New submarine cable systems target Latin America

More than a decade after submarine cable operators connected Latin America’s major markets, the region is witnessing another wave of submarine cable construction that could make it the leading undersea market in 2013. The projects are being driven by strong economic growth, rising bandwidth demand, and two international sports events.

More than a decade after submarine cable operators connected Latin America’s major markets, the region is witnessing another wave of submarine fiber-optic cable construction that could make it the leading undersea market in 2013. The projects are being driven by strong economic growth, rising bandwidth demand, and two international sports events.

The wave of Latin American activity bodes well for the submarine fiber-cable industry, which is completing major systems in Africa that are expected to leave that continent with a lot capacity for many years to come. The new contracts will help companies like financially strapped Alcatel-Lucent stay afloat in 2013.

Alcatel-Lucent, a strong player Africa, has already won contracts for major routes in Latin America. Leigh Frame, COO Alcatel-Lucent Submarine Cable Systems, says these and other contracts should maintain the same level of deployment activity that the industry saw in 2012 when the focus was on Africa.

“It’s going to be a big year for Latin America. We are seeing quite a lot of activity in South America, especially in Brazil, which has grown at a rapid pace and sees itself as a hub in the region,” Frame said. “We expect to see more growth also in Colombia, Argentina, and Uruguay.”

Brazil, Latin America’s largest economy and telecom market, is behind the region’s largest announced submarine cable projects. The projects are being driven by the country’s economic growth and expected surges in capacity demand from Brazil’s hosting of the World Cup football games in 2014 and the Olympic Games in 2016.

As the world’s sixth largest economy and member of the BRICS (Brazil, Russia, India, China and South Africa) economic bloc, Brazil aims to become an international telecom hub for a system linking the BRICS and south Atlantic networks that would provide redundancy and alternative east/west routes to routes going through Egypt and the Mediterranean.

Alcatel-Lucent has contracts to supply and build two U.S.-Brazil submarine cable systems: the AMX-1 System for pan-Latin American operator América Móvil and Seabras-1 for Seaborn Networks, a private company. The two systems will be the longest 100G systems to date. The French supplier also has contracts for upgrades and interregional networks, including Pacific Caribbean Cable System (PCCS), a 6,000 km, 100G submarine cable system linking Jacksonville, FL, to Manta, Ecuador. PCCS is owned by a group that comprises Cable & Wireless Communications, Setar, Telconet, Telefónica a Global Solutions, and United Telecommunication Services (UTS).

The AMX-1 System will interconnect América Móvil’s Latin American operations (see "America Movil promises world’s longest 100-Gbps undersea cable system"). It is a 17,500-km submarine cable system that will connect seven countries with 11 landing points: Miami and Jacksonville (United States); Barranquilla and Cartagena (Colombia); Fortaleza, Salvador, and Rio de Janeiro (Brazil); Puerto Plata (Dominican Republic); Cancun (Mexico); San Juan (Puerto Rico); and Puerto Barrios (Guatemala). Commercial operation of the network is planned to start in late 2013.

Seabras-1 is 10,700-km submarine cable system that will create a direct route between New York and Sao Paulo in Brazil, with a branch to Fortaleza, Brazil (see "Seabras-1 US-Brazil submarine fiber-optic cable route surveys begin").

Besides the north/south routes, Brazil plans to build a 6,000-km submarine cable to Angola and is part of The BRICS Cable, a proposed 34,000 km, two-fiber pair, 12.8-Tbps capacity submarine cable system linking Russia, China, India, South Africa, Brazil – the BRICS – and the United States. There are planned connections along the route with the WACS cable on the West coast of Africa, and the EASSY and SEACOM cables on the east coast of Africa. This would give the BRICS countries direct access to 21 African countries. The projected ready for service date is mid to second half of 2014.

“Brazil aims to become a South Atlantic hub for strategic and economic reasons,” says industry analyst Michael Ruddy of Terabit Consulting. “Some of the systems would connect Brazil and Portuguese-speaking markets in Africa such as Mozambique. The proposed systems would also provide redundancy. There is not a lot of capacity in the South Atlantic, and any new projects along that route would help provide a viable alternative to the submarine cable bottleneck in Egypt. People are concerned about the risks of so many cables going through Egypt in the current political climate.”

Ruddy is optimistic but cautious about the success of the planned Latin American systems. “Latin America, unlike Africa where underserved markets were drivers, is a more mature market. Latin America has had high-capacity submarine connectivity for more than 12 years.”

Nevertheless, “there are possibly too many systems on the drawing board in Latin America,” Ruddy says. It will be difficult for all of them to succeed. There are already three major systems serving South America: Emergia, Globenet, and South American Crossing. Although these systems are aging, they can still be upgraded incrementally at a low unit cost. This will present a challenge for new systems and make it difficult to compete with these existing systems.

“Systems can be upgraded for very little thanks to advancements in DWDM and transmission technologies, which continue to drive down the cost of bandwidth,” explains Ruddy. “It’s becoming cheaper to upgrade. With some exceptions, older systems can go up to 40G without trouble. So their future competitiveness hinges on whether they can be upgraded to 100G.

Those who would attempt to launch new fiber-optic cable systems must take into account additional market realities as well, Ruddy asserts. “Alliances will be the key to success of new network builders,” he says. “It’s not the same market as in late 1990s when there were a lot more ISPs – a bigger customer pool. Since then, there has been a lot of consolidation. Today you need a least one anchor tenant… Projects without carrier commitment face a difficult financing environment because financiers are very demanding. The international capacity market is very fragile. In 1999 and 2000 some of the investor-led systems were able to tap into billions of dollars of pent-up demand from hundreds of customers, but since then there has been a consolidation of the customer base. Financiers are waiting for market equilibrium, because the bandwidth market is too volatile today. Today it’s a short-term bandwidth market. There are no more long-term IRUs. There is a high level of price erosion. No one wants to lock into a 20-year bandwidth commitment.”

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