Facebook’s recent announcement that it is investing in two undersea cables connecting the U.S., Singapore and Indonesia is further confirmation that webscale content giants are now the top players in a market once dominated by the likes of AT&T, BT and telco-led consortiums.
It also shows that Facebook didn’t dwell too long on a recent setback in the space -- its withdrawal just weeks earlier of a controversial cable project that would have connected the U.S. and Hong Kong.
In a Facebook engineering blog posted late last month, the social media titan said the new Echo and Bifrost cables -- the first of which also includes Google as an investor -- will increase trans-Pacific Ocean capacity by 70%.
“Without question, Facebook and Google are in a totally separate category than everyone else investing in these cables,” said Gavin Tully, managing partner at Pioneer Consulting, which recently released a new report on the market — Suppliers of Undersea Telecommunications Systems. "With data centers in many places around the world, they have set out to own as much of this connecting infrastructure as possible.”
TeleGeography, another research firm that has been one of the go-to sources for information on the undersea cable market for many years, stated in a list updated after the Echo and Bitfrost announcements that Google now has an ownership stake in at least 16 current or planned undersea cables around the world (It’s the sole owner of five of these cables, part owner of the rest.) Meanwhile, Facebook has a stake in 13 cables (a part owner in all cases, although it often has taken a leadership role among the parties building these cables).
The same list has Amazon as a part owner of at least two cables and a major capacity buyer on three others, while Microsoft has part ownership of three cables, and is a major capacity buyer on two more.
As these internet-bred behemoths have become the driving force in undersea cable development, the traditional telecom giants that once owned the space -- AT&T, BT, Cable & Wireless, and others -- have receded, or at least are not leading the undersea cable charge into Asia, which is home to data center hubs like Singapore and high-population countries like Indonesia.
While AT&T still operates or has a stake in dozens of undersea cables, it has not announced a new undersea cable project in at least a few years, Tully said. BT is soon starting work on a new series of undersea cables, but these are relatively short-reach projects in its home region. Other telcos in Europe, Africa and Latin America are leading or participating in consortia to build new cables in those regions, although for the most part not tackling projects of the same scope as Facebook and Google.
A new undersea boom
The content giants did not become gods of the sea overnight. “We’ve seen this happening over at least the last 10 years,” said Tim Stronge, analyst at TeleGeography. “First, we saw them buying lots of capacity on cables, then buying fiber pairs for their own use, and then as participants in building the cables themselves.”
Together, these companies are leading an undersea cable build-out cycle that is that sector’s most active construction period since the late 1990s, Stronge said. That’s when new optical technology innovations exploded bandwidth capabilities, and the world was just beginning to grasp the internet’s vast potential. One of the market drivers at that time was to support the rapidly growing business of connecting multinational corporations.
Nowadays, the main driver in the latest undersea build-out cycle is the storage and distribution of content, which has led Facebook, Google, Amazon and Microsoft down the path to more involvement in the market, Tully noted.
Meanwhile, the undersea cables built in other regions by telcos during the 1990s building boom are reaching retirement age. For example, the TAT-14 cable system activated in 1998 to connect North America with the U.K. and Northern Europe, was retired last December. The system had been owned and operated by a long list of telcos, including AT&T, BT, Deutsche Telekom and others. But the Atlantic route didn’t go dark when TAT-14 did. The Havfrue/AEC-2 cable, running a similar route, was ready for service a month earlier. Two notable names involved in that project: Facebook and Google.
Ultimately, undersea cable ownership is like any other business; it’s hard to stay afloat if costs are high and revenue isn’t. Cable systems cost hundreds of million of dollars to build and come with ongoing maintenance costs, such as the need to repair frequent breaks caused by everything from fishing equipment to ship anchors to earthquakes.
The daily business of selling capacity can be challenging as well. “Wholesale bandwidth is cheap,” said TeleGeography’s Stronge. “It’s hard to make money.”
At the same time, the cables themselves are becoming more capacious, courtesy of technology advancements allowing more fiber pairs inside of each cable. NEC recently announced a system enabling 24 fiber pairs per cable, up from the 16 generally available today and the eight-pair norm of just a few years ago. Big content companies may find plenty of traffic to fill their own pipes on undersea cables, but this evolution means there will be more undersea capacity available for other companies to buy, and at lower prices, Tully said.
As the content giants continue to drive this market, their scale and deep pockets may serve them well to both build cables and operate them. The main value for them will come from having dedicated, reliable and secure capacity for their own needs.
Still, getting an undersea cable project up and running is no easy task even for web and social media titans. The U.S.-Hong Kong cable project that Facebook withdrew from in early March had raised red flags among U.S. security officials sensitive about a cable connecting the U.S. and China. The withdrawal of that project came a year after Facebook and Google dropped plans for the Hong Kong portion of a different Asia-Pacific cable project.
“There are geopolitical issues that create challenges to getting these cables built,” Tully said. “And it’s not just the U.S. and China. Some companies are very open to cables landing in their regions, others are not. As the public face of these projects you have to be willing to navigate all of these issues.”