Walid Irshaid Issue: Africa and the Middle East 2004
Article no.: 6
Topic: Submarine Cables – Unlocking Broadband in the Middle East and Asia
Author: Walid Irshaid
Title: President, Middle East and Africa
Organisation: Flag Telecom
PDF size: 680KB

About author

Walid Irshaid is the President for Middle East and Africa of Flag Telecom and is a member of the Executive Board of FLAG Telecom. Based in Dubai. Walid Irshaid is responsible for all FLAG’s operations in the Middle East and Africa. Before joining FLAG Telecom, he served as the Director General of Palestine Telecom Corporation (PALTEL), the emerging telecom services provider that has an exclusive 10 year licence for all voice and data services in Palestine. Before that he was Managing Director for the Investcom Group in Beirut developing data and business communication services in Lebanon. His experience in the Middle East also includes 17 years with Emirates Telecom (ETISALAT) as Corporate Manager. There, he was actively involved in the deployment and development of major projects and key services, including cellular, data, value-added services and multimedia. Mr Irshaid holds a Bachelor of Engineering Degree in Electronics.

 

Article abstract

The submarine telecom cable industry has been suffering through one of the most difficult periods in its 150-year history. However, during the past two years the industry has been in the process of restructuring and, while some markets remain in the doldrums, others are powering ahead. A new cable system has been announced. It will run from Egypt through the Middle East and, from there, on to India to China. It is the first major submarine cable infrastructure investment of this century.

 

