capacity will be available because some of the cables that are operational today are almost at the point of decommissioning," he says.

"In general, I would say that the usual sharp price decline that we've seen in previous years will probably not be seen in some of the major trans-Pacific, inter-Asia routes for another two to three years."

He adds that we're likely to see some erratic pricing behaviour when more capacity hits the market due to things like upgrades, as it may not enough to satisfy the growing demand.

Conversely, Boudreau expects increases in supply from new cable systems to continue to drive price erosion in the region for the foreseeable future.

"In hubs such as Hong Kong, Singapore, and Tokyo this will largely be seen at 100Gbps level, " she says. "On trans-Pacific routes, it's still too soon to tell if there will be a sustained reduction in price erosion, but delays in planned network projects will likely keep price points fairly stable in the short term."

Once some of the new systems are launched Boudreau expects to see an increase in the pace of price erosion but "no increases in price". 

The uncertainties of the Asian subsea market do create an environment that could be seen as attractive to investors. As Civitarese puts it "the Asian market today is a quite an interesting one to invest in because it's there is a demand that need to be satisfied and that demand seems to be in excess of what the supply is going to be."

Recognising that these prices are not disproportionate and on some of the newer systems amount something close to a 20% premium, the good news is that these changes will unlikely have any impact on the end user with Civitarese adding as long as people still have the need for it, they will continue to use it.

With a slightly different perspective, Boudreau says that "steady price erosion on intra-Asia routes will continue to lower wavelength prices for customers/end-users, particularly for 100Gbps service".

"And as the price multiple between 10 and 100 Gbps services continues to compress, this will make it much more economical for customers to upgrade their network in anticipation of future growth," she says.

One thing that is for certain is that the geopolitical tension between the likes of US and China, has given rise to alternative landing hubs across the continent, chief among them is Singapore.

"What has happened in the region over recent years has pushed Singapore to become an even bigger hub than what it was before, closely followed by Hong Kong and Japan. They've become the three major hubs for Asia," he says.

"So, the routes are really becoming quite interesting as new developments are routes for Singapore to US direct and there are also other cables being announced from Singapore to India and then onwards to Middle East and Europe."

Following on from our interview with Remi Galasso, founder and executive chairman of Hawaiki on the company's new Hawaiki Nui cable connecting Singapore, Sydney and Los Angeles, Galasso shared the same feelings about Singapore saying: " There's so many cables coming to Singapore its becoming a major hub in Asia-Pac and in my opinion is going to become the largest hub".

Due to these increasing number of cables heading for this latest hub, in those regions where prices are still very high, they will have to progressively go down in order to be more competitive.

"As such you will probably see IP transit prices going down, maybe it will reach similar levels to those in Europe or the US," he says.

With a mixed view of the full picture of the Asian subsea market, with new hubs popping across the region and a slew of new cable projects on the horizon, all eyes will be firmly on the continent.

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