The Rapidly Evolving Submarine Cable Market

Transcription

1 EDITORIAL GUIDE The Rapidly Evolving Submarine Cable Market SPONSORED BY: The submarine network market is exploding. While undersea network requirements differ in some ways from those of terrestrial networks, many of the market drivers are similar. This Editorial Guide describes why the market is so vibrant, examines wholesale pricing trends, and looks at new ways to control submarine network performance. 3 Why the Submarine Network Market is So Hot 9 Myriad Factors Conspire to Lower Submarine Bandwidth Prices 17 Needed versus Helpful in Submarine Network Supervisory Reprinted with revisions to format from Lightwave. Copyright 2016 by PennWell Corporation

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3 Originally published August 31, 2016 Why the submarine network market is so hot By STEPHEN HARDY SUBMARINE NETWORKS HAS emerged as one of the most active niches in optical communications. Undersea cable systems have seen a seemingly endless round of upgrades, the latest to add 100- Gbps wavelength capabilities (see, for as just two examples, C&W Networks upgrades submarine networks to 100 Gbps via Xtera and Tiscali taps Alcatel-Lucent for 100G fiber-optic network backbone ). Yet, despite the fact that such upgrades generally have enabled operators to keep pace with the same bandwidth demand catalysts that have driven investment in terrestrial network enhancements, 33 new submarine cable systems are on track to be built over the next three years, according to market research firm TeleGeography. What gives? The answer to this question involves the emergence of a familiar set of new players and requirements as well as faith that the current round of new builds won t result in another capacity glut. Undersea as on land Many of the factors that have driven submarine capacity investment over the last several years are familiar to those who follow the terrestrial market. These catalysts include a general increase in bandwidth demand, the influence of the desire to meet the needs of financial services companies, and the emerging power of the webscale content providers such as Google, Facebook, Microsoft, and Amazon. 3 Bandwidth demand has grown steadily and sharply around the world, according to TeleGeography. Every region of the world has experienced more than 40% compound annual growth in used international bandwidth between 2011 and 2015, according to the firm. Africa, Asia, and Oceana have experience approximately 50% growth during that timeframe. Combine the regional demands, and bandwidth use is doubling approximately every two years, TeleGeography suggests.

4 Why the submarine network market is so hot FIGURE 1. While submarine cable network bandwidth demand has grown aggressively, operators have largely kept pace, with upgrades to existing systems a primary means to this end. (Source: TeleGeography) Despite such growth, upgrades to existing networks have kept pace for the most part. As Figure 1 shows, the percentage of lit capacity versus potential capacity has remained fairly stable, with the exception of a short-lived crunch on transatlantic routes between 2008 and With the exception of a spike in deployments in 2012, few new networks have been built over the past five years. 4 Such relative inactivity is about to change, if TeleGeography s prediction of 33 new systems near term is accurate. At least some network operators apparently have concluded that upgrades won t keep the bandwidth flood in check. And much of

5 Why the submarine network market is so hot this belief derives from the emergence of the webscale companies as omnivorous bandwidth consumers. In fact, TeleGeography believes that such companies now consume more undersea bandwidth than anyone else on major routes. These increasing bandwidth requirements have led several of the webscale content providers to graduate from being submarine cable system customers to owners. Google has taken the lead in this area, with ownership stakes in such systems as the FASTER, South-East Asia Japan Cable, and Unity Cable System in Asia; Monet (U.S.-Brazil) and Junior in South America; and other systems elsewhere. Microsoft and Facebook have partnered to construct the MAREA transatlantic cable system, while Microsoft has an ownership position in the New Cross Pacific system and Facebook owns a piece of the Asia Pacific Gateway network. These new systems are among the recent and expected new builds. Meanwhile, the extensive bandwidth these companies will continue to consume on cables they don t own has led to concerns among some traditional wholesale customers that they may be left out in the cold. And those concerns naturally have led to additional new cable deployment plans. Among these traditional customers are service providers who seek to meet the growing need for international bandwidth among financial institutions, particularly traders. As has been the case on land with new regional networks to connect financial centers, lowering connection latency has become a catalyst for new submarine cable builds as well. It s not certain that latency itself has spurred many new projects; but the ability to offer a lower latency figure than current routes support likely has been enough to tip the scales in favor of some new builds where bandwidth requirements offered an uncertain incentive alone. Similarly, the need for redundancy, particularly in areas prone to earthquakes, also has boosted the new network momentum. 5 Finally, just as a desire to join the digital age has led some rural communities to build their own fiber-optic broadband networks, developing nations have expressed a desire to participate in the digital economy. Operators in such