Full Article

Despite the uncertainties on the political front, there is now a sense of renewed optimism regarding the global economy. McKinsey’s recent quarterly report showed that an overwhelming number of executives from companies of all sizes and in all regions believe the economy is healthier than it was six months ago. While a degree of levelling off is expected in the second half of the year, strong green shoots are appearing. Particularly strong signals are coming from many parts of the telecommunications and information technology sector, spurred on by substantial growth in affordable broadband access in many parts of the Middle East and Asia. Within that sector, the submarine telecom cable industry has been passing through one of the most difficult periods in its 150-year history. It is currently struggling to adjust to the effects of the crisis created by the bursting telecom investment bubble which left over-leveraged companies with unwanted infrastructure, rapidly falling returns and market capitalisation heading towards zero. Restructuring and resurgence Over the past two years the industry has been in the process of restructuring and, while some markets remain in the doldrums, others are powering ahead. Problems of overcapacity remain on the overbuilt routes across the Atlantic and Pacific, but in regions under-served by international cable systems, demand is already outstripping supply. Leading this surge are countries in the Middle East, together with India and China, where demand for telecommunications services is forecast to explode in the coming years. It’s a demand being fuelled by increasing use of the Internet, by new broadband services and by global outsourcing of call centres and back office operations by European and American companies In India, for example, NASSCOM forecasts that bandwidth demand will grow from 7.31Gbits/s in 2003 to 92.56Gbits/s in 2009. While much of this demand will come from increased Internet usage, forecast growth in mobile and fixed services will be substantial. The number of mobile subscribers is expected to grow from the current figure of 30 million to 70 million by 2007, with fixed subscribers growing from 50 million to nearly 70 million in the same period. Forecasts of significant growth are also coming from the Middle East region, where demand for international bandwidth for the Gulf States is forecast to grow from its current level of 3Gbits/s to 30Gbits/s by 2010. But it is China that is forecast to outstrip all other markets; Ovum predicts that demand is set to rise from 45Gbits/s this year to over 2,000Gbits/s in 2010. The accelerating pace of market liberalisation in these regions is serving to fuel growth in all telecommunications sectors. Market liberalisation in some countries has been slow and, in a number of cases, ineffective regulation of incumbent monopolies has inhibited market growth. However, as was the case in the US and Europe, where there is a strong customer demand for services coupled with the technology available to deliver them, governments are quickly sweeping such growth inhibitors aside. Explosive growth in demand should not come as a great surprise. When the telecoms bubble burst it was not lack of demand for telecommunications services, nor the Internet, that caused it. It was caused by over-supply of infrastructure and over-investment driven by all the hype, illusion and over-optimism surrounding the industry. Traffic volumes have never stopped increasing. For example, according to Telegeography, private data networks grew by 56 per cent between 2001 and 2002, the time that the industry hit the rocks, while Internet bandwidth grew 73 per cent during the same period. The entire global economy is heavily reliant on the world’s telecommunications infrastructure and international commerce would effectively cease without it. It has been repeatedly demonstrated that the pace of GNP growth of the emerging economic nations is directly related to telecommunications network and service penetration. Throughout the recent economic downturn, across the telecoms industry – even in mature markets, traffic volumes never stopped increasing. The ‘bust’ for the submarine cable industry was one of a supply-demand imbalance caused by over investment, but that problem of imbalance was always much less of a problem in much of the Middle East and Asia. New links Indeed, we are now seeing a reversed demand-supply imbalance in many parts of those regions, a situation that led to the announcement last month that several hundred million dollars will be invested in a new cable system running from Egypt in the west, around the Gulf, across India and on to China in the east. The cable system will be the first major submarine cable infrastructure investment of this century. It will be inaugurated within 12 months and will provide the first terabit/s resilient loop around the Gulf and the first direct terabit/s link between India and China, the world’s two fastest growing economies. This is not another joust at an illusionary market. The investment is being made in a climate very different from that of the 1990s boom. Strong sustainable demand is already present in the market. This investment is being made privately without recourse to vendors or public financing. Importantly, detailed discussions have taken place with customers and leading operators. Egypt and the Gulf states of Oman, Bahrain, Kuwait, Iran, Qatar and Iraq have all expressed interest in joining the effort and most are in an advanced stage of discussion about their participation. At a time when parts of the industry remain in a depressed state, the cable is expected to dramatically change the global communications infrastructure balance. It has been recognised for some time that the exploding market demand from major growth economies could not be served by the current level of bandwidth connectivity serving the Middle East and India. This is true, not only in terms of capacity, but also in levels of service reliability. The new cable will address both issues, bringing world-standard levels of quality and reliability to each of its landing points with service level agreements for customers of 99.997 per cent across the entire associated global network. Service quality is also enhanced by the provision of east and west routing across the network, meaning traffic can be switched at any time to avoid a cable cut or natural disaster. The western link of the cable system will land at Telecom Egypt’s landing station at Suez, where the cable will integrate with the global network. The cable, following a route through the Red Sea along the East African coast and across the top of the Arabian Sea before landing in Oman, will include the Gulf region’s first self-healing submarine network ring, providing all connected countries with the reliability and high quality that comes from alternative two-way routing. Travelling from Oman along its easterly link, the cable will cross the Arabian Sea to a new landing station at Mumbai in India. From there, it will interconnect seamlessly to a pan-India 80,000 km high-speed backbone network linking approx 1,100 cities and towns across the length and breadth of the country. When completed, it will be part of a 200,000 kilometre network providing broadband connections to 1.7 million homes and offices. The network offers customers direct connectivity into and across one of the world’s largest growth economies from any metropolitan centre connected to this global network. At Chennai, on the East coast of India where a second landing station is being built, network traffic will again flow into a submarine system, linking India to Hong Kong, where the cable will once again integrate with a global network. The new cables will create the first direct, high-capacity links between many of the countries that the cable passes through. The more challenging routes such as the Atlantic, of course, are not being abandoned. While trans-Atlantic capacity, per se, remains heavily over-provisioned, the route is a crucial element in providing customers with global connectivity in and out of the US, particularly to and from the growing economies of the Middle East and Asia. This new cable and other initiatives are a welcome sign of the industry’s recovery, but can this recovery be sustained into the future? It is clear, that further consolidation is needed and that cost/pricing structures need to be realigned. Many industries have suffered catastrophic collapses as a result of over-investment, over-commitment and over-expansion. In every case, a smaller number of highly enduring companies emerged from the chaos to lead the industry into a new phase of profitability. There is no reason to believe that the submarine cable industry will be any different. Winning in a demanding market The opportunities in the telecommunications and information technology market, said to be worth an estimated 1.5 trillion US dollars a year, are huge, but there will be winners and losers. The winners from this industry realignment will be those able to maintain both their near-term financial stability and a clear and sustainable long-term strategic focus. At the heart of any long-term strategy must be efficient operational cost management. This will depend on being able to deliver what customers want at the right price points, understanding and anticipating the price curve and establishing market leadership either through scale or a position in a defensible niche. Becoming a winner in the global wholesale services space will require the successful integration of a number of key elements. Financial discipline will be absolutely critical – driving optimisation of operational support costs and network efficiency, as well as a focus on customer profitability. Survivors will have to be able to retain a stable and loyal customer base by delivering services that they value, which are differentiated from competitive offerings. A focused business strategy must address the needs of a targeted customer base, rather than attempting to be ‘all things to all men’. Finally, the leading players will be those that deliver high quality service globally whilst maintaining strong relationships with local operators and influencers. With hindsight it’s easy to see the mistakes that were made in the past. Competitors chasing after the perceived pot of gold all made one fundamental error of judgement – this was not a 100-metre dash to the winning post but a long and arduous 26-mile marathon. The industry may have shed the spikes of the sprinter and adjusted to the tempo of the marathon, but the potential rewards for those up with the pace and for the customers they serve, remain considerable.