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November 2017

Aqua Comms Reports on the
State-of-the-Business and Future
of Wholesale Submarine Cable

Aqua Comms Reports on the State-of-the-Business and Future of Wholesale Submarine Cable

Neutral submarine cable providers have brought a bright and intelligent sea change to the business of global communications:

  • They put a solid financial footing on the risky business of cable route selection, cable manufacture, deployment, maintenance, and operations;
  • They democratize capacity so that any and all carriers or content providers can buy;
  • They increase cable efficiencies by specializing and perfecting the art of the submarine cable business; and,
  • They help emerging countries participate in high-tech job markets.

And by the way, the net neutral cable players are not just superb project planners and financial experts: they are also full-blown telecom operators who own, operate, maintain and profit on the undersea business across a multi-year timeline.

Perhaps the biggest difference between yesteryear’s large carrier submarine cable consortia and today’s net neutral cable builders is the commitment to the wholesale business model.

Submarine wholesalers play no favorites and sell their capacity to all comers, large and small.  They also agree to specialize in undersea infrastructure and not compete on the retail comms market.

The irony, of course, is that the actual people who run these net neutral providers are the very same pros who ran the earlier generation of submarine cable planning and operations — at AT&T, BT, Tata Communications, you name it.

One of the pioneers in the submarine wholesale game is Dublin-based Aqua Comms.  And we’re pleased to welcome their CEO, Nigel Bayliff, who provided us with some splendid perspective on the state of the business and its future.

Dan Baker, Editor, Top Operator: Congratulations on the continued success of your Trans-Atlantic cable.  What are some of the factors driving your submarine business?

Nigel Bayliff: Thanks, Dan.  We’re very proud of AEC1, the America-to-Europe cable we just put in the water here Ireland in late 2015.  The cable has a 25 to 30 year design life, so it’s satisfying knowing you’re forming a critical part of a country’s connection to another country or continent.

This is a long term infrastructure business; it’s a long cycle business.  And no matter how many contracts you sign or lawyers you hire, the business is still built on a trusted relationship and the long term performance of an asset, which takes a long time to build and a reasonably long time to monetize.

We carve out that undersea infrastructure layer and specialize in bringing that to market.  And we specialize in selling that out to all the carriers who can’t afford to invest in their own cables.  Cables are an expensive thing to build.  It costs $180 to $250 million to build a cable across the Atlantic.

Seaborn, another net neutral provider, recently finished another cable, Seabras-1, that runs from New York to Sao Paulo Brazil, and their cost was between $400 to $500 million.  Well, it’s pretty obvious that an individual carrier can’t afford that kind of investment.

Now interestingly, Aqua Comms has just committed to a relationship with Seabras-1 because it’s now the shortest distance down to Sao Paolo.

So here’s a case of two companies with the same strategy in different markets who decided to connect our cables together to give the end points — London or Europe and Brazil — the opportunity to buy a con-joined service on both of our cables which saves our customers the hassle of having to deal with different parties.

Can you briefly explain how we moved from large carrier consortia investing in undersea cables to the neutral providers like Aqua Comms?

Well, Dan, if you go back 15 to 20 years — when I got started in this business — the incumbent carriers owned the submarine cable market.  Typically, a France Telecom, British Telecom, and Eir in Ireland would get together and say: “OK, we need a new cable to refresh our capacity in the next 5 years, so let’s form a consortium and split the cost.”

But once deregulation came, you suddenly had about 200 licensed carriers, all of whom wanted a slice of the international market, yet none of them had an enough volume to take on the whole project themselves.  And even forming a consortium with so many parties proved very difficult.

Soon thereafter, FLAG (Fiber-Optic Link Around the Globe) — a company I was a part of — became the first firm to take private capital (a mix of private investment and infrastructure investments by sovereign nations) and build cables speculatively along the required routes.  FLAG’s model was to monetize the cables over many years to the many carriers who would access them at the landing points.

What’s the process of deciding when a cable route is needed and must be replaced?

Well it’s mostly a function of the technological life span of the cables already under the sea.

The Atlantic, for example, is going through a transition right now.  There are 14 cables across the Atlantic today, but most of them are nearly end of life.  There are only three cables that are relatively modern: our AEC1 cable to Ireland; one in to the UK (from GTT); and one into Spain, MAREA, supported by the investment arm of Telefonica.

So maybe one or two more cables will get built.  And you can figure that advances in optical technology will create enough capacity to last the next 10 years on five cables separated by hundreds of kilometers (so there’s plenty of resilience in that model).