6 Why the submarine network market is so hot countries have created consortia to increase connectivity options via new submarine networks at an increasing rate. But just consider this With all this momentum behind bandwidth demand, 33 new networks worldwide may even seem inadequate to some. Rest assured that more than 33 are being discussed, as Figure 2 indicates. The figure comes from analyst Julian Rawle (who notes that there are rumblings of even more systems than he s counted here). FIGURE 2. Regardless of the source of the estimate, observers agree that a lot of new undersea cable builds could happen over the next few years. (Source: Julian Rawle Consulting) 6 Needless to say, such a spike in new submarine system deployments would be music to the ears of equipment vendors. Perhaps the only people potentially happier about this prospect would be cable suppliers. Rawle has estimated how much cable the currently planned systems would require; Figure 3 displays the results of his efforts.

7 Why the submarine network market is so hot FIGURE 3. The demand for submarine cable could outstrip supply next year if every planned system launches on schedule. (Source: Julian Rawle Consulting) Yes, that s a lot of cable. Perhaps too much cable, as Rawle estimates that current undersea cable production capacity ranges from 80,000 to 100,000 km annually. Thus, unless significant production capacity came online quickly, 2017 could see a cable shortage. Such an event likely would delay some projects and raise costs for others. But perhaps the most costly factor that might damage the submarine cable market over the next few years is the possibility that 33 systems aren t too few, but too many. The lessons of the Internet Bubble of the early 2000s haven t yet receded totally from the minds of investors. Any sign that bandwidth demand is slowing or that prices are falling too quickly could stop the flow of capital necessary to keep these projects on track. If operators and suppliers are worried about a glut, they re not talking about it. That means cable laying ships will remain busy for the foreseeable future. 7 STEPHEN HARDY is editorial director and associate publisher of Lightwave.

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9 Originally published August 31, 2016 Myriad Factors Conspire to Lower Submarine Bandwidth Prices By ERIK KREIFELDT THE WHOLESALE BANDWIDTH market has undergone a transformation over the past few years. While the wholesale capacity trade remains robust among carriers, procurement by the largest content companies overshadows the industry. This shift has implications for traffic flow, exchange points, and pricing. Nevertheless, bandwidth prices continue to erode as volumes grow even as the mix of market participants evolves. Ownership Evolution Content network operators account for a growing proportion of bandwidth on global routes, reducing the relative scale of global carriers. The largest among them, Google, Microsoft, and Facebook, are taking primary ownership shares of transoceanic systems, joining consortia and taking major stakes in carrier-owned cables. By carrying traffic on their own networks, content network operators remove a large swath of global bandwidth from the addressable wholesale lease market for carriers selling managed bandwidth. Intense competition for the remaining lease business drives price erosion in the wholesale market. These content network operators avowedly do not resell their bandwidth, but they do swap capacity. This extends the addressable market pressure and price erosion beyond where individual content operators have taken a specific stake in a system. 9 Several factors drive the emergence of content distributors as network operators and bandwidth owners in their own right. One is simply the huge scale of bandwidth demand warrants network ownership and operational control. Another is achieving lowest bandwidth cost at the ownership level compared with purchasing managed bandwidth. To further enhance network

10 Myriad Factors Conspire to Lower Submarine Bandwidth Prices productivity, content operators deploy specialized transmission equipment, optimized for interconnecting their data centers, on dark fiber where they can. A new generation of transmission hardware optimized for interconnecting data centers has emerged to meet this need, defining a new market for data center interconnect (DCI). The ideal DCI topology differs from the traditional long-haul wholesale bandwidth trade between collocated carrier points of presence to data centers, as well as off-net transactions for B-end local access links to enterprise customer premises. Although carrier-oriented wholesale bandwidth vendors supply DCI, they adapt the traditional wholesale bandwidth topology accordingly. Ownership Models As the mix of submarine cable users and their needs evolve, so do the ownership models, which play a role in bandwidth pricing. Purely wholesale, carrier s carrier cable business models were left for dead following the capacity market bust in the early 2000s. Although investor-owned cables have continued to co-exist with the traditional model of carrier consortia-owned international cables, many have evolved to include the owner s internal traffic demand for Layer 2 and 3 services, as well as anchor tenants that take major autonomous stakes in the system, including entire fiber pairs. One hurdle to joining a consortium or anchoring a new cable project to fruition is a substantial initial investment, which can exceed both the means and needs of many carriers that are otherwise interested in primary ownership of capacity on the system. This obstacle limits consortia membership, but subsequently establishes a reliable wholesale customer base. Vast potential capacity and requirements for diversity ensure ample capacity available for smaller purchasers. 10 In addition to large content network operators, traditional carriers, internet backbone providers, and retail service providers are also sourcing more capacity earlier in the development stage of submarine cable systems. For instance, primary stakeholders in AAE-1 are subdividing their stakes to other operators, including rights to continue upgrading the share as the system expands capacity. This satisfies an even greater number of carriers than are in

