Global submarine cable market accelerates on road to recovery

New market drivers and new types of customers continue to drive the international submarine market, which began to recover last year after a period of slow growth.

The market for submarine telecom cable could more than triple in 2007, jumping to 60,000 km, according to conservative estimates from industry sources. The majority of the big projects are in India and the Far East, but there is also activity in the Caribbean and Africa. Fueling the demand is a wave of new communications companies-often in newly deregulated markets-who are selling Internet and mobile telephony services as well as incumbents that are responding to the rising competition.

“The hotspots today are the places that did not get covered in the boom,” says Tom Soja, an international submarine cable consultant and analyst. “The market has improved dramatically since last year. Factories are very busy. If you have a project you want to get in by 2008 you might have to wait. There could be manufacturing bottlenecks.”

But Soja cautions that the submarine cable market is not likely to return to levels of the boom, when nearly 100,000 km of cable were being installed annually. He does not expect annual installations to exceed 60,000 km.

“Submarine cable is a very cyclical market,” explains Georges Krebs, chief technology officer of Alcatel Submarine Networks. “We see the cycle going up. This year is largely a continuation of the trend that started in 2005. There are a number of 1,000-to-2,000-km projects. Next year will likely be a transition year. Some big projects like EASSY, a 10,000-km project on the east coast of Africa, could start. In the Pacific, there are three to four big systems being planned. All three connect Asia to the United States. These systems follow Internet growth. Besides these systems, at least three regional systems are being planned in Asia. There are also systems in India. The initiative is coming from Indian carriers.”

Based on these plans, Krebs estimates some 100,000 km of fibre-optic cable could be contracted in 2007. But realistically, he says, the figure will be 40,000 to 60,000 km. This would be a healthy increase from this year’s market, which is 15,000 to 20,000 km.

Krebs attributes the market growth to four interrelated market drivers: an increased level of competition, the tremendous growth of mobile telephony, the explosion of high-speed Internet, and the increasing importance of network resilience for high-speed services. Also, operators in many island countries are building new cables to back up existing cables.

Competition is the main catalyst for international submarine cable construction. Incumbents around the world that are members of consortium submarine cables are trying to slow the growth of alternative carriers by denying them access to their cables or charging them high fees. This situation has led many new communications companies, including mobile phone operators, to build their own submarine cables, which is a completely new trend.

New mobile companies are building international submarine cables, Krebs says, because international traffic, roaming, and Internet are among their most lucrative services. Among the recent new mobile operators to build submarine cables are Reliance in India, Vodafone in Malta, Globacom in Nigeria, and Orascom in Algeria and Pakistan.

For example, Orascom Telecom, an Egyptian-owned company and the largest GSM network operator in the Middle East, Africa, and South Asia, has built a series of cables to interconnect its operations. In April 2005, Orascom awarded Alcatel a contract to supply and build a 1,300-km system to connect Marseilles to Algiers and Annaba in Algeria.

In August 2006, Tyco Telecommunications completed the TWA-1 submarine system for Transworld Associates (Pvt.), Ltd., a joint venture between Orascom and Saif Group of Pakistan. The 1,300-km TWA-1 system lands in Karachi, Pakistan, Fujairah in the United Arab Emirates, and Oman. TWA-1 is the first private-sector undersea cable system in Pakistan.

“The Indian Ocean and the Middle East continue to be hot regions for development,” says Jeffrey Stark, managing director, EMEA sales and marketing, at Tyco Telecommunications. “The next big project in the region will likely be FOG2, which is a consortium cable owned by Iraq Telecom and Post Co., Saudi Telecommunications Co., and Etisalat of the United Arab Emirates. A supply contract for the 3,000-km system is expected to be awarded by the end of 2006.”

High-speed Internet is still the biggest service driver for submarine cable deployments. New networks are needed in the Pacific, Krebs says. He and other vendors have also started seeing requests for system upgrades in the Atlantic.

A sharp increase in the bandwidth in many countries has created another new trend-operators building their own private international submarine systems. Systems have been installed recently in the Mediterranean for operators needing to connect to international systems or to other countries. Among such projects are OTE’s Greece-to-Western Europe system (GWEN), linking Greece to Bari, Italy, where international systems land; Turk Telecom’s link to the international Med Nautilus system; and the latest project, Maroc Telecom’s Morocco-to-France system.

Maroc Telecom is the most recent operator to build a cable in the Mediterranean. In July 2006, Maroc Telecom, Morocco’s incumbent carrier, awarded Alcatel a €26 million contract to supply and build a more than 1,600-km submarine cable between Marseilles in France and Asilah, Morocco.

When completed next year, the system will help meet Maroc Telecom’s growing DSL-generated Internet traffic and create an alternative path to the existing 3,200-km Eurafrican submarine system linking France, Morocco, and Portugal.

Besides the increase in the submarine telecom market, there has been a jump in demand for specialised submarine cable used in the offshore oil and gas industry and for power companies connecting offshore windfarms. This growth has benefited the makers of these specialised cables and submarine cable installers. The transfer of increasingly large amounts of data from offshore sites has also created a growing niche market for Tyco, Alcatel, and other submarine telecom cable makers, who supply systems to interconnect offshore operations to shore, where data is processed.

Cable makers such as Nexans, Prysmian, and ABB are among the leading makers of multifunctional cables, called “umbilicals,” for offshore oil and gas platform operations and hybrid power cables that are used to connect and manage offshore windfarms, interconnect power grids, and supply power to offshore platforms. Today, the majority of the two cable types contain optical fibre for communications and system management.