But very soon, the 14 cables created around 2000 will be retired because they are technically less competent and their cost per bit in terms of maintenance costs they create is not competitive in the market.

So the carriers who currently have capacity on those cables and any number of internet content players that have emerged in the last 10 years, and the ISPs who didn’t really exist 15 years ago — all of them will need to connect between the continents of Europe and North America.  That’s why we built our cable.



Clear here to open a larger map of Celtix Connect & AEC.


I understand Aqua Comms’ growth went hand-in-hand with the emergence of Ireland as a high tech hub.

Yes, Aqua Comms is 6 years old and its precursor, Sea Fiber Networks, built cable from Dublin to the UK back in 2011.

We caught the wave of Ireland’s “Celtic Tiger” economy.  We allowed businesses in Ireland to access the networks of the UK where all the Trans-Atlantic connectivity resided at the time — down in Cornwall, on the southwest tip of England, which originally served BT and Cable & Wireless.

Ireland needed access because our high-tech business was booming.  IBM had moved here.  Apple is trying to open a big facility here, too.  Through tax incentives and cultivation of its high-tech workforce, Ireland grew its economy at a record pace over the past 10 to 15 years

So this is one reason why one of our investors is the Irish State Infrastructure Fund, a branch of the national treasury.  There was — and continues to be — a sense of urgency to upgrading Ireland’s connectivity.

And now, after the next phase of cable building, Ireland will be the most connected country in Europe.  Ireland will have 3 of the 5 direct cross-Atlantic cables connecting into it.  Spain will have one; France will have one; and probably Denmark will have one too.

Aqua Comms’ big break was completing the Atlantic development of the AEC1 cable (America Europe) which runs from Long Island to Killala on the northwest corner of Ireland.  This is a very secure route with a high percentage of deep water — much safer in submarine cable terms. (Continental shelf waters are where almost all the fishing, anchoring, and potential natural disasters occur.)

The AEC1 cable was put in service at the end of 2015 and by connecting through Dublin to London, and mainland Europe, we support the big internet content players and most of the European carriers.

Aqua Comms is a very small firm in terms of staff, yet you’re managing a global asset that stretches 6,000 kilometers across the Atlantic.

Yes, we are a small company — less than 20 employees — but we are very practiced in this very specific layer of infrastructure.  There are several factors that make our model work:

  1. Leverage the expertise of several outside firms — We hire specialists to survey the sea bed.  We contract a company to make the cable; another to combine the cable with repeaters; still another to connect the cable to the land.

    We also use some outsource support in the US for our network operations function with our management team controlling how that works.
  2. Trusted experts on staff — We deliver our product to people who have trusted Aqua Comms’ people for many years.  It’s a very senior team we have — 70% of our staff are VP level and above, people who have worked in the business for a couple decades.

    So we don’t really need the kind of widespread brand recognition that a Vodafone needs.  We just need to be known by the 200-odd companies at the carriers and ICPs.
  3. Serving a broad set of submarine cable users — This is a private investment in a submarine cable.  We have created value from that by supplying some of the biggest users of submarine cable: the major ICPs — household names in the social media and content space.

    We are a stable and trusted partner or deliverer of capacity services across the oceans.  And rather than sell all the capacity the day it’s installed, we make money over the 10 or 20 years of economic life of the cable.
  4. Specialization is key — When you specialize, you create more efficiencies than if you are a generalist.  If you try to do too much, the sheer complexity of a large organization slows you down.

    At Aqua Comms, we are completely aligned in what we do.  We build the cable, we operationalize it, put it into our model, sell it, and operate it.  And we do that very efficiently.

    And with a small team, and highly efficient operating model and a focused attention on our business, we can take that model around the world where we invest and produce a valuable infrastructure for countries, continents and companies to allow them to build the underlying layer of the internet.

    There are only 5 or 6 vendors who can construct these cable systems: even fewer companies specialize in manufacturing the cables themselves.

You mentioned that big industry names invest in capacity on your cable.  Is the business still about serving mostly the large carriers and ICPs?

No, Dan.  We are an open neutral gateway to these large capacities.  And frankly this is one of the problems of the past — the smaller guys would be locked out by the bigger guys.  The big guys could dictate what they would charge and therefore hamper a small operator.

This has completely turned around today.  If you’ve got a license in a country to sell telecommunications, I can sell you a chunk of capacity from one side of the Atlantic to the other.

We will sell capacity to any user of telecoms as a carrier.  The big carriers will buy bigger pieces and get better cost economics.  But if a mom and pop cableco in Missouri decided they needed a 10 Gigabit circuit to Switzerland, I would happily sell that to them.

