THEEDGE

MALAYSIA

FEBRUARY2l,2011

The growing need for undersea cables

peak ofthe technologybubble in 2001.Conn his best-selling book TheWorldis Flat, sidering that undersea cables service more New Yorh Times columnist Thomas Fried- than goo/o of the world's data traffic, a surge man pointed out one salient effect of the in bandwidth demancl will also see more technologyboom at the turn of the mil- cables being laid underwater. on the home front, fixed line operatorTellennium on emerging economies today. In the mad rush for anything technol- ekom Malaysia Bhd (TM) andTime dotcom ogy-related, conglomerates invested heav- nhd (rdc) have continued this frenzybyanily in global networks such as submarine nouncing several initiatives to increase the cables in the hope of cashing in on a vision bandwidth capacity available in Malaysia by Iaying or acquiring submarine cables. of a more connected world. Just two months into 2ou, TM has anThe problem back thenwas that the infrastructure built had predated the economies nounced projects to lay three cables with an in the East,which hadyet towake up from its investmentvalue of us$t+4 million (RM44O slumber.After the technology bubble fi nally million). Collectively, the comPany aims to burst in the US in 2ooo, economies such as have seven terabits per second of capacIndia tookadvantage ofthe networks that had ity available by 2oL4 - more than a tenfold been put in place years before by growing the jump from its current capacity of less than outsourcing industrywhich depended on se- soo gigabits per second. tm clobal executive vice-president Rocure and reliable connections to theWest. As it turns out, the boom predicted a dec- zaimy Rahman believes these proiects are ade ago lool<s like it is finally taking shape vital as theynot only accommodate Malayin Asia. According to Internet World Stats, sia's growing bandwidth demand but also Asia's Internet users grew a whopping 622ozo that of its neighbours. "Malaysia borders Thailand and singafrom 2oo0 to June 30,2o1o, almost double the growth rate of 362Yo for the rest of the pore. There is good growth coming out of Vietnam, Laos and Cambodia, especially in world. Now, it seems that people have started IP traffic.We could support SoutheastAsian building submarine cables again, owing to growth, especially the Indochinese econoa surge in demand forbandwidth,backed by mies. Malaysia is also strategically located the falling average selling prices of smart between China and rndia. A lot of traffic devices,and government initiatives in grow- from there goes down south to Singapore, so it could come this way," he said at a media ing economiis. According to a report released by research briefing recently. Looking at TM's balance sheet,the investfirm TeleGeography in 2oo9, the number of rrndersen cehles nlanned for that vear ex- ment of RM44o million via internally gen-

nv"&ishah &&wstnpha

ceeded the number of cables laid durirlg the

elated funds will not likely break the bank anytime soon,especiallyas these investments are over a couple ofyears.According to its latest financial results, this amount made up around 3oo/o of its YTD capex.with a ninemonth rbitda of about RM2 billion, these investments are relatively small forTM. TM's existing cables are 60% to 7oo/o rJtilised, says Rozaimy. gut with a push to increase capacity, how viable are these ventures forTM? while he declined to talk about margins in this business,Rozaimy says the returns on investment vary for the cables. "If you want to talk about RoI, it all depends on the cables. Some are as fast as two years. some may even take seven or eight years from our experience," he saYs. Rozaimy says the growing mobile data market in Malaysia will not hinge on the growth of tM. Instead, it will further add importance to the fixed line operator's role
as more

Networking Index), AIMS, Global Transit

Communications and Global Transit Labuan (GTL) should help boostTDC's growth in the legion,in addition to giving it greater exposure to Malaysian IP traffic growth. By our estimates, these entities are being acquired at an FY2012E PER of L2 times and