Capacity prices fall 30% as subsea cables roll out

New subsea cables are roiling prices in Asian capacity markets, though players are divided over the impact.

The launch of the Trans-Pacific Express (TPE) and Intra-Asia (IA) cables, and the pending arrival of the Asia-American Gateway (AAG) cable is helping drive down prices as much as 30%.

Pacnet CEO Bill Barney said the failing economy and the flood of new capacity meant that new cable owners would have to cut prices "towards 50% of their build costs".

He said capacity prices on some north-east Asian routes had already fallen 30% this year.

"AAG and TPE are up in a very difficult situation immediately from the get-go," Barney said, because of their higher unit costs compared with Pacnet, whose assets were about out of bankruptcy at 10-12 cents in the dollar. Flag's north Asia cable system had a similar cost advantage, he said.

Pacnet is the owner of the two largest independent cable systems, C2C and East Asia Crossing (EAC).

But Byron Clatterbuck, a senior vice president for Tata Communications, the prime investor in the IA cable, said the owners of the TPE and AAG cables were incumbent carriers who needed the capacity for end-users in their domestic markets.

"They won't be looking to sell on the open market," he said. He told that the price cuts now being implemented would not be surprising to those carriers when they planned their cables three years ago.

If the IA cable hadn't been built, "then prices wouldn't be where they were two years ago. We looked at them and thought, "˜we couldn't pay those prices'."

Tata's IA cable, which runs between Singapore to Japan. launched in the Philippines earlier this week. Until now Globe Telecom, a challenger to incumbent PLDT, had no alternative bandwidth source apart from Pacnet's EAC cable, Clatterbuck said.

"Prices have come down because those new systems have forced the provider Pacnet to come down in pricing," he said.

Less than a decade after the last great capacity glut, a flood of new bandwidth is being piped into Asia by big submarine cables. No-one is calling it a glut yet, although some delegates at this week's Carriers' World conference in Hong Kong said commercial launch dates were being pushed back.

The TPE cable, which is already in service and has design capacity of 5Tbps, runs directly between north China and the US west coast. It is owned by China Telecom, Taiwan's Chungwa Telecom, Korea Telecom, and Verizon.

AAG, a club cable with planned 2Tbs capacity whose 17 investors include Telekom Malaysia, AT&T, Telstra, is expected to launch in July this year.

The Google-backed Unity cable, in which Pacnet is also an investor, is due to start service early in 2010.