Now in the real world, that company is probably going to go to an aggregator carrier like CenturyLink or one of the new innovative SDN-based operators like Epsilon or PacketFabric — and we will sell something bigger to them.

Does a CenturyLink worry that you will compete with them on a retail basis?

Well, I think it’s well recognized that Aqua Comms truly is an independent carrier’s carrier.  We do not compete with our customers out in the retail market or on the street.

If I’m an enterprise sitting in Frankfurt, I can contact COLT to get circuits to the US.  Well, COLT needs to decide: there are several companies who can supply their capacity.  And probably four of those carriers are vertically oriented operators who could sell into the same enterprise customer in Frankfurt.

Meanwhile, COLT realizes I have neither the salesforce, the capability, nor the desire to sell at the retail level.  This is why the more independent carriers are more disposed to give the business to us.

How do you figure out where to spend your dollar in undersea cable routes?

Well, you certainly need to understand the market in a very deep way.

Where will be the next growth routes be?  A simple crystal ball forecast looks for markets where there’s high year-over-year growth in internet or broadband requirements.

If the upward slope of the market’s growth is merely normal, then technology upgrades in capacity every 10 years or so should be sufficient.

However, there are markets in the world where the growth is exceeding the ability for technology upgrades to keep pace.  One of those markets is certainly India, where internet and broadband penetration are growing leaps and bounds.  In places like Africa, too, and a lot of markets in China and Asia, penetration has not reached anywhere near saturation.

In Southeast Asia there are many places you can only get 1 Mbit broadband today, though you can’t paint with too broad a brush because in South Korea, 200 Mbits or higher is widely available in fiber to the home.

You could argue that either side of the Atlantic is saturated, though that’s not entirely true.  People always want more, and the dynamic kind of services being introduced out there demands more bandwidth.  Still, the actual penetration of internet and broadband per capita numbers is pretty high.

What global factors are the wild cards today?  Which applications are likely to ramp up usage and therefore the need for submarine cables?

Dan, here are a few factors that we think are driving the markets today or could spike global capacity in the future:

  • User-Driven and Live Stream Content-- The consumers or business users of networks are essentially driving capacity today.  And the way people use communications is totally oblivious to where the source data lives.  People act as if there will always be a broadband pipe between locations around the world.

    So today we think nothing of having a video conference over Skype.  And my cellphone has a 4K camera, so if I’m calling around the world, Facebook will generally try to send my video in as good a quality as they can.

    People these days are also more inclined to consume live stream videos.  So I think the future will bring more globalization of data, not less.

  • Virtual reality — Sure, VR, is a tiny fraction of the market today, but if it takes off, the capacity it consumes is roughly 6 to 7 times the volume of data.  So if you need 10 Mbits to the handset to experience traditional video, you’ll need nearly 70 Mbits to do VR.
  • If you are doing that internationally, maybe interviewing a candidate on another continent, that stream has to cross a submarine cable.

  • The Internet of Things — IoT is another wild card.  And I recognize that much of IoT data consolidates at a local hosting center, but some of it will be globalized.
  • Consider the case of AI on top of IoT.  Elon Musk’s cars communicate back to a central place because Tesla engineers want to learn from millions of vehicles on the road to a build a better model of efficiency.

    And Tesla may want to transport its data to one global AI analytic engine in France rather than have multiple ones in a nation.

Very fine briefing, Nigel.  Thank you.  What’s that old Irish blessing? “May the road rise up to meet you; may the wind of global capacity be always at your back.”

Copyright 2017 Top Operator Journal

 

About the Expert

Nigel Bayliff

Nigel Bayliff

Nigel Bayliff, CEO of Aqua Comms, is a global telecom industry veteran of 25-plus years‘ experience.

He has been an advisor and consultant to cable development, private equity and government clients, and Vice-Chairman of the United Nations Joint Task Force that examined the gathering of disaster mitigation and climate information from the global web of undersea cable systems.

Mr.  Bayliff also served as CEO and board member of Huawei Marine Networks, where he introduced several major, technological advances into the marketplace.

Previously, he was a member of the executive team of FLAG Telecom where he was an officer and deputy chairman for several group companies, and was responsible for the construction and operation of the FLAG Global Network, which encompasses 65,000 km of submarine cable systems and provides carrier-grade connectivity services to 40 countries.

In 2006, he was elected as a Fellow of the UK Institute of Engineering Technology.   Contact Nigel via

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