11 Myriad Factors Conspire to Lower Submarine Bandwidth Prices the ownership consortium with committed capacity, shrinking the remaining wholesale market for managed wavelengths, while intensifying competition and driving price erosion. Technology and Cost Improvement Transmission and switching technology advances increase capacity and network agility, lower cost per bit, and accommodate lower prices. As 100-Gbps line side deployments have matured, client-side wholesale transactions have increased. Still higher line rates of 200 Gbps or more will lower costs of 100 Gbps on the client side, and efficiencies in 100-Gbps transmission put pressure on 10-Gbps pricing in the meantime. Along with bit rate, advances in switching and management make provisioning more agile, lower operating cost, and accommodate lower wholesale prices. Advances such as software-defined networking portend novel commercial models for on-demand bandwidth and entirely new pricing regimes to complement leases and indefeasible rights of use (IRUs). One obvious requirement for the 100-Gbps proposition is demand for 100 Gbps on a single path, as opposed to an aggregate 10-wavelength purchase at 10 Gbps, which might include several diverse paths. But where operators need massive point-to-point capacity, managing one wavelength instead of 10 reduces complexity and cost. For instance, a 100-Gbps circuit requires one port and cross connect instead of 10 for an equivalent array of 10 Gbps ports. Nevertheless, the large capital expenditure up front to deploy 100 Gbps on the client side provides a headwind against wholesale market adoption of 100-Gbps service. To maintain granularity, many wholesale buyers continue to purchase 10-Gbps waves even as single-path requirements exceed 100 Gbps. This headwind is weakening as 100-Gbps client side technology matures, including transceiver advancements that afford greater density and efficiency. 11 Large capacity increments like 100 Gbps raise the stakes for traffic protection and resilience. At the wavelength level, carriers generally trade in unprotected wavelengths, assembling redundant links between points to establish mesh networks and protect the traffic at Layer 3. Optical layer protection is also

12 Myriad Factors Conspire to Lower Submarine Bandwidth Prices possible, and some carriers offer protected wavelength service, with pricing resembling traditional protection multiples that reach up to approximately 1.5 times the unprotected price. In the meantime, unprotected wavelength sales prevail, and 10-Gbps ports endure to ease the cost and ensure granularity of resilient mesh networks. New Supply New submarine cables inject large swaths of bandwidth into the market. This perpetuates a certain lumpiness to the balance of supply, demand, and price. But submarine cable projects have long lead times, and they drive market prices down even before they are ready for service. Owners of new systems garner primary customers with capacity pre-sales, and sellers on existing systems cut prices to lock in buyers before the new rival is operational. This mitigates price disruptions associated with particular new systems. In the meantime, operators of existing systems deploy new technology that expands capacity supply. The emergence of coherent transmission and alternative submarine line terminal equipment (SLTE) vendors rendered unanticipated supply to owners of existing systems, leading to profound bandwidth price declines for buyers. Upside surprises in technological capability aside, network operators face a basic challenge to balance capacity planning and provisioning. Underprovisioning can compromise business performance, while overprovisioning can drive oversupply, competitive intensity, and price erosion. Price Trends Bandwidth prices vary widely by region but show nearly universal decline. Price declines on primary subsea routes are greatest where absolute prices are high (see Figure 1). Among these core routes, the Miami-São Paulo median price declined most over a three-year period, 30% compounded annually, dropping from 11 times the trans-atlantic price in 2013 to 6.8 times the price in Accordingly, trans-atlantic prices exhibited modest decline over the period, compounding annually at 18%. 12

13 Myriad Factors Conspire to Lower Submarine Bandwidth Prices FIGURE 1. Price trends for 10-Gbps wavelengths on major routes, (Source: TeleGeography). Regional Differences While bandwidth price declines are widespread, significant differences between regions persist, stemming from available supply and competition on both international and domestic segments (see Figure 2). London-Mumbai shows both a high absolute price and high price per kilometer in Q at $9 per kilometer, as does Miami-São Paulo at $5 per kilometer. At the other end of the spectrum, the transoceanic routes of London-New York and Los Angeles-Tokyo have the lowest prices per kilometer at $1. 13 As demand for high-capacity circuits continues to increase, carriers are rapidly deploying 100-Gbps transmission technology across their networks, and pricing structures for the service have evolved. By Q2 2015, the multiple between 10- and 100-Gbps circuits was approximately 6.5, after starting out near 9.0 in early iterations. Capacity multiples for 100 Gbps skew low when sellers compete aggressively for 100-Gbps business but not for 10 Gbps. That is, a low 100 Gbps

