asia cable

Source: TeleGeography research © 2010 PriMetrica, Inc.

Regional Analysis: AsiaSupply and DemandBetween 2005 and 2009, the lit capacity of intra-Asian submarine cables increased at acompounded annual growth rate of 44 percent, from 1.7 Tbps to 7.2 Tbps. In 2009, the usedbandwidth on the intra-Asian route rose 48 percent (see Figure: Used, Purchased, and LitIntra-Asian Bandwidth, 2002-2009 (Gbps)).

FIGURE 1Used, Purchased, and Lit Intra-Asia Bandwidth 2002-2009(Gbps)

2002 2003 2004 2005 2006 2007 2008 2009

Total Used Capacity 65 103 180 342 527 905 1,426 2,105…for Internet 41 80 153 286 443 700 1,057 1,514…for voice 5 5 6 7 9 11 12 14…for private networks 19 19 21 49 75 195 357 577Total Purchased Capacity 600 748 833 1,188 1,866 2,606 3,701 5,152Total Lit Capacity 1,080 1,080 1,120 1,680 2,545 3,425 5,385 7,155Total Potential Capacity 32,690 32,690 32,690 32,810 32,860 33,580 37,420 41,650Lit Share of Potential Capacity 3% 3% 3% 5% 8% 10% 14% 17%

Notes: Data as of year-end. Definitions of used, purchased and lit capacity are presented in the Supply andDemand Methodology.

GLOBAL BANDWIDTH RESEARCH SERVICE ASIA

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FIGURE 2Intra-Asia Bandwidth Supply and Demand, 2002-2009 (Tbps)

Notes: Data as of year-end. Definitions of used, purchased, and lit capacity are presented in the Supply andDemand Methodology.

Most intra-Asian connectivity is currently provided by four regional systems: the APCN-2consortium cable, the FLAG/REACH North Asia Loop (NAL), Pacnet’s EAC-C2C CableNetwork, and Tata’s TGN-Intra-Asia (TGN-IA) cable. All these systems have lit largeamounts of new capacity in recent years but are still far below their potential upgradeablecapacities (see Figure: Intra-Asia Lit and Potential Capacity by Cable, 2009).

FIGURE 3Intra-Asia Lit Capacity by Cable, 2002-2009 (Gbps)

2002 2003 2004 2005 2006 2007 2008 2009

APCN 10 10 10 10 10 10 10 10FLAG Europe-Asia 10 10 10 10 25 25 85 85SeaMeWe-3 20 20 20 40 90 90 90 100EAC-C2C 160 160 160 160 320 680 1,820 1,820APCN-2 320 320 320 320 560 800 1,360 1,920C2C Cable Network 320 320 320 320 320FLAG/REACH North Asia Loop 240 240 280 820 1,220 1,820 2,020 2,220Tata TGN-Intra Asia 1,000Total Intra-Asia 1,080 1,080 1,120 1,680 2,545 3,425 5,385 7,155

Notes: Data as of year-end. Lit capacity presented in unprotected terms. C2C Cable Network Combined withEAC in 2007.


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FIGURE 4Intra-Asia Lit and Potential Capacity by Cable, 2009

Despite the fact that only 17 percent of potential capacity is lit on intra-Asian cables,several new systems are planned. An abundance of cable faults in August 2009 and again inMarch 2010 continued to highlight the need for alternate cables for restoration. The plannedSoutheast Asia Japan Cable (SJC) and Asia Pacific Gateway (APG) consortium cables willbring additional diversity to the region. These systems will have similar designs as the TGN-IA cable, which utilized a trunk-and-branch configuration as opposed to the ring structureused in the previous generation of systems.

Several Asian carriers and Google are constructing the 8,300-kilometer SJC system. Thecable will link China, Hong Kong, Japan, Malaysia, the Philippines, Singapore and Thailand,and a second phase of the project will extend the system to Indonesia. SJC is scheduled to becompleted in the second quarter of 2012 and will cost approximately $400 million.

Nine Asian carriers are planning to construct the APG cable. APG will connect ten Asiancountries and provinces including China, Hong Kong, Malaysia, the Philippines, andThailand. The 8,000-kilometer cable is expected to be ready for service in 2012 and will offera minimum design capacity of 4 Tbps.

Another new cable in the region is Pacnet’s planned West Asia Crossing (WAC) submarinecable system. WAC will link India with Singapore and Malaysia and will have possibleextensions to Bangladesh and Sri Lanka. The cable is expected to be ready for service byearly 2012 and will interconnect with Pacnet’s existing EAC-C2C cable system.

