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Summary

Much of the discussions at the “Submarine Networks Europe 2018” conference in London this February focused on the evolving relationships between traditional carriers and the new kids on the block, the web-centric OTT players. While several of the largest OTTs are bypassing the wholesale market by investing in their own submarine cable infrastructure, the consensus was that they form a key (albeit demanding) wholesale customer segment.

OTTs are changing the submarine cable marketplace

Since 2015, several of the largest OTTs, including Amazon, Facebook, and Google, have invested millions in buying their own fibers in new submarine cables instead of buying capacity from wholesale carriers when they need it. Although one speaker at the recent Submarine Networks Europe 2018 conference stated bluntly that OTTs pose an existential threat to carriers, most of the speakers and delegates agreed that these web-centric companies present an important opportunity for wholesale carriers.

One delegate, from Facebook, reassured the conference that the primary reason why OTTs are buying their own fibers on submarine cable systems, such as Asia-Pacific Gateway, Jupiter, and Unity, is to sidestep the delays in getting members of a traditional cable consortium to agree. Another delegate, from Apple, stated unequivocally that the OTTs are not interested in operating networks or becoming telcos themselves.

Representatives of carriers and submarine cable operators agreed that the OTTs are accomplished buyers that demand that carriers provide diverse, resilient, and cost-effective solutions and services. OTTs are also less risk-averse and more pragmatic than many established members of cable consortia. They are willing to invest in newer technologies if the expected benefits outweigh the risks.

OTTs want data center-to-data center connectivity, without having to negotiate licenses with regulators or obtaining their own terrestrial backhaul from landing stations. However, they are acutely aware of the vulnerabilities of terrestrial backhaul, particularly where the same routes and even ducts may be used by supposedly diversely routed backhaul.

Having an OTT as an investor and anchor tenant in a new submarine cable system can make new projects feasible where carrier traffic alone is insufficient. Furthermore, OTTs present opportunities to carriers to earn additional revenues from operating their infrastructure for them, and from providing value-added services over that infrastructure.

However, submarine cable operators and wholesale carriers must remember that although they have a lot in common, the individual needs of OTTs can differ widely. One speaker suggested that the so-called Silicon Valley OTTs are dinosaurs in comparison with some of the Asian OTTs, such as Alibaba and Tencent, which are only just starting to expand internationally.

Although OTTs are challenging customers and partners that are rapidly changing the shape of the submarine cable business, they are only a threat to carriers that are unwilling or unable to adjust to the new market for international capacity.

Appendix

Further reading

OTT Media Companies: An Important Opportunity for Wholesale Carriers, TE0012-000565 (January 2016)

Digital Economy 2025: Wholesale Telecoms, TE0012-000548 (November 2015)

Author

David James, Practice Leader, Wholesale Telecoms

david.james@ovum.com

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