20,000 Cables: Under the Sea

Data traffic growth has caused a hurricane of demand for more undersea cable capacity. Carriers are learning unique new ways to construct and finance these submarine superhighways

In today's Internet era, undersea cables have become a critical element of carriers' international networks. Modern undersea fiber optic cable systems have the technical capabilities to transmit enormous amounts of data at a low cost relative to copper cable and satellites. And incumbent and emerging carriers have recognized the flexibility of undersea cables in satisfying their rapidly growing infrastructure requirements.

The increase in demand for undersea cable capacity is being driven primarily by data traffic from Web-enabled applications. While voice was once the primary source of traffic on international routes, its growth will remain relatively constant compared with that of data traffic, which includes applications such as Web browsing, multimedia, messaging and data exchange. Consultancy Arthur D. Little predicts that the voice/data crossover point for global traffic overall will occur by 2002 (Figure 1).

Terrestrial - or dry - infrastructure increasingly has become the limiting factor in international demand growth. Land-based bottlenecks include infrastructure issues such as PC penetration, availability of Internet access, last-mile access alternatives and implementation of Web-based applications. Routes connecting cities with highly developed access networks will grow in step with burgeoning demand.

To keep up with such demand, the capacity of the global undersea network will grow more than 15 times between 1999 and 2002. Wave division multiplexing (WDM), synchronous digital hierarchy (SDH) and repeaterless undersea fiber technologies will allow virtually limitless transmission of information across the globe.

Technology at the helm

In 1979, AT&T proposed a trans-Atlantic undersea fiber optic system that would supercede earlier copper-based coaxial cables. TAT-8 went into service in December 1988, connecting the U.S., the U.K. and France. TAT-8 was constructed jointly by AT&T Submarine Systems (now Tyco) and Alcatel with a maximum transmission capacity of 560 Mb/s. Other 560 Mb/s cables placed into service at about the same time were TAT-9, -10 and -11, TPC-4, APC, China-Japan and Columbus-2 (Table 1).

Advancements in SDH technology allowed undersea systems to break the 560 Mb/s barrier to achieve 2.5 to 10 Gb/s on a single fiber strand - considered a major technological breakthrough. CANTAT-3 was one of the first SDH cables operating at 5 Gb/s with 32 STM-1s, connecting Canada, Denmark, Germany and the U.K., and requiring 89 repeaters on a 44,600 fiber-km system. Other early SDH cables included TAT-12 and -13, TPC-5, APCN, FLAG, Se-Me-We-3 and Americas-1.

Following on the heels of SDH, WDM was introduced, allowing carriers to multiply the capacity of existing systems without having to replace the physical cable. The first undersea cable systems that employed WDM technology were TAT-12/13 (two- to four-channel upgrade), Gemini (six- to 12-channel upgrade), AC-1 (eight- to 16-channel upgrade) and Columbus-3 (four-channel upgrade).

SDH ring technology was introduced to provide automatic restoration capabilities that would reduce the need for carriers to purchase backup capacity on diverse cable and satellite systems. Undersea cables now are constructed using a ring configuration that, in the event of a fiber cut, reverses the direction of traffic around the ring. Hence, a fiber cut causes a disruption in traffic that is too short to disrupt the operation of most communication systems. The first major undersea ring system was the TAT-12/13 combination. Some 50% of the capacity on TAT-12/13 is reserved for restoration, with TAT-12 handling the northern part of the ring and TAT-13 covering the southern portion. Undersea cables with a true physical ring configuration generally can command a higher price for capacity because of their desirable automatic restoration capabilities.

Festoon undersea cables wrap around a coastline to compete with terrestrial systems. A critical technological advance has been the advent of unrepeatered systems. These cables allow carriers to lay relatively short spans (1000 kilometers or less) without any electricity feed to repeaters. Electricity feeds running alongside the cables often have been the cause of failures and excessive maintenance costs.

The planned Caribbean ARCOS-1 system will take advantage of unrepeatered technology on 22 of 24 links between North, South and Central America (Figure 2). Advancements in technology will lengthen the unrepeatered spans to further reduce costs and increase undersea cable competitiveness vis-a-vis terrestrial fiber optic networks (see sidebar page 74).

Sinking costs and prices

Such technological advancements in undersea cable development will result in lower costs, allowing prices to continue their rapid decline. Trans-Atlantic prices started to decline noticeably in 1997 by the impending introduction of AC-1 and Gemini. Additional declines are expected because of the 2001 introduction of

TAT-14, Hibernia and FLAG-Atlantic. Trans-Pacific and Caribbean cables also are introducing capacity at lower prices because of technological advancements and heightened competition.

Carriers always are balancing the economics of maximizing system capacity with providing competitive prices to sell in volume. The economic advantages of the aforementioned technologies are derived from the increasing capacity that can be supported on a single undersea cable system.

After a system becomes highly trafficked, the incremental cost of upgrading to higher capacity is relatively low compared with the initial system cost. The greatest influence on price then becomes the level of competition on each route.

Consortium club meets private sponsor

Traditionally, undersea cables were sponsored by consortia in which each participating national carrier would invest an equity share. Each carrier was allocated capacity proportionate to its investment, and none of the system's capacity would be offered on the open market. Hence, the consortia (sometimes called "clubs") would control the majority of international capacity, and resale would occur through authorized members and agents.

Backhaul from the landing stations (where the cables come onto land) to in-city co-location facilities would be provided solely by consortium members and offered to other cable owners. Hence, city-to-city telecommunications prices remained a basic function of the national tariffs on both ends of the circuit.

The recent rapid increase in data traffic has made undersea cables a profitable investment for independent private entities. Private entities can sell to incumbent and competitive carriers and can capitalize on increased demand without having equity ties to carrier owners.

