A gathering of Asia Pacific capacity executives in Singapore yesterday were in general agreement that while a plethora of new regional builds raised understandable fears of a second capacity bubble, this time things were different and a repeat of the 2001 industry collapse should be avoided.
An executive from one of the biggest potential losers from new competition, Tata Communications’ senior vice president, global communication services Byron Clatterbuck, opined yesterday that the “continuing construction boom” had roots in real business drivers such as the genuine need for diversity, traffic growth in south Asia and the Middle East, broadband penetration growth and the increasing popularity of rich media content.“Are we back in that position (of 1999-2001)?” he asked during a presentation at a Pacific Telecommunications Council meeting in Singapore (pictured right). “No. Few of the cables are being built by pure play wholesalers or speculators, a majority of systems are uniquely differentiated, there is an emergence of a hybrid private and consortium model, traffic demand is steady and funding is now tied to strict covenants.”
Clatterbuck said that demand on the Singapore-HK-Japan route was expected to come in at 1.2Gbps this year and would likely enjoy compound average growth of 27% to 2012. Tata owns the Tyco Global Network, the single biggest existing system across the Pacific and is currently planning a new regional system connecting Malaysia, Singapore, Vietnam, Hong Kong, the Philippines and Guam. Other new systems and upgrades are currently being contemplated across the Pacific, with 600Gbps coming online over existing system upgrades between US and Japan alone. Other new systems include the proposed Pacnet/Google-led Unity North cable, a Reliance Globalcom build and the TM-led Asia America Gateway. A key feature of many of the new builds was that they largely avoided traditional hubs such as Japan and Hong Kong, instead connecting alternative routes such as mainland China and south east Asia, he said.
Reliance Globalcomm Asia Pacific president Owen Best concurred that conditions were not the same as in 2001, pointing out that the previous bubble was exacerbated by the then-newly exponential capacity benefits brought by the DWDM (dense wave division multiplexing) technology. The effects of this were now better understood. Best agreed with Clatterbuck that there was no longer room in the market for pure-play wholesale and that “higher layer levels of service” were driving new business models.
He also made the point that traffic patterns were now changing from traditional landing and population hubs in favour of locations where data centres were situated, often influenced by the availability of cheap land and reliable, good value power supplies. Demand was now being driven by the “content and server guys” and he noted Malaysia’s efforts to attract Google’s regional data centre. “They have an agenda and they are doing all the right things.”’
Also concurring with the view that this time things were different, was financier Brian Tellam, a partner with Gryphon Partners in Sydney who has advised several industry finance deals. He said that the days of financiers giving a billion dollars to new cable builds were over and there was now a much greater focus on prices and volumes in evaluating the business case for builds and upgrades.
Other speakers noted the emerging phenomena of smaller in-fill and thin route cables. Matrix Networks general manager Jim Schweigert said his firm’s Jakarta-Singapore cable was one of three builds on that route, while consultant John Hibbard also noted new or re-routed cable builds serving Papua New Guinea, Samoa, New Caledonia and French Polynesia. The potential for new cable builds serving oil and gas fields under the North West Shelf of Australia, the Gulf of Thailand and the seas of Brunei was also discussed as viable options the future, although Tellam noted it can sometimes be difficult to obtain the co-operation between competing resource companies that is necessary for such infrastructure builds.
