This report provides a detailed look at the financing, legal and regulatory status of the submarine fiber industry.
Submarine Telecoms Market Sector Report – Finance & Legal March 2019
Since 1991, $41.8 billion has been invested in submarine fiber optic telecommunication cables — comprising more than 1.16 million route kilometers — annually averaging $1.5 billion worth of investment and 41,500 kilometers of deployed systems.
Historically, consortia have been responsible for the bulk of new system investment. However, in recent years there has been a noticeable shift towards more private and Multilateral Development Bank (MDB) investment.
The way systems are being financed sustains a shift towards single owners. This trend was first observed in 2015 and has since continued to move in this direction. Over the next several years, only 35 percent of systems will be owned by a consortium, with the remaining 65 percent having a single owner. While consortium ownership reduces the financial risk to any single owner should a cable system fail, single ownership provides potentially greater flexibility and speed to the cable development process.
With OTTs continuing to drive cable demand because of the need for more control over the development process and a desire for faster system installations to keep up with their bandwidth and routing requirements, this trend is expected to continue over the next several years.
The true measure of a cable system’s viability – and the strongest indicator that a system will be completed – is whether it is Contract in Force (CIF). As of March 2019, the CIF rate for planned systems through 2021 is 49 percent and 63 percent for 2019 alone. With so many systems for the next 3 years already achieving the CIF milestone in the first quarter of 2019 this is an encouraging sign of industry health.
Legal and regulatory hurdles continue to be a point of concern for prospective cable owners. Political tensions between various world powers have complicated vendor relationships, the ability for carriers to operate abroad and increased concerns of spying or sabotage. Governments around the world are putting increased restrictions on vendors for new builds and upgrades and pressuring local carriers to “rip and replace” equipment and software in existing infrastructure from no longer welcome vendors. (Bressie, 2019)
Alongside new vendor requirements have come stronger cybersecurity standards and enhanced outage and incident reporting requirements. The International Cable Protection Committee (ICPC) has created a Cable Security Working Group to address these concerns and push the industry to self-regulate before world governments do it for them. In addition, the ICPC has been granted consultative status with the United Nations – allowing it to advocate for cable protection and regulation on an international stage. (International Cable Protection Committee, 2018)
In the United States, Team Telecom security and law enforcement reviews continue to be a huge burden to prospective cable owners. Team Telecom reviews currently take up between 85 and 90 percent of the total regulatory review process – anywhere from 300 to over 500 days. Acquisitions and mergers are equally challenging and beset by similar time delays. As a significant majority of submarine cables around the world land or will land in the United States, this affects more than just United States based companies. However, some relief may be in site as the FCC is working to revise reporting requirements and the executive branch of the United States may act to streamline more of the Team Telecom review process.
Internationally, new initiatives like the ASEAN cable protection initiative strive to develop regional guidelines and educate local governments on the importance of submarine cable protection and maintenance. Efforts to classify submarine cables as critical infrastructure continue around the world in order to reduce risks from fishing and anchoring, improve permitting processes, enhance route diversity and create better working relationships with local governments. (Bressie, 2019)
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