Umbilicals connect deep-water wellheads at the bottom of the ocean to surface vessels, platforms, and more recently to onshore facilities such as the Snøhvit in Norway. These cables support several activities, including the transmission of power and data (using copper and optical fibre), as well as hydraulic fluids, to the wellheads. All of these are combined to activate valves and pumping equipment to process the flow of oil and gas. Some 75% of umbilicals use optical fibre.

“By 2015, some 25% of offshore oil will come from deep-water wells-more than 500 m deep-compared to 10% in 2004,” says Steve Robertson, manager of oil and gas research at Douglas Westwood, a U.K.-based consultancy.

“Today, deep water accounts for one-third (value) of umbilical installations,” Robertson says. “It will be 50% in 2 years.”

The big three deep-water oil and gas areas today are Brazil, the Gulf of Mexico, and West Africa. Ninety percent of deep-water activity takes place in these regions.

Robertson forecasts that the umbilical market, which includes cable and installation costs, will increase from US$1.5 billion in 2001 to more than US$2.5 billion this year.

In Brazil, which has some of the world’s most important deep offshore oil and gas fields, Prysmian has opened a new facility in Villa Velha on the coast to manufacture umbilicals for Brazil and the international market. The new plant complements an inland cable factory, expands production to include steel tube umbilicals, and enables the construction of bigger and longer cables.

“Until recently, demand has been driven by Petrobras, the Brazilian oil and gas company, and other Latin American companies,” says Llyr Roberts, who is responsible for Prysmian’s special cables business. “The new plant will allow Prysmian to load ships directly for exports to growing offshore markets like West Africa and the Gulf of Mexico.”

Brazil has become a very important market for European vendors. Last year, Nexans, which manufactures umbilicals in Norway, came out with a new cable design for Brazil and other deep offshore markets, which require free-hanging umbilicals in 2,500 m of water to connect platforms to templates on the sea bottom.

In Norway last year, Nexans supplied the world’s longest umbilical for Statoil’s Snøhvit offshore gas field. The entire subsea operation, located 144 km offshore, is controlled from an onshore facility. Operating offshore sites from onshore is a new trend, which aims to reduce capex and opex. The latest such project is Dolphin, which Nexans is installing for Dolphin Energy. The project comprises two umbilicals-one that is 90 km and another 75 km-to link two offshore platforms to the Dolphin Ras Laffan processing plant in Qatar. The gas project is one of the largest energy initiatives undertaken to date in the Middle East.

Offshore projects are becoming bigger and more complex, requiring not only umbilicals for undersea operations but also submarine telecom cable for communications and data. Many of the fields have undersea LANs and MANs to connect to onshore operations or with inter-regional and international submarine cable systems.

“Oil companies now have the same telecom infrastructure offshore as they do onshore,” Soja says. “Today, companies have high-speed LANs on platforms, which often have more than 100 people. Submarine cable systems allow the real-time transfer of data from offshore operations to centres of expertise in Houston, London, Aberdeen, and Amsterdam.”

The construction of offshore windfarms is accelerating in Europe and creating a growing demand for hybrid power cable with optical fibre. The main drivers for this growth are government support in the European Union (EU), the rising price of oil, the phasing out of nuclear energy in Germany, and mandated carbon reduction and renewable energy programs in the UK and other countries. Also, natural gas supplies are decreasing in Europe. Eighty percent of the continent’s gas will come from outside of Europe in 2020. This has made many European countries eager to have alternative sources of energy rather than being dependent on gas from countries where there is political instability.

In the UK and Germany, the governments also require future windfarms to be built farther offshore for ecological reasons, which is speeding the design of new turbines, cables, and installation equipment.

Windfarm developers are also moving farther offshore to build bigger and more efficient windfarms. In less than a decade, windfarm builders have gone from a couple kilometres offshore to nearly 30 km. Germany is talking about building windfarms more than 100 km offshore before the end of the decade.

Based on announced projects, Adam Westwood of Douglas Westwood says the market for submarine cable to connect offshore windfarms could jump to US$434 million in 2010 from only US$5 million in 2001. The forecast includes planned windfarms in a number of European countries, including Sweden, the Netherlands, Belgium, France, Spain, and Germany.

Offshore windfarms use two types of cable: 33-kV (infield) cables with fibre between turbines and 132- or 150-kV (export) cables with fibre to the shore. Fibre is used for data transmission and to control turbines. Today, most of the cables have 24 fibres and conductor wire.

One of the most promising projects is one spanning Europe, under development by Airtricity of the UK. The project, which Airtricity director Chris Veal says is commercially viable and does not require government funding, would involve the installation of 2,000 turbines off the coast of Europe in phase one. The turbines would produce 30 TWh of electricity. Today, the UK uses 300 TWh/year. During this stage, which would start in 2010 and finish in 2015 and cost €20 billion, Airtricity would install the turbines in the North Sea more than 60 to 100 km offshore. He estimates that phase one would need about 2,000 km of hybrid power cables containing fibre to control and monitor the turbines.

The planned windfarms, which will be bigger and farther offshore, will create new challenges for installers, says Ian Gaitch of Global Marine in the UK. Installing windfarms will require longer cables. The cable will carry more power and require more conductor wires, making the cables thicker and heavier than today’s cables. “We will have to design new equipment to handle these cables. But no one has a contract for these installations, so when to start designing them has not been decided-it’s a chicken and egg situation,” Gaitch says.