14 Myriad Factors Conspire to Lower Submarine Bandwidth Prices FIGURE 2. Monthly lease prices by kilometer for 10 Gbps, major routes, Q (Source: TeleGeography). to 10 Gbps multiple can arise both from a relatively low 100-Gbps price or a high 10-Gbps price. Outlook Balance between supply and demand determines the rate of price erosion. Network operators have incentive to source as much capacity as early in the cable development cycle as possible to secure the lowest unit bandwidth cost. If many of these operators source more than they need and put the remainder up for sale, this intensifies competition and price erosion. But if operators balance individual capacity with internal demand, this early stage investment may actually have a stabilizing effect on pricing. 14 In the global bandwidth market, demand growth has proven just as reliable as price erosion. Beyond opportunistic transactions, the wholesale market is limited to specialist sellers with the constitution for very high rates of both volume growth and price decline, or with unique attributes that pose fundamental differentiation, such as access to emerging markets. Price declines

15 Myriad Factors Conspire to Lower Submarine Bandwidth Prices are ultimately enabled by cost declines in both capex and opex, in turn driven by technology advances. Adept investment can keep abreast of cost decline and ahead of price erosion. ERIK KREIFELDT is a senior analyst at TeleGeography, a Division of PriMetrica, Inc. He began his career as a journalist and writer covering various aspects of optics before switching to the analysis field in He has been at TeleGeography since

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17 Originally published August 31, 2016 Needed versus Helpful in Submarine Network Supervisory By TONY FRISCH IN RESPONSE TO insatiable capacity needs, the traffic capacity of submarine systems has increased greatly over time, in part due to the development of higher-bandwidth amplifiers, in part thanks to better terminal technology coherent detection and multi-level/dimensional transmission formats. Branching units have also become more sophisticated, with reconfigurable wavelength routing an objective in many systems. Commercially there have also been changes, notably the upgrading of existing systems with third-party equipment and more recently the purchase of line plant separately from the terminal equipment. How do these affect the supervisory requirements? And which supervisory approach is best positioned to accommodate such new requirements? Different Supervisory Schemes The passive supervisory schemes, loop-back and Coherent Optical Time Domain Reflectometry (COTDR), have some similarities, both essentially measuring only optical loss. COTDR, however, offers the possibility of measuring the position of a loss change, while the loop-back scheme can only locate it to being between two amplifiers. Both require lengthy averaging for a measurement, which isn t generally a problem, but does make it difficult to determine precisely when a change occurred. The focus on loss means that pump health can only be assessed when the pump output has dropped to the point where the amplifier output has degraded significantly. 17 The command-response scheme provides a much more rapid measurement and can report on pump currents before the amplifier output is affected (enabling preventive maintenance); it can also provide a range of other useful data. It can locate a fault or loss change to the nearest amplifier, but

18 Needed versus Helpful in Submarine Network Supervisory cannot provide higher precision. Hence, repeaters are now available that also include the coupling needed for COTDR. The command-response supervisory scheme also offers the possibility of changing the operating parameters or configuration of submerged equipment. Pump Performance Monitoring Growth in optical bandwidth has required significant increases in the output power of pump lasers. Moves to composite amplifiers (such as C + L or EDFA + Distributed Raman Amplifier) are likely to continue this trend, with each new system needing more power than the previous one. With higher powers and shorter development cycles, it seems prudent to be concerned about the reliability of pumps, even if the track record of reputable suppliers has so far been good. Having a scheme that makes it possible to monitor pump performance e.g., drive current, output power, and temperature means that unexpected aging will be detected at an early stage. Open Systems A second factor making more comprehensive monitoring desirable is the recent interest in open systems. With submerged equipment and terminal equipment coming from different suppliers, there is the obvious potential for difficulties if system performance degrades. Does the problem arise because of the terminal degradation or is it due to submerged equipment? With good data on light levels, pump currents, and other submerged parameters, it becomes much easier to decide. Without such data, there is the potential for wasting time and effort debating whether the terminal or the submerged line is the source of the problem. Extra Information for Free 18 A further factor is the belief that while certain information may not be necessary, it may be helpful. An example is the accelerometers Xtera put in its prototype repeater, which were intended for use only during sea-trials. Customers said that the information they provide would be helpful; it was suggested that having them in the repeater would both enable monitoring of the arrival of the repeater on the seabed and encourage the marine installer to ensure a gentle landing!

