Pacific cable bubble is avoidable

The rash of investments in Asian cable capacity doesn't have to end in tears, analysts believe.

Asia has seen fast growth in demand for international capacity in recent years, driven mainly by consumer Internet demand. According to Ovum, investment in new Asian cables was dormant between 2002 and 2006 as a glut of capacity was slowly used up. However, during 2007 a number of new trans-Pacific and intra-Asian cable investments were announced.

These Asian cable systems are scheduled come online during the 2008-2010 period, and will add significant new capacity.

Ovum analyst David Kennedy said he believed there are several reasons for this. The rising prices for IP bandwidth in certain markets is one of the main reasons, followed with the growing demand for additional routes, following the disruption of networks during the Taiwan earthquake in December 2006. Thirdly, there have been pushes by domestic operators to secure capacity to support future broadband growth. Lastly, a small number of large carriers aspiring to create global networks are also investing in new cable.

Many observers are concerned about the possibility of a price crash from so much new capacity. The fears are understandable. "For example, the trans-Pacific market will see a 120 per cent growth in total operating capacity in 2008 alone. But demand growth is also high, and could absorb this capacity in as little as three years," Kennedy added.

"Whether market disruption occurs will depend on how investors and operators act after 2008", Kennedy said. "If new systems continue to be announced and built in 2009 and 2010, and the operators start to market their excess capacity aggressively, then disruption seems more likely. However, this isn't inevitable", Kennedy added. If a prudent approach to investment is adopted, and the new submarine cable operators marshal their capacity for their own future needs, then a smoother path is distinctly possible.

How can a bubble and price crash be avoided? "The key is to take a sensible approach to investment and respond to real market conditions," Kennedy said.

The Indian market is experiencing substantial growth and will reach a value of more than $US1.5 billion by 2010, according to a report from consulting company and data centre market specialist BroadGroup

Based on a study detailing the profiles of 34 players, the report revealed that while growth is occurring at unprecedented levels, challenges remain, particularly those relating to infrastructure, power - and the quality of power - and land availability.

Technical space will nevertheless more than double over the next two years. Fuelled by offshoring, overseas MNCs, and domestic demand, data centres in India have experienced significant growth over recent years, and as the survey reveals, new build and plans for new build, are producing a spike in space that will more than double current capacity.

The core of the report details profiles of 34 players in India, both overseas and domestic, and the report examines current availability, location, and expansion plans. The scale and capacity of the international ambitions of the top five players is supported by significant and growing demand from the local market. Although global MNCs are becoming selective about the robustness of power supply, security, and green credentials, overseas systems integrators and consultancies are sustaining and expanding their investments in India.

"India has the opportunity to become a global hub," said Frank Booty, editor of Data Centre News. "India's language capabilities, skill levels, culture, and governance are suited to the country becoming a global hub. It also has a resilient economy driving domestic demand for services. Until now much of the data coming out of India has been stored on servers in the US."

Data centre build over the coming years, however, will need to reflect the green standards increasingly included in corporate RFPs, and there is an urgent need to address how the infrastructure will cope with the levels of power demanded by these plans.

Len Rust is publisher of The Rust Report

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