Editorial

Undersea but not undervalued

The battle between Global Crossing and Project Oxygen, which provides the subject for this month's cover story, is merely one of the most visible aspects of a worldwide phenomenon: the exponential growth of the undersea fiber-optic network market.

Market research shows that the quest to provide undersea bandwidth won't slow soon. For example, a new report from Pioneer Consulting reveals that the price tag for submarine fiber-optic networks entering service worldwide in 1999 will total $6.9 billion. This represents a record amount—a record that will be broken next year, when Pioneer expects the money spent on the undersea links entering service in 2000 to hit $8.3 billion. While spending in 2001 is predicted to fall to $2.8 billion—a total considered healthy before the recent feeding frenzy—Pioneer sees carriers sending $5 billion in each of the following two years to the ocean floor. Overall, the market for undersea networks in the six years between 1999 and 2004 will be $31.8 billion, a whopping 169% increase over the previous six-year period. Not surprisingly, most of the action will occur across the Atlantic and the Pacific, with the latter predicted to prove slightly more popular.

The $64,000 question, of course, is whether anyone will get rich off of these networks besides Tyco, Alcatel, KDD, and the hardware manufacturers that will supply these network installers with equipment to fill their orders. As with fiber network build outs everywhere, the bet is that bandwidth demand will continue to follow those hockey stick curves that are now almost mandatory accessories to any presentation on the telecommunications marketplace. However, Pioneer predicts that spending on undersea systems in 2004 will level off again to $3.4 billion—hardly a trickle, but still significantly less than the spikes expected this year and next. Is this a sign that capacity once again will begin to catch up with demand early in the next century—and that undersea bandwidth won't be quite as much of a seller's market as it is today?

As one analyst says in our cover story, bandwidth demand tends to rise on a smooth curve, while capacity tends to rise concurrently with demand, then plateau as new systems come online and capacity becomes more plentiful. It appears the key to maintaining a steady profit for undersea bandwidth is to look beyond the hockey sticks and examine whether the race for undersea terabit networks will create a capacity plateau in the next decade that even the Internet can't scale.

Certainly the current rate of demand growth makes it easy to dismiss the idea of caution. The optical networking gold rush presently appears to have enough room for any prospector who can gather the wherewithal to plant his stake in the ground—or the ocean. But there's one thing that these optical 49ers should keep in mind: While every gold rush has made someone rich, each bonanza eventually came to an end. Let's hope that the next century doesn't find a host of carriers kneeling at the water's edge with nothing in their prospecting pans but brine.

Stephen Hardy
Editor in Chief and Associate Publisher