Terrestrial connectivity within Asia received a boost in 2009 when Reliance Globalcomand China Telecom completed a trans-Himalayan link. This new route entered service inAugust 2009 and provides customers with a lower-latency path between India and Chinathan is available via undersea cables. Tata Communications and Bharti are also establishingterrestrial links to China that will be ready during 2010.


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Pricing TrendsThe intra-Asian bandwidth market, characterized primarily by submarine cable systems,stretches from Japan to India. During 2009, median price erosion at lower capacities on mostroutes was moderate, often less than 15 percent. Physical diversity requirements, emphasizedby service disruptions linked to Typhoon Morakot, drove a move towards purchases acrossmultiple systems and mitigated price competition among operators. The introduction of TataCommunications’ TGN-Intra Asia into service in March 2009 and upgrades to various othercable systems introduced greater supply alternatives for growing regional high capacitydemand. At higher capacities, price erosion was more significant. Wavelength prices droppedby 40 percent on some routes.

Compared with other regions, the price of intra-Asia bandwidth per unit tends to be high.The price per Mbps for an STM-1 for Tokyo-Hong Kong is more than 60 percent greaterthan Los Angeles-New York and more than three times that for London-Milan. On a distancebasis, intra-Asia prices are also more expensive. The price per kilometer for Tokyo-HongKong is more than double that for Los Angeles-New York and 35 percent more than London-Milan. Much of this difference may be attributable to the differences between submarine andterrestrial networks and related cost and pricing dynamics; however, the persistence of therelative price premium is noteworthy.

East Asia and China

Median lease prices for STM-1s on major east Asian routes declined modestly in 2009.Routes such as Hong Kong-Taipei and Hong Kong-Singapore declined 7 and 2 percent overthe course of the year, bringing median monthly lease prices for an STM-1 to $7,501 and$10,700, respectively. The median lease price on Hong Kong-Tokyo dropped 8 percent to$7,100 (see Figure: Intra-Asian Median STM-1 Prices, Q4 2006–Q4 2009). Some individualcarriers made price reductions that were more significant, between 17 and 32 percent on theHong Kong-Tokyo route, but these reflected adjustments towards the mean from the mostexpensive carriers. The March 2009 activation of Tata Communication’s TGN-Intra Asiasystem connecting Singapore, Vietnam, Hong Kong, the Philippines, and Japan, clearly hadsome impact in spurring price erosion. This system competes directly with C2C-EAC, FNAL,and APCN-2 on connections between some or all of its landings.


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FIGURE 5Intra-Asian Median STM-1 Prices, Q4 2006–Q4 2009

Notes: Each line represents the median monthly lease price for a protected SDH STM-1 (155 Mbps) circuit. Prices are in U.S.dollars and exclude local access and installation fees.

Wavelength prices in East Asia experienced much faster declines than did smaller capacities.Median monthly 10 Gbps wave prices for Hong Kong–Tokyo and Hong Kong–Seoul dropped23 and 43 percent to $76,667 and $68,000. Taipei–Tokyo saw declines of 46 percent to$65,000 between Q4 2008 and Q4 2009 (see Figure: Intra-Asia Median Monthly 10 GbpsWavelength Prices, Q4 2008–Q4 2009).


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FIGURE 6Intra-Asia Median Monthly 10 Gbps Wavelength Prices, Q42008–Q4 2009

Notes: Each bar represents the median monthly lease price for an unprotected 10 Gbps wavelength. Pricesare in U.S. dollars and exclude local access and installation fees.

Median prices on terrestrial routes connecting major Chinese cities declined 7 percentbetween Q4 2008 and Q4 2009. Hong Kong continues to serve as a gateway for internationalcarriers to access to Beijing, Guangzhou, and Shanghai. The median monthly lease pricefor an STM-1 between Hong Kong and Shanghai or Beijing declined to $31,250 (see againFigure: Intra-Asian Median STM-1 Prices, Q4 2006–Q4 2009). While bandwidth demandgrowth is strong in China, the national market is closely controlled regionally by ChinaUnicom and China Telecom. A lack of open competition makes major price declines in thenear future unlikely.

