After five years of brutal consolidation, the Asian bandwidth business is finally in a building phase. A clutch of new long-haul and regional cables and upgrades are on the drawing board.
But caution is the watchword from those making the investments.
Like Vinod Kumar, VSNL International president, for example, who is spending $200 million on upgrading VSNL's Singapore-Tokyo link and another $400 million on a new India-European cable.
He told last month's Submarine Networks World conference that, despite the continued strong demand and the decline in competition as a result of consolidation, the bandwidth business was 'not a very healthy industry'.
He says most players are just EBITDA neutral, and, presumably with the rash of planned new capacity in mind, warned that cable upgrade costs are quite steep.
But there's no doubting the demand. The industry is about to pass a milestone, with the volume of intra-Asian traffic overtaking trans-Pacific data for the first time this year.
It's coming from Asia's tens of millions of broadband users, the economic growth in China and India and the rapid emergence of online video and networked games.
Regional capacity player Asia Netcom is a case in point. It is seeing annual growth on both intra-Asia and trans-Pacific routes of 40%, and is on its third upgrade of the year, lifting capacity on the southern ring of its EAC cable to 160 Gbps. Earlier this year it increased bandwidth on the northern ring to China by 40% and Korea by 35%.
But it is also exploring the options of building a fresh trans-Pacific cable. CEO Bill Barney has publicly suggested the possibility of building a new cable by 2008 or buying an existing cable - most likely PC1.
And that's the nub of the story. While market conditions are tough, the one segment that is showing both growth and rising prices is the trans-Pacific piece. The two main cables, China-US and Japan-US, are both full, which leaves only two options on the northern route - VSNL-Tyco cable or PC1.
That's not really enough for commercial or operational diversity. A good rule of thumb in the business is that you don't want to have more than 40% on a single cable.
Still shell-shocked
Additionally, carriers don't have the same control over capacity leased on other cables, while technology is also a critical factor: cables with massively greater capacity can be built today at a much lower unit cost.
Research house TeleGeography predicts continued strong demand growth until 2009, but warns that of a slowdown and possible fall in sales from 2009-2012, 'as demand slows and providers migrate to higher capacity circuits and wavelengths.'