Subsea Cables – The Underwater Backbone of the Digital Age
By Bertrand Guiot, Head of Real Assets & Investment Banking, Southeast Asia
Following Natixis CIB’s participation in the 2023 Submarine Networks World (SNW) conference in Singapore, Bertrand Guiot shares his views on the opportunities and challenges facing this critical global sector.
Submarine communication cables (or “subsea cables”) are responsible for 97% of all global internet traffic. They form a spiderweb of routes across the world, connecting major continents to one other – but unlike marine shipping routes or airline cargo flight paths, these connections lay at the bottom of our oceans and ferry a vital global resource: data.
Subsea cables carry terabits of data across the globe, helping people and companies stay connected and conduct business in real time across continents. Predictably in our data-hungry world, the sector has seen significant investment, totaling USD 19 billion over the past decade. Projections indicate that the industry will maintain this momentum, with an anticipated USD 5 billion in annual investments over the next two years. The primary driving force behind this surge in investments is the explosion in data center-to-data center traffic, a trend poised to reshape the industry as global data centers increasingly make interconnection with subsea cables a priority to support their businesses.
In our data-hungry world, the sector has seen significant investment, totaling USD 19 billion over the past decade. Projections indicate that the industry will maintain this momentum, with an anticipated USD 5 billion in annual investments over the next two years.
Furthermore, following reduced activity in 2019-21, there is a palpable uptick in new projects, with a substantial portion of this attributable to “hyperscalers”, or large cloud data service providers. Tech giants like Google and Amazon are championing more than 20% of the new long subsea telecom cable installations.
Private investors, backed by private equity funds and infrastructure players, have also assumed a prominent role in shaping the landscape. Their collective market share in new systems has surged to an impressive 40%. Geographically, Latin America (20%), Southeast Asia (15%), and the Middle East to Asia (15%) are the key regions for these new developments.
Looking at the Asia Pacific region, the sector is experiencing a recovery and there is a strategic focus on enhancing intraregional connectivity. Subsea cables play an indispensable role in connecting archipelagos like Indonesia and the Philippines. This growth is primarily fueled by the rapid expansion of cloud infrastructure and the widespread deployment of artificial intelligence across the region. China, India, Australia, and Indonesia are emerging as the epicenters of this transformative wave.
After a decade of participation in the SNW Conference, we saw for the first time the participation of infrastructure funds and data center developers at the event, marking a significant shift in the industry's regional dynamics and highlighting the increasing investor interest.
Interestingly, after a decade of participation at the SNW Conference, we saw for the first time the participation of infrastructure funds and data center developers at the event, marking a significant shift in the industry's regional dynamics and highlighting the increasing investor interest.
Naturally, the sector also faces challenges. Recent discussions among industry experts have revolved around the issues posed by rising interest rates, commodity prices, labor costs, and economic volatility more broadly. These factors cast some uncertainty over the immediate future of subsea cable investments. Some developers have responded by concentrating resources on essential capital expenditures with shorter payback periods. Environmental and sustainability concerns are also top of mind for industry participants and investors alike, as subsea cables incur considerable electricity consumption.
Recognizing the critical role subsea cables play in the digitalization of our world, industry stakeholders and financial institutions are poised to support developers in navigating these challenges. Despite some uncertainties, the industry remains resilient, and is adapting to challenges and embracing opportunities for a more connected future. Financial institutions like ours remain committed to collaborating with developers and stakeholders to ensure the continued growth and sustainability of this vital digital infrastructure.