Asia Pacific's submarine cable boom could burst

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Asia Pacific's submarine cable boom could burst

The last two years have seen a burst of new submarine cable investment in the Asian-Pacific region - the only region seeing new inter-continental cables being laid. However there is a potential for the bubble to burst if the wrong decisions are taken over the next two years.

Asia has seen growth in demand for international capacity in recent years, largely driven by consumer Internet demand. Investment in new Asian cables market was dormant between 2002 and 2006 as a glut of capacity was slowly used up.

However, during 2007 a number of new trans-Pacific and intra-Asian cable investments were announced. These Asian cable systems are scheduled to come on line during the 2008-2010 period and will add significant new capacity.

David Kennedy, Research Director at Ovum’s Australian office in Melbourne said many observers are concerned about the possibility of a price crash as new capacity is added to the market on a constant basis.

“The fears are understandable, for example, the trans-Pacific market will see a 120 percent growth in total operating capacity in 2008 alone. But demand growth is also high, and could absorb this capacity in as little as three years,” he said.

He claimed whether market disruption occurs or not will depend on how investors and operators act after 2008. “If new systems continue to be announced and built in 2009 and 2010, and the operators start to aggressively market their excess capacity, then disruption seems more likely. However, this isn't inevitable,” said Kennedy.

However if a prudent approach to investment is adopted, and the new submarine cable operators marshal their capacity for their own future needs, then a smoother path is distinctly possible, he said.

"The key is to take a sensible approach to investment and respond to real market conditions. Domestic operators, existing international proividers and global wholesale companies all need to play their role,” said Kennedy.

He believes domestic operators building new cables in the region should keep the emphasis on provisioning for future domestic demand – not competing for market share in the international business. “The established international operators should also avoid triggering a price war by pre-emptively dropping prices.”

Kennedy claimed prospective investors should keep an open mind on investments after 2009, and avoid precipitating a supply overhang in the market. “Securing genuine pre-sales will be the key to maintaining commercial discipline."

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