One of the continuing scare stories being peddled in the fiber-capacity market is that we're laying too much cable, leading to a much-feared "bandwidth glut." A presumed leveling of demand, combined with capacity-increasing technical leaps such as dense-wave-division multiplexing (DWDM), are supposed to whack the players in this area, as excess supply drives prices down. Current thin margins in domestic fiber-network bandwidth reselling lend some credibility to this line.
I've never believed this argument, and don't believe it now, but some of those naysaying voices are pretty loud. This week, market researcher
released a study that gives the lie to that notion, at least in terms of undersea cable and the international market.
TeleGeography says that despite the big investments being made by
in undersea cables to Europe, Asia and Latin America, demand will grow fast enough to keep prices solid.
The key, TeleGeography says, is to watch what's happening with big communications companies, especially ISPs. With increasing demands by their corporate customers for greater system reliability, they're booking huge blocks of fiber-network capacity for redundancy, and to accommodate spikes in usage by their customers.
TeleGeography offers an interesting formula for projecting demand growth in transoceanic undersea-cable capacity: With every 50% drop in the cost of bandwidth, the big ISPs have been buying 100% more capacity. This isn't far from the kind of growth we've seen in other tech areas, and looks to me to be a sustainable rate of growth for at least the next few years.
Another big secret in this market: Watch trans-Pacific cable capacity.
So far, it's the trans-Atlantic traffic that has drawn all the attention, and most of the business. But as China's Net penetration explodes, and Net traffic both ways between North America and mainland and oceanic Asia skyrockets -- as well as voice and fax traffic, of course -- demand across the Pacific is going to soar.
If you're among the believers in the "Asian century" thesis, this may be an ideal investment opportunity. Though eventually much traffic moves to satellite links, the economy and security of under-sea fiber connections will make these links critical backbones for a long time to come.
- Qwest, for example, has made expansion of North America-Asia capacity a top priority. "I feel good that we've pretty much got North America scoped out now," Qwest CEO Joe Nacchio says. "I think the next priority for me and for Qwest will be to start our footholds in Asia."
As in its European joint venture with Dutch communications company
KPN, Qwest is likely to work with regional telecom companies in Asia to build links to its network. Initial targets are, unsurprisingly, the fattest ones in terms of existing Asia-U.S. telecom demand: Singapore, Hong Kong and Japan.
AT&T (T) - Get Report and
British Telecom( BTY) have made a huge investment in their "Concert" voice, data and Internet IP network worldwide, and have now entered a second-phase, $3 billion build-out designed mainly to bring additional network capacity to Asia.
WorldCom( WCOM) has just jumped into an $800 million deal to build APCN-2, a regional undersea fiber connection among Malaysia, South Korea, Japan, Singapore, China, Taiwan, the Philippines and Hong Kong, tying into trans-Pacific cables owned by others.
And watch Global Crossing's
Asia Global Crossing business, a $1.2 billion-plus joint venture begun last fall with Japan's
Microsoft (MSFT) - Get Report; it looks like an emerging Asia-comm powerhouse. It holds a 64.7% interest in the U.S.-Japan subsea cable,
Pacific Crossing-1, as well as
East Asia Crossing, another regional undersea fiber linkup that will connect Japan, Taiwan, Korea, Hong Kong, Singapore, Malaysia, the Philippines and China.
Investors' alert: On March 31, Global Crossing and its partners filed for an Asia Global Crossing IPO, tentatively scheduled for this summer.
I'll keep an eye out for other investment opportunities in undersea-fiber capacity, and will report back as I find them.
By the way, if you're really interested in this stuff, TeleGeography's 3-by-5-foot
Global Communications Cable and Satellite Map
, showing all 52 existing and planned undersea cables, their landside terminations, plus satellite transponder capacity and orbits, is not only essential, but hung on the wall of your office or conference room will mark you as a true tel-tech geek.
At $155 it ain't cheap -- but you can be pretty sure the folks next door won't have one.
You can look at TeleGeography's stuff at the predictable Web address:
Jim Seymour is president of Seymour Group, an information-strategies consulting firm working with corporate clients in the U.S., Europe and Asia, and a longtime columnist for PC Magazine. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. At time of publication, Seymour was long WorldCom and Qwest, although holdings can change at any time. Seymour does not write about companies that are current or recent consulting clients of Seymour Group. While Seymour cannot provide investment advice or recommendations, he invites your feedback at
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