The rising demand for bandwidth, driven by policy liberalisation and increasing globalisation, and the reduction in telecom infrastructure costs have led to a significant growth in international telecom infrastructure, primarily submarine cables. There are currently nine submarine cable systems connecting India with the rest of the world and several others are expected to be operationalin the coming years. Industry analysts share their views on the current status, demand drivers and challenges involved in the growth of the international telecom infrastructure…

Abhineet Kaul: After the trough of early 2000, investments have increased. The combined effect of a surge in user demand for bandwidth due to growing broadband penetration and increasing demand for band width-intensive internet applications; and a significant reduction in infrastructural costs has encouraged telecom players and other private investors to explore new market opportunities, especially in devel oping markets such as China and East Africa. Over the past three to four years, we have seen the completion of more than 15 submarine cable systems in Asia, involving an investment of over $4 billion –­ more than twice the amount invested in the corresponding period before that (that is, in the early 2000s).

In some cases, the investment focus has shifted towards building consortium cables to limit the exposure of risk-averse investors. Recent cable outages caused by forces of nature (for example, Typhoon Morakot in Taiwan, 2009) has also substantially increased the awareness and need for network resilience. Hence, in submarine cable design, we are seeing a trend towards lower-cost linear cables, which offer an attractive value proposition for investors, as well as an alternative network connectivity option for telecom operators and customers.

Vishal Malhotra: The backbone of the country's and, indeed, of the world's information infrastructure is now predominantly composed of optic fibre cables. A critical element of that backbone is the world's ever-expanding network of submarine optic fibre cables.

India has witnessed a radical growth in its telecom infrastructure capacity due to the deregulation in the telecom industry. Over the past few years, liberalisation has made it possible for private players to enter the telecom infrastructure sector, and operate on a level playing field. The four major players in this industry are Tata Communications, Reliance Communications (RCOM), Bharti Airtel and Bharat Sanchar Nigam Limited (BSNL).

There are currently nine submarine cable systems connecting India with the rest of the world, viz SEA-ME-WE-3, SEA-ME-WE-4, SAFE, FLAG, i2i, TIC, Falcon, Indo-Sri Lanka Cable and India- UAE cable. Further, about seven to eight new cable systems are expected to enter the Indian market in a few years. Amongst these, EIG is a consortium project between 16 telecom operators around the world with an  investment of over $700 million, which is planned to be in service by the end of 2010; and IMEWE, with an investment of $400 million, is a new ultrahigh capacity optic fibre submarine cable system which would link India to Italy and France, via the Middle East.

Furthermore, investments in the submarine cable system connecting India to the Middle East and Africa are expected in the coming years. There has been an increased effort to invest heavily in infrastructure and expand aggressively into emerging territories like Egypt, Ghana, Kenya, Brazil, Hungary, Israel and Mexico.

what are the key drivers for the development of international telecom infrastructure?

Abhineet Kaul: Surging traffic on service providers' networks is the primary driver of growth for submarine cable infrastructure. The aver age global international traffic growth in 2008 was well above 55 per cent, and is estimated to have increased to 70 per cent in 2009. The acceleration in traffic growth is due to the combined effect of broadband subscriber growth in emerging markets and the increase in bandwidth usage per subscriber in the developed markets. This is owing to the proliferation of video-sharing and contentintensive downloads.

Governments in both developed and developing markets are increasingly laying emphasis on the need to enhance the technology capabilities of their economy. Encouraged by government incentives, last mile fibre investments will help increase both enterprise and consumer connectivity, and fuel demand for international bandwidth.

Vishal Malhotra: The demand for higher bandwidth will continue to grow and with it, the capacity of cables. The increase in demand is being driven primarily by data traffic from web-enabled applications. As the demand for content increases, telecom operators are opting to sign larger content deals. To cater to these increased demands, the telecom industry has to make further investments in building capacities. Also, new players entering the market are seeking ways to monetise themselves without large capital expenditure investments, thereby giving an impe tus to bandwidth demand.

Romal Shetty: The global telecommunications industry has witnessed steady growth over the past few years. Internet usage has grown from 555 million to 699 million between 2007 and 2009 and is projected to grow further to 897 million by 2013. Mobile subscriptions are projected to grow from 4.1 billion to 5.3 billion subscribers during 2009-13. Growth in these sectors has created a high volume of demand for the appropriate telecom infrastructure. As mobile penetration increases, newer markets like Africa are opening up to the industry, leading to a further increase in demand for telecommunication services. The high growth observed by industries like IT/BPO has also been a significant driver.

In developed as well as developing markets, the nature of demand for telecom services is changing, from purely voicebased services to a growing uptake of data services. An increasing number of users are asking for low-cost, faster bandwidth connections to enable audio and video streaming for personal or official use.

