Alcatel embarks on a cruise into the marine-maintenance market

TRENDS

BY ROBERT PEASE

The demand for global connectivity is producing a flourishing market for undersea fiber-optic cables. Circling entire continents, linking land masses, and festooning along the coastlines, these undersea systems promise instantaneous communications across the globe.

During the next five to six years, analysts like KMI Corp. (Newport, RI) and Pioneer Con sulting (Cambridge, MA) predict around $30 billion will be invested in new undersea cable systems. That equates to about 670,000 route-km of fiber, and Pioneer believes by 2004, 5 million fiber-km will find its way under the seas of the world.

Traditionally, submarine-cable owners have preferred to maintain their own cable systems, either through their own assets or by subcontracting to marine- maintenance suppliers. How ever, with the sheer explosion of cables in operation and currently being deployed, some cable owners are seeking alternatives to maintaining their own systems. It doesn't take a mathematician to figure out that maintaining the increasing number of cable systems might eventually overextend the number of ships, crews, and expertise currently available.

Alcatel Submarine Systems is one company embarking on a new strategy of offering marine maintenance to new customers. Alcatel is a major player in the installation of undersea fiber-optic cables and says the days of owners maintaining their own cables may be numbered.

"Traditionally, submarine-cable owners were not really in competition with each other, so they established cable maintenance agreements [CMAs] covering various regions around the world," says George Krebs, director of operations at Alcatel Submarine Systems. "The prime example is the Atlantic area, although it also applies to the Pacific and Southeast Asia. Since our customers traditionally preferred to maintain their cables themselves, we did not participate in this activity. But the situation has now changed enormously."

Alcatel and other companies have increasing numbers of new customers, both investors and operators, looking for alternative maintenance services ra ther than those existing services organized by the incumbent major operators. At the same time, says Krebs, some of the incumbent operators are deciding to sell off their maintenance fleets and assets. Two examples are AT&T and Telefonica, which sold their maintenance businesses to Tyco Submarine Systems Ltd. (Morristown, NJ), as well as Cable & Wireless (London), which sold its undersea assets to Global Crossing Ltd. (Hamilton, Bermuda). Recently, Telecom Italia also sought to sell its marine-maintenance subsidiary but changed its decision for now.

"So on the one hand, we have customers with very large systems looking for alternative sources for marine-maintenance services, while on the other hand, some major incumbent operators are leaving the maintenance market altogether," says Krebs. "We feel this presents us with an opportunity, since most of our traditional customers aren't worried about our entering this market. In fact, our new customers are asking us to do it. So based on our installation experience, we have decided to offer this service."

Tyco, a major competitor to Alcatel in submarine-cable in stallations, announced a similar decision late last year, when it introduced its Seahorse program. Seahorse Atlantic and Seahorse South America are currently providing "wet" maintenance on several submarine-cable systems. It appears that Tyco and Alcatel could be going head-to-head in the undersea maintenance service markets, as well.

Both companies say their decisions to enter this relatively new market are based primarily on customer needs and what the new operators are asking for in terms of maintaining their systems. Since Tyco already owns a relatively large fleet of about a dozen ships, the company seemingly could have an advantage in terms of assets. Not necessarily, says Alcatel, which is adopting a slightly different strategy.

Currently, Alcatel has several vessels through a 50/50 partnership with Telecom Denmark Marine. The company has plans to acquire about six vessels in the future. Although Alcatel admittedly is not in the ship-managing business, it is a force to be reckoned with in terms of undersea-cable-services expertise, particularly in both installation and maintenance. Meanwhile, maintenance can be provided through strategic partnerships with other companies. For example, Krebs says, there is an ongoing tender for the provision of a fifth vessel in the Atlantic CMA, and Alcatel is participating jointly with Telecom Denmark Marine.

"We at Alcatel are not ship managers," says Krebs. "We provide the knowledge about system repairs, such as the jointing capability and all of the other telecom- and cable-related know-how. But we rely on the ship owner or operator to provide the ship management and the crew. We've done the same thing in South Africa, where they are looking for a vessel to maintain two new systems, the SATS-3 system, connecting South Africa to Europe, and the SASE system, connecting South Africa to Southeast Asia."

Although Alcatel doesn't rule out the possibility of providing maintenance for any cable owner, including either a complete maintenance package or just partial services, the company prefers to offer maintenance in the framework of negotiations to supply the entire turnkey submarine system.

"To offer marine maintenance at a competitive price, however, we will need between five and 10 systems, depending on size, in one ocean," says Krebs. "That will put us in a situation very similar to Tyco. There is a fine balance for competitive pricing. The more cables you can serve with fewer ships, the less expensive the services are. But the tradeoff becomes a slower response time and, ultimately, poorer overall service. If you maintain many systems and there are a number of faults occurring, you could be losing revenues while waiting for your system to receive repairs."

Although the reliability of submarine fiber-optic cables is very high by design, faults can occasionally occur in the equipment, particularly in repeaters. According to Krebs, systems are usually designed for a maximum of three faults in 25 years, so major problems are fairly rare. But with more and more systems and equipment being deployed as capacity levels increase, faults become more of a threat to operations over time. The key is to equip a vessel with plenty of spare equipment, a competent crew, and all the technical expertise required to accomplish any repair as quickly as possible.

Overall, both Tyco and Alcatel point out that marine maintenance represents a relatively small portion of the overall submarine-cable business, which may explain why so many traditional operators are increasingly less interested in maintaining their own systems. After all, it's not exactly a core business these days, representing perhaps 2% to 3% of the capital costs of deploying an undersea-cable system. Supplying and in stalling systems is the more lucrative market, particularly with the limited assets available in light of a growing demand. But maintenance demands are growing as more systems are planned and deployed worldwide.

"Our prime motivation to enter the marine-maintenance sector is to meet the customer demand and maintain our competitiveness in systems supply. We see this as a natural extension. The new part for us is the vessel ownership and management," says Krebs.

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