Privately sponsored undersea cable systems are shifting toward city-to-city links rather than landing-station-to-landing-station services. Private systems are building out terrestrial fiber optic links between the landing stations and each city's co-location facilities. Hence, the private cables can control the entire end-to-end circuit and offer global prices independent of national tariffs.

An increasingly popular equity option for undersea cable funding is the hybrid sponsorship that brings together carriers and private investors. The hybrid partnership allows the cable to rely on its sponsors for pre-sales financing requirements while selling capacity as an independent entity.

The sea's the limit

Undersea cable systems are an integral part of the international telecom infrastructure for supporting rapidly growing bandwidth needs. Each successive technological improvement has reduced the infrastructure costs and improved the quality and availability of international services. The blistering pace of technological advancements is increasing capacity and reducing infrastructure costs on undersea infrastructure.

Privately sponsored cables have completely opened competition for capacity on international routes that once were controlled by the club carriers. While club-sponsored cables will continue to exist, a more popular equity option is the hybrid sponsorship that allows the cable to more readily satisfy financing requirements while remaining free to sell to all customers - independent of size and infrastructure facilities.

All carriers are seeking capacity on undersea cables to provide end-to-end international services. By piecing together the undersea and terrestrial portions of the infrastructure, global carriers can provide seamless services to end users interested in one-stop shopping, global volume discounts, worldwide feature support and responsive customer care.

Undersea cables are becoming an integral part of the everyday telecom infrastructure in a world that has no boundaries. As the Internet and Web-based applications grow at an incredible pace, international undersea cables will continue to be a key piece of infrastructure in enabling the world to communicate.

Gemini and Global Crossing's AC-1 are the newest cables to be added to the Atlantic, making use of synchronous digital hierarchy ring and wave division multiplexing technologies (see table).

Gemini. Gemini is a 50,400 fiber-km trans-Atlantic joint venture cable sponsored by MCI WorldCom and Cable & Wireless. Gemini is a fully functional ring system that was upgraded from 30 to 60 Gb/s in 1999 and operates over two fiber pairs using SDH and WDM transmission technology. The southern ring connects Manasquan, N.J., and Porthcurno, U.K., and entered service in March 1998. The northern ring connects Charlestown, R.I., with Porthcurno, U.K., and entered service in November 1998.

Global Crossing AC-1. Global Crossing is a completely private consortium and a sponsor of many undersea cables, including AC-1, PC-1, PAC, MAC, SAC and EAC.

Global Crossing has rapidly recognized the opportunity to offer city-to-city circuits, which may be preferable for carriers lacking the facilities to backhaul from landing stations to cities. Global Crossing also is rapidly building out its capabilities to offer backhaul services by purchasing terrestrial carriers such as Frontier and U.K.-based Racal Telecom. Global Crossing also has carrier serving arrangements with Deutsche Telekom.

The American Regional Caribbean System-1, FLAG-Atlantic, Hibernia, and TAT-14 are a few of the new cables that are planned for the Atlantic and the Caribbean.

ARCOS-1, Americas-8. ARCOS-1 is an 8400-kilometer physical ring system that will connect the U.S. and 14 countries in Central America, South America and the Caribbean. The system initially will offer 15 Gb/s of service capacity that is upgradable to at least 720 Gb/s.

New World Network, the sponsor of ARCOS-1, plans to construct another ring cable around South America to interconnect with ARCOS-1. The new 21,800-kilometer network features a dense WDM system and will be called Americas-8 because of its figure-eight shape. The total system cost is estimated to be $1.25 billion and could be attractive to the many new and emerging carriers in Latin America.

FLAG-Atlantic. FLAG-Atlantic is a hybrid cable system with carrier and private investor sponsors. It is a 50/50 joint venture between Global Telesystems Group and FLAG Telecom. Bell Atlantic has a 38% stake in FLAG Telecom, which represents a 19% stake in FLAG-Atlantic.

FLAG-Atlantic will connect with FLAG Telecom's cable at Land's End, U.K., and offer circuits to landing points in the Middle East and Asia. The hybrid partnership between carriers and private investors has allowed FLAG-Atlantic to develop a combination of undersea and terrestrial infrastructure. City-to-city services will be offered with backhaul on its own end links and on Global Telesystems' networks.

The FLAG-Atlantic undersea cable is planned as a 12,500 fiber-km system with northern and southern segments connecting Long Island, N.Y., to Land's End, U.K., and Brittany, France. The total cost of FLAG-Atlantic will be approximately $1 billion, and the debt financing has been secured through Barclays Capital.

Hibernia. Hibernia would be the first cable since CANTAT-3 to connect Canada directly with Europe and also would have the first direct trans-Atlantic connection with Ireland. Hibernia is sponsored by Worldwide Fiber. It will provide the backhaul connectivity through its terrestrial network in North America and through carrier service agreements in Europe.

The $850 million in project financing is being secured through Goldman Sachs Credit Partners, DLJ Capital and Credit Suisse First Boston. A minority interest in Hibernia is being secured by Tyco International, Providence Equity Partners, DLJ Merchant Banking and GS Credit Partners.

TAT-14. TAT-14 is a consortium cable that follows the TAT-8, -9, -10, -11, -12 and -13 cables. Its initial participants included AT&T, BT, Cable & Wireless, Deutsche Telekom, France Telecom, MCI WorldCom, Pacific Gateway Exchange, Level 3 Communications, Swisscom and Telia.

TAT-14 will connect Tuckerton, N.J., with Widemouth, U.K., and Blaabjerg, Denmark, with additional landing points in Norden, Germany; Katwijk, Netherlands; and St. Valery, France. Each of the major carrier investors will provide backhaul services from designated landing stations to target markets.