Undersea cable investments to grow despite recession

16 new submarine cables projected to come online in 2009

A global recession has yet to change carriers' plans to increase their investments in submarine cables over the next two years, according to a new study from research firm TeleGeography.

The study, which was conducted by surveying global telecom providers who invest in submarine cables to improve their bandwidth capacity, finds that carriers are projected to light up 16 new submarine cables this year, the largest number of new cables to come online in the past decade. In terms of cost, operators are projected to spend over US$2 billion on undersea cables in 2009 and over $3 billion on cable investments in 2010. These investments mark sharp increases from the past five years, as cable investments made between 2004 and 2007 totaled less than $2 billion combined.

The projected growth in cable investment marks the biggest spike in undersea cable deployment since 2001, when carriers lit up 15 new undersea cables and spent $13.5 billion on cable construction costs. TeleGeography says that today's carriers are able to build out more cables at less cost than they paid in 2001 because the capital requirements for building out cables are "far more modest" than the cables built in the late '90s. One reason is that carriers today are investing more in single-span designs rather than the more expensive ring-based designs that were prevalent 10 years ago.

Additionally, carriers are investing more in "shorter regional systems" aimed at connecting underserved countries or on adding diversity to existing routes. Last decade, TeleGeography says carriers made the mistake of building "long, expensive systems on the same core routes as their competitors."

The major driver behind the cable investments has been a significant growth in bandwidth demand that started accelerating in 2007. Because carriers overbuilt and overinvested in infrastructure in the late '90s, their cables were sufficient to meet bandwidth demand for most of the past decade. However, after bandwidth usage grew by 65% in 2007 and 64% in 2008, carriers began to invest more money to cope with the increased demands.

TeleGeography estimates that the 16 cables projected to go online this year will be the peak in new cables for the time being, as just 10 new cables are slated to come online next year and eight new cables are slated to come online in 2011. The study says that the global recession could still hinder carriers' ability to make large-scale network investments going forward, as the crisis in the financial industry will make it "more difficult to raise capital for capacity expansion." Despite this, the study concludes that any downturn for the industry is likely to be less severe than in the early years of this decade, when dozens of providers went out of business.

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