South Asia and India

Capacity prices on routes to India remain high. Median monthly STM-1 lease prices forBangalore–Singapore and Chennai–Hong Kong decreased 5 and 8 percent in 2009 toapproximately $45,000 and $50,450 respectively. Hong Kong–Mumbai declined 12 percentover the year to $45,125. The median Mumbai-Singapore monthly lease price remained flatat $47,500 during the same time frame (see Figure: Median STM-1 Lease Prices to India,Q4 2007–Q4 2009). Price erosion between India and South Asia is made enabled by therelatively cheap incremental cost of supply on the i2i Cable Network, TGN-India Asia Cable,and SeaMeWe-4 and growing competition between service providers trying to meet demand.


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FIGURE 7Median STM-1 Lease Prices to India, Q4 2007–Q4 2009

Notes: Each line represents the median monthly lease price for a protected SDH STM-1 (155 Mbps) circuit.Prices are in U.S. dollars and exclude local access and installation fees.


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Source: TeleGeography Research © 2010 PriMetrica, Inc.

FIGURE 8Intra-Asia Median STM-1 Prices, Q4 2007–Q4 2009

RouteQ4

2007Q4

2008Q4

2009

ChangeQ4/07–

Q4/08

ChangeQ4/08–

Q4/09 Km $/Km

Bangalore-Singapore $69,875 $47,500 $45,000 -32% -5% 3,174 $14.18Beijing–Hong Kong $35,250 $33,750 $31,250 -4% -7% 1,972 $15.85Chennai-Hong Kong $63,250 $55,000 $50,450 -13% -8% 3,721 $13.56Hong Kong–Mumbai $61,000 $51,250 $45,125 -16% -12% 4,306 $10.48Hong Kong–Seoul $10,235 $8,350 $9,005 -18% 8% 2,100 $4.29Hong Kong–Shanghai $30,250 $30,750 $30,750 2% 0% 1,215 $25.31Hong Kong–Singapore $12,650 $10,950 $10,700 -13% -2% 2,588 $4.13Hong Kong–Taipei $8,470 $8,025 $7,501 -5% -7% 803 $9.34Hong Kong–Tokyo $9,235 $7,750 $7,100 -16% -8% 2,893 $2.45Mumbai–Singapore $50,000 $47,500 $47,500 -5% 0% 3,913 $12.14Seoul–Tokyo $10,235 $8,500 $8,993 -17% 6% 1,158 $7.77Singapore–Tokyo $11,550 $12,000 $11,400 4% -5% 5,328 $2.14Taipei–Tokyo $8,248 $7,505 $6,817 -9% -9% 2,117 $3.22

Notes: Prices represent median STM-1 (155 Mbps) monthly lease prices excluding local access and installation fees. Price/km isderived from Q4 2009 data. All prices are in U.S. dollars.

Pricing Across Bandwidth Products

The capacity-price multiples between bandwidth increments on individual intra-Asia routesdo not deviate significantly from those seen in other regions (see Figure: Intra-AsianIndicative Capacity Price Multiples).


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Source: TeleGeography Research © 2010 PriMetrica, Inc.

FIGURE 9Intra-Asian Indicative Capacity Price Multiples

Circuits Increase in MRC Increase in Mbps

E-1 to DS-3 5.2 22.5DS-3 to STM-1 2.0 3.4STM-1 TO STM-4 2.9 4.0STM-4 to STM-16 2.5 4.0FastE (EoSDH) to STM-1 1.3 1.6STM-4 to GigE (EoSDH) 1.4 1.6STM-16 to 2.5 Gbps – 1.02.5 Gbps to 10 Gbps 1.7 4.0

Notes: Increase in MRC is the median price multiple for all carriers offering both services among all routes inthe region. Multiples are derived by dividing the price of the larger circuit by the price of the smaller circuit,or wave price divided by protected SDH/SONET price. MRC = Monthly recurring charge. Prices excludeinstallation fees and local access and are in U.S. dollars. Ethernet circuits are protected and deployed overSDH. Wavelengths are unprotected.

As in other markets, the price per unit of intra-Asian bandwidth decreases with the increasein size of the circuit. E-1s and DS-3s are the most expensive per unit and large SDH circuitsand wavelengths are the least expensive per Mbps (see Figure: Intra-Asian Median Prices perMbps Across Capacities, Q4 2009). There is evidence that higher capacity prices are fallingfaster than lower capacity services. Where declines of less than 15 percent were noted forSTM-1s, anecdotal evidence indicates declines of 45 percent for STM-16s.


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FIGURE 10Intra-Asian Median Prices per Mbps Across Capacities, Q42009

Notes: Prices were caculated by dividing the median monthly recurring charge for each capacity by the Mbpsof the circuit. STM-1 = 155 Mbps, STM-4 = 622 Mbps, STM-16 = 2,488 Mbps, FastE = 100 Mbps, GigE =1,000 Mbps.