All these factors have significantly contributed to driving up the demand for telecom infrastructure. Submarine cables have garnered attention over the past few years as the total carrying capacity of submarine cables is much higher than that of satellites. These are also considered highly reliable options, providing multiple paths in case of cable breaks.

The overall trend being observed in the industry is that the major operators are investing roughly 20 per cent of their asset base year-on-year on the submarine cable network set-up.

How is the submarine cable segment likely to evolve in the future?

Abhineet Kaul: The submarine cable industry went through massive consolidation after the dip in the early 2000s. We believe that such consolidation, and the era of cheap valuation in the industry, is over. The industry will benefit from the growth in bandwidth demand. International infrastructure, thus, will be a lucrative business proposition for incumbent and new players.

The recent shift in focus from viewing infrastructure as a "business platform" to one of a "service enabler" will frame the development of the industry. Submarine cables are treated as strategic assets which will provide the edge in driving growth and maximising the value derived from higher margin networks, telecommunication and application services. Developments in technology areas such as cloud computing and network convergence are further likely to influence the dynamics of this increasingly competitive market. Furthermore, new entrants like Google have set the industry abuzz with strategic acquisitions and investments in dark fibre, potentially to enhance its current product offerings.

Vishal Malhotra: The investment in submarine cable projects is fairly huge and thus, few companies have been investing in new submarine cable systems. Recently, the Reserve Bank of India (RBI) liberalised the investment norms for Indian telecom operators by allowing them to invest in international submarine cable consortiums through the automatic route. This is a welcome step and will go a long way in the development of this industry. The investment by various private and independent players in submarine cable projects will make the market more competitive in India.

Romal Shetty: The demand for telecom infrastructure is expected to grow steadily due to all the factors discussed above. Most submarine cables in the past few years have been laid in the Pacific Ocean, in part due to the emergence of Asian markets in the global economy. After heavily investing in transAtlantic and trans-Pacific routes, the focus is now shifting towards expanding the submarine cable network to the developing world.

Due to the high costs involved in construction and laying of submarine cables and landing stations, it is difficult for an individual operator to assume this undertaking. A key emerging trend is that of a consortium of operators jointly undertaking this activity and hence, splitting the costs involved. In the future, governments would also become significant players by providing a large part of the funding.

Certain governments (for example, Australia) are also looking to create "protection zones" to restrict activity in cer tain areas where there might be potential damage to cables.

 What are the key issues and challenges that need to be addressed for the growth of this segment?

Abhineet Kaul:  The high concentration of submarine cables in areas such as the Luzon Straits, as well as key regional interconnection hubs such as Hong Kong and Singapore, has raised concerns from both industry players and government regulators. The concentration of submarine cables in these areas and regions increases the severity and impact of any network/cable disruption on businesses and economies. Examples include the 2009 network disruption caused by Typhoon Morakot and the recent cut of SEA-ME-WE-4 near Italy.

Submarine network rollout costs have also decreased significantly over the years. During the boom period that lasted until 2001, approximately $13 billion was spent globally on the rollout of 39 submarine cable systems. Approximately the same number of new cable systems constructed during this period (the past three-four years), cost a fraction of that price and corresponds to a decline of more than 78 per cent in infrastructure investment costs.

Following the reduction in infrastructure costs, pricing on international circuits has also decreased substantially. Prices are expected to decline further as operators struggle to recoup their investments amid more intense competition amongst the various providers.

Vishal Malhotra:  With telecom infrastructure growing at a significant pace, the sector is experiencing quite a few challenges which it will need to address. The submarine cables extend to various countries and with each country having jurisdiction over its territorial waters, different regulations are imposed on the laying of submarine cable systems. On account of a complex worldwide telecom infrastructure (that is, submarine cables and landing stations), the transmission of voice or data between two countries can take place through multiple routes. Such transmission is leading to various taxation issues across jurisdictions.

The global extension of submarine cables has resulted in telecom operators and local governments taking up the responsibility of protecting the submarine cables from activities that could potentially damage them. Telecom operators also have the responsibility of ensuring that the operation of submarine cable system (electricity use at the terminal station, cable maintenance, etc.) causes the least potential environmental impact.

As telecom operators are making an effort to penetrate emerging territories, they are facing the problem of overcoming political instability on account of unstable democracies and/or local disputes. Naturally, this has negatively impacted the operating environment.

Romal Shetty:  A typical multi-terabit, trans-oceanic submarine cable network reportedly costs hundreds of million dollars to construct. The high cost associated with construction remains a key concern for all stakeholders.

Operators need to ensure a business continuity plan in the event of a cable break, either as alternative paths or satellite back-up.

End-user tariffs and speed of construction are additional factors that need to be considered to ensure the viability of a particular project.

The industry needs to be supported by an open regulatory framework in order to develop further, particularly in terms of sharing of landing stations between operators.

Submarine cable networks being set up in parts of the developing world face an additional threat from thefts due to pirate activity. Operators need to keep all such regional influences in mind while planning their projects.