19 Needed versus Helpful in Submarine Network Supervisory While we can t say if such encouragement would work, the accelerometers have revealed a significant difference between the time at which the repeater actually arrives on the seabed and the predicted time. They also make it possible to deduce the degree of twisting during deployment. Figure 1 illustrates the information the accelerometers make available. In the example, one can deduce from the Y and Z values that the final inclination is twisted axially by about 55 degrees. Such information otherwise would be apparent only by sending a remotely operated vehicle (ROV) to inspect the deployed submerged equipment and take photographs. Submarine operators expressed interest in information from accelerometers installed in a prototype repeater. Remote Control of Submerged Plant The ability to provide remote control of submerged units, however, is probably even more valuable than the monitoring benefits so far described. 19 For example, branching units often provide power switching. In the first designs, the power switching relays were controlled by the current flowing through the branching unit. This approach aimed for design simplicity, but it created complexities in powering up and reconfiguring. It was not easy for people who rarely did this to ensure that the current flow was as required; it typically took

20 Needed versus Helpful in Submarine Network Supervisory a long time due to the required coordination between all the branching stations. Under fault conditions, a branching unit might change its power configuration, and for a non-expert it takes some time to work out what has happened by analyzing all the power-feed data. Using the supervisory to switch the relays and to report the branching unit power configuration removes many of these issues. Powering up and reconfiguring can be further simplified via additional features the branching unit developer may provide that ensure that power glitches don t affect the unit s configuration and that hot switching doesn t damage the relay contacts. Further useful branching unit features that require commands are the control of switchable ROADM units and the ability to lock the grounding of a branching unit leg for safety while a repair is carried out. In this latter case, no configuration commands are permitted until the code used to lock the branching unit is resent. Gain tilt from cumulative repairs is a concern for long-term system operation. Some suppliers address this by providing adjustable tilt equalizer units; others provide amplifiers with controllable tilt. In either case, the ability to control submerged units is the key. There are other ways that tomorrow s wider bandwidth amplifiers can benefit from remote control. Such amplifiers typically have multiple pumps with more complex algorithms driving them amplifiers that combine distributed Raman and EDF with separately controlled pumps, for example. While the control scheme can be left to make adjustments autonomously, some users are concerned that this approach can mask aging effects. These users prefer to make adjustments manually. 20 There is also concern that any fixed control scheme will not necessarily be optimal for all modes of operation. For example, there are cable systems that operate at reduced line current as a way of reducing the output power to accommodate changes from direct detection to coherent detection at a higher line rate. The ability to control the power output of different fiber pairs independently, however, is something that can only be done with remote control.

21 Needed versus Helpful in Submarine Network Supervisory Given that different pairs may well be owned by different operators and thus be upgraded in varying ways and at different times, it seems clear that independent power control is very worthwhile. Command-Response Supervisory A supervisory system based on a command-response scheme, versus one purely based on loop-back, is best positioned to provide the benefits described here. It can measure useful parameters such as temperature, acceleration, etc., while adding almost nothing to the complexity of a repeater. And in the case of open systems, the clarity that such information brings could help resolve the question of where performance problems have originated. But perhaps more significant is the use of commands to control submerged equipment. Traffic routing in a branching unit is really only possible if there is some form of remote control. The ability to control the behavior of individual fibers is also worthwhile, where they may be carrying different line-rates and signal formats, as upgrades may occur at different times or use different transmission formats. Submarine systems are becoming more sophisticated, as are the commercial models for operating them. For this process to continue, they need a supervisory scheme that produces clear information and allows flexible control. TONY FRISCH is senior vice president, repeater and branching unit, at Xtera Communications. 21

22 Company Description: Anritsu Company ( is the United States subsidiary of Anritsu Corporation, a global provider of innovative communications test and measurement solutions for more than 110 years. Anritsu provides solutions for existing and next-generation wired and wireless communication systems and operators. Anritsu products include wireless, optical, microwave/rf, and digital instruments as well as operations support systems for R&D, manufacturing, installation, and maintenance. Anritsu also provides precision microwave/rf components, optical devices, and high-speed electrical devices for communication products and systems LINKS: NEW PRODUCT: MT1000A Network Master Pro 22

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