Rising geopolitical tensions and recent suspected sabotage events have put the resiliency of subsea fiber optic cables under renewed scrutiny. The heightened interest in subsea cable resiliency has led leading regulatory bodies, international organizations, and governments to propose initiatives and measures to enhance the security and resiliency of subsea cables. In our recent Insight Note, we deep-dive into the resiliency question and the context of subsea fiber cable investment trends.
For additional perspective, download our Insight Note: Fortifying Global Connectivity: Enhancing Resiliency and Strategic Investments in Subsea Fiber Cable Networks
The Big Picture
For over a decade, cloud service providers – in particular Google, Meta, Microsoft, and Amazon – have led in the investment and construction of new subsea cables. With the addition of government stimulus into broadband projects in the past 3-4 years since the Covid pandemic, the subsea market is experiencing a mini-renaissance, although it pales in comparison to the heydays of the late 1990s and early 2000s.
Resiliency of Subsea Fiber Cables
Resiliency of subsea fiber cables is not a new topic, although it is garnering increased interest due to geopolitical tensions. Cloud service providers and their data center connectivity requirements drive the construction of cables today. As a result, certain routes, such as the North Atlantic and North Pacific, receive more attention because of data traffic patterns and the location of data centers and consumers. To improve resiliency, trends are clearly moving towards opening new routes as well as branching off the main cable trunk.
Cable landing station resiliency is a topic that does not attract much attention but is perhaps more critical since it is easier to disrupt operations by targeting the dry plant infrastructure. This issue is high on regulatory and industry purview as recent developments demonstrate.
Investments in Subsea Fiber Cables
Investments by cloud service providers in subsea fiber cables and overbuilding of certain routes have led to a significant drop in the price of capacity over the past years. This has reduced the opportunity for private capital investments in subsea cables to fewer routes that are still profitable. Government stimulus has opened some opportunities for private investments, particularly in the form of Public-Private Partnerships (PPP). Other opportunities are investments in niche markets, such as subsea cables for offshore oil and gas platforms.
Another potential area for investment includes the ecosystem supporting the deployment, operation, and maintenance of subsea cables. In particular, it is commonly acknowledged that the cable laying and maintenance fleet is aging while demand for these services is high. This has led to a few investments in cable laying companies, such as KKR’s $400 million investment in Optic Marine Systems.
Concluding Remarks
The impact of geopolitical factors has been evident in the significant role governments play in routing, laying, and funding subsea cables. The rise of AI is another critical aspect whose exact impact on subsea cables remains to be seen. For instance, AI applications are expected to increase demand for bandwidth and shift traffic patterns, resulting in increased traffic among data centers. How AI will evolve to impact the subsea fiber cable market is the next chapter of this industry.
At Xona Partners, our team has conducted extensive audits and analyses of telecom network resiliency. Additionally, we provide technical and commercial due diligence services for financial investors in digital infrastructure assets. Contact me if you’d like to discuss this further.