2004 Oral Sessions

The paper examines the structure of the submarine system supply industry in the light of the current market situation and predicts the future size and structure. The paper opens with a brief historical survey from the time of TAT-1.. It examines how the pattern of supply evolved to the structure prevailing in the early 1990's. It then examines the impact of the forces of privatisation, deregulation and commercialisation that hit the telecomm industry in the 1990's and how this impacted on the structure as it exists today. The system suppliers are a very diverse group of businesses. They are all subsidiaries of larger corporations and the parent companies are very different. The paper deals with the forces currently driving the industry - financial, technical and market.- and these forces will affect the parent companies in very different ways.

This paper will provide an analysis of a sustainable level of industry demand from first principles and by reference to the cycles of the last decade. However, the industry does not enter the next period with a clean sheet since, unlike the emergent phase of any previous cycle, there is a large inventory of existing capacity, both lit and unlit. The paper will look at these and other factors that constrain or enhance the translation of a given level of demand into a demand for systems and will consider the likely magnitude of cycles in the future. Based on the overall demand level, the paper looks at the current structure of the industry and endeavours to profile a structure that would be appropriately geared to address the long term demand. The paper highlights the differences between the actual structure and a viable future structure.

Many of us who participated in the first SubOptic conferences have spent the last two years focused on recovery from the excesses of the previous few years. At the same time, many of the entrepreneurial network ventures that emerged in the 1990s have peaked, busted, restructured and are re-emerging, relieved of debt; and a new crop of entrepreneurs has emerged with the new millennium, hoping to capitalize on the industry's current distress. The industry's journey over the last several years is important in that it serves to provide lessons of what not to do moving forward, as we attempt to cope with the market's excess capacity and inventory. For network owners and suppliers, these excesses reduce corporate profits and threaten further distress, as pricing pressures continue. Lessons of earlier business cycles tell us that the way to rationalize the market is through cooperation and consolidation, yet it has been difficult to find practical means to do so. As a result, the number of capacity suppliers in the market has not been reduced and many regions remain congested with underutilized cables. Similarly, the number of undersea system suppliers is no smaller than at the industry's peak. Further cycles of distress seem inevitable if consolidation in both the capacity and system supply sectors does not occur. If we accept this premise, then everyone would be wise to focus on the key elements that govern the post-restructuring environment. A low cost-basis, enabled by debt reduction, purchase of assets on the distressed market, or product held in inventory, will not guarantee operational success. Survival tactics of some, and market-entry tactics of others, will reduce corporate profits for all, as long as the excess supply prevails. In this paper, we assert that the undersea network capacity and system supply sectors will benefit from cooperation and consolidation, as individual and mutually-dependent industries. We suggest pragmatic ways to foster consolidation and reduce excess capacity, in order to support recovery for the industry.

Using available and developing optical networking technologies, large-scale mesh architectures may be created by linking independently-owned cable systems. Operator participation in such arrangements would allow the shared use of protection capacity amongst system owners, resulting in reduced operating costs for all participants. It is submitted that such linking arrangements may be realized without diminishing product value or subverting brand identity. Practical business considerations are addressed, as well as the benefits and implications of this potential market evolution.

In light of the major turn of events within the undersea cable industry over the last few years, many new business opportunities have emerged. However, unlike most previous ventures that focused on construction, many new prospects are directed toward the acquisition of existing assets. While market conditions may support the offer of these undersea cable assets at a very attractive initial cost, there are a multitude of issues that must be addressed to calculate the long-term value, develop attractive alternatives, determine the optimal business solution, and sell into the current end-user environment. The dilemma arises in trying to gather poignant, relevant data, making reasonable assumptions, and drawing sensible and forward-looking conclusions from often ambiguous and misleading facts and figures.