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Cable Technology Feature Article

March 19, 2009

Trans-Pacific Capacity: Possible New Price War?

By Gary Kim, Contributing Editor

For the past two years, PacNet CEO Bill Barney has been insisting that the launch of new trans-Pacific undersea cables would not lead to ruinous price wars, in part because the providers are "rational," because carriers would buy or swap capacity on each others' cables to achieve significant route diversity, and because much of the capacity supports internal carrier requirements, not wholesale. PacNet owns two large cable systems, C2C and East Asia Crossing (EAC).
But when a leading executive changes his tune, take note. As it turns out, Barney now is reported by TelecomsEurope.net to be saying "the failing economy and the flood of new capacity are leading to falling prices. Barney reportedly notes that prices on some northeast Asian routes have fallen 30 percent in the first couple of months of 2009. He further is reported to have said that new cable owners will have to cut prices “towards 50 percent of their build costs.”
So it appears the launch of the Trans-Pacific Express (TPE) and Intra-Asia (IA) cables, and the pending arrival of the Asia-American Gateway (News - Alert) (AAG) cable are having the traditional effect: adding more supply to the market and therefore causing prices to weaken.
There is quite a lot of new capacity coming. The latest construction wave began in 2006 and has been centered on the Asian and Pacific Regions. The current round of activity started with the Gondwana, Australia to New Caledonia system, Telstra’s (News - Alert) Australia to Hawaii system and six new trans-Pacific cables as well.
Of these new routes, the Trans Pacific Express, Asia American Gateway, FLAG’s Eagle, Next Generation Network and the Unity cables. Of these: TPE is in service, AAG is nearing completion, Unity has been surveyed and will be installed in 2009, while only  the FLAG Eagle system has been postponed, says Graham Evans, EGS Survey Group business development director, reported by Submarine Telecoms Forum.
In the Central and South Pacific, the Honotua cable system will provide domestic connections between French Polynesian islands to Papeete on the main island of Tahiti and on to Hawaii.
Pipe Network’s PPC-1 Cable System will connect Guam, Madang in PNG and Sydney, Australia, he says.  In the Western Pacific, East and South East Asia a number of regional systems are being built, including the East Asian segments of TPE connecting the PRC with Korea and Taiwan; AAG which lands in the Philippines, Hong Kong, Vietnam, Thailand, Malaysia and Singapore.
Tata Communications (News - Alert) is linking its TGN Pacific system to the TIC Singapore landing with their Intra Asia System linking India via Singapore to Malaysia, Vietnam, Hong Kong and the Philippines, with branching unit expansion possibilities into the PRC, Taiwan and Thailand.
There are further builds connecting Indonesian islands, with expansions by Alaskan Communications as well. Evans says other regional undersea networks also are being contemplated.
Saying a capacity price war has broken out on trans-Pacific routes might be a stretch at this point. But new supply typically leads to lower prices. It appears that remains the case. The unanswered question is whether marginally lower prices are the only impact, or whether something more significant, such as a destabilizing price war, might occur. Nobody is saying anything in public about that, yet. But Pacnet seems to be saying something quite different in early 2009 than it has been saying since 2007.

Gary Kim (News - Alert) is a contributing editor for TMCnet. To read more of Gary’s articles, please visit his columnist page.

Edited by Stefania Viscusi