Ethernet

Demand for international longhaul Ethernet services continues to grow in the intra-Asianbandwidth market. Pricing tends to be linked to the underlying transport. Carriers that offerEthernet over SDH (EoSDH) services typically charge a premium to SDH, even though thebandwidth delivered is less. The capability to match the bandwidth of Ethernet service moreprecisely with customer demand and less expensive customer hand offs gives Ethernet anadvantage. Carriers that offer Ethernet over an MPLS network (EoMPLS) utilize a sharedMPLS meshed infrastructure to deliver a less expensive service. Carriers tend to priceEoMPLS at a modest discount to EoSDH service. Median monthly lease prices for a FastEon the Hong Kong-Singapore route in Q4 2009 were $6,385 for EoMPLS and $7,600 forEoSDH.

Demand, Revenue, and Effective Price Change

The shift of wholesale carrier demand to higher capacity circuits is driven by a need toaccommodate burgeoning IP traffic, expand meshed network service architectures, and toachieve the lowest cost per Mbps. Based on deployments of larger capacity increments, theeffective price per Mbps of capacity sold in the intra-Asian market declined by approximately17 percent in 2009 (see Figure: Intra-Asia Demand, Revenue, and Effective Price Change,2002–2009). The effective rate of decline takes into consideration not just changes in theprice of circuits, but also the changing purchase patterns of circuit buyers. As bandwidthrequirements have grown, an ever larger percentage of the capacity sold by carriers is madeup of high-capacity circuits, which have lower per-Mbps prices than smaller circuits.


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Intra-Asian bandwidth demand grew 39 percent in 2009, which suggests that intra-Asiancircuit revenues grew 15 percent in 2008 (see Figure: Intra-Asia Demand, Revenue, andEffective Price Change, 2002–2009 and Effective Price Change on Major Submarine CableRoutes, 2008–2009).

FIGURE 11Intra-Asia Demand, Revenue, and Effective Price Change,2002–2009

Notes: Demand change represents reported annual change in purchased capacity on selected route.Effective price change computed from revenue change and demand change.

FIGURE 12Effective Price Change on Major Submarine Cable Routes,2008–2009

Composite PriceChange

Change Due to ShiftingCircuit Mix

Effective PriceChange

Trans-Atlantic -10% -3% -12%Trans-Pacific -15% -7% -21%Intra-Asia -12% -6% -17%U.S.-Latin America -13% -5% -17%

Notes: Change in Contract Price refers to the change in median monthly leases prices across all productsbetween Q4 2008 and Q4 2009. Change due to shifting circuit mix measures the change in prices due to themovement towards higher-capacity products. Effective Price Change reflects the combined change in pricesat the product level and from the change in types of products purchased.


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Outlook

While near-term trends look to be more of the same in terms of price erosion and competition,the medium-term outlook for bandwidth prices on intra-Asia routes is strongly negative.Demand is clearly robust, evidenced by discussions of upgrades to new systems almost asquickly as they are put into service (e.g. AAG). However, if there is one truth that is universalin the submarine cable business, new cables and system upgrades to cables with overlappingroutes lead to renewed price declines.

Planned new cables for 2012 will add to an already significant pool of capacity. TheSoutheast Asia Japan Cable (SJC) and Asia Pacific Gateway (APG) consortium cables alongwith Pacnet’s West Asia Crossing cable will offer diversity and full ownership to individualcarriers, but potentially will create a condition of oversupply. These cables are not underconstruction due to a pending capacity shortage on existing cables, but are part of the questto compete for lowest cost per Mbps.

Prices will gravitate to systems with the lowest cost and could fall again as much as 50percent in the next 3 years. Requirements for diversity and strong demand growth in the nearterm will help mitigate the negative effects on revenue from persistent price erosion.

For detailed pricing, demand and revenue projections through 2016, please seeTeleGeography’s Global Bandwidth Forecast Service.


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The content on the preceding pages is a section from TeleGeography's Global Bandwidth Research Service

The work is based on sources believed to be reliable, but the publisher does not warrant the accuracy orcompleteness of any information for any purpose and is not responsible for any errors or omissions.

This work is for the confidential use of subscribers. Neither the whole nor any part of this publication maybe reproduced or transmitted in any form or by any means, electronic, mechanical, photocopied, recordedor otherwise, without prior written consent from PriMetrica, Inc.

All rights reserved. © 2010 PriMetrica, Inc.

TeleGeography Research.

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