With the announcement of the consortium including stalwart competitors Optus/SingTel and Telstra to construct a new international submarine cable (APX-West), we see this kind of bi-partisan commitment to future guard for the seemingly insatiable demand for international connectivity transcending competition. This new cable connecting Perth to Singapore, due for completion in 2018, is indicative of demand growth in the wholesale telecommunications market.
At the recent International Telecoms Week (ITW) hosted in Chicago in May 2016, construction of proposed subsea cables dominated discussion, with Optus Wholesale Head of Marketing & Strategy John Castro joining the fray.
“If you play in global wholesale markets, ITW is the event where subsea negotiations and conversations are played out. We are all so concentrated on our own markets that we rarely get an opportunity to pause and discuss long term trends and requirements. ITW acts as a catalyst for conversation on proposed cables across the globe including Australia, the US and Asia,” says Castro.
In established economies, subsea cable construction is entirely market-driven, and privately funded. At a fundamental level, access to internet and telecoms is now perceived to be a basic human right, much like water and energy infrastructure; the difference being that government involvement in international telecommunications is negligible. For such critical infrastructure which has an enormous impact on global economies, the lack of government intervention in future planning is notable.
“If Australia lost all of its connectivity to the US we pretty much go digital dark. It sounds extreme but we’ve witnessed similar event before with the severe SMW3 cable outage in November 2014, where all traffic from Perth to Singapore stopped. This is currently the only cable out of the west coast that connects us to the world,” says Castro.
Telecoms deregulation and competition has seen a massive expansion of subsea cables – all privately funded and owned. The Southern Cross cable which connects Sydney to the US via Hawaii, Fiji and NZ, is by far the biggest of the systems that connect Australia and the US across the Pacific – and it is privately owned by a Joint Venture between Optus, Spark and US-based telco, Verizon. The Southern Cross cable accounts for well over fifty percent of the direct capacity between Australia and the US today.
Another proposed subsea build is the Hawaiki cable, which also featured in many debates at the ITW Conference. This cable will compete with other existing cables with connectivity to the US. Hawaiki is one of many systems that are currently being tabled for construction over the next five years.
Hawaiki and the APX-West cables are a direct response to the Australian market experiencing sharp increases in demand. The Southern Cross route alone achieves a staggering fifty percent year-on-year growth. While Southern Cross has quite a lot of head room to cater for growth at this rate for some time, there is a significant amount of funding and time required to get ready for a new cable in the ocean.
“In the cable system game, Telcos need to be thinking five to ten years ahead at any given time. It can take five years to secure hundreds of millions of dollars to build the cable and funding is privately sourced. This is genuine, corporate investment into long-term national infrastructure needs,” says Castro.
Greater international connectivity translates into lower market pricing – which is great news for wholesale clients and its end customers.
“When we have such a phenomenal amount of growth on existing systems and prospective new systems, there is inevitable pressure on price. We see that with the price of a 10 Gbps service from Australia to the US. What was once prohibitive is now, like most parts of the Telco market, subject to fierce competition, says Castro.
Cable expansions from Australia to the US and South East Asia may mark a shift with the Australian market potentially moving into a more mature phase. While Australia will always be subjected to the tyranny of distance, the APX-West cable build, and the new Hawaiki cable, may position Australia to be perceived as more than a B-End market.
The significantly improved connectivity to the rest of the digital world and Australia’s proximity to Asia, may incentivise more digital titans to set up in Australia. In this eventuality, Australia may become more central to the global digital infrastructure than today where digital branch offices are more common than datacentres. The main cloud and content players currently have quite a limited presence in Australia relative to other mature markets around the world. They are still typically offshore in Asia and the US – think Google, Facebook etc… As Australia adopts ‘cloud’ there is no doubt international bandwidth requirements will continue to increase exponentially.
“Insatiable consumer demand for overseas content is fuelling tremendous growth in Australia. With Optus’ investment in future growth capacity needs, we are here to help our customers realise their own aspirations for international growth, whether that’s on the East Coast to US or the West Coast to Asia,” says Castro.
Like all great pioneers in every age, the consistent trait for major infrastructure asset investment remains the same – build for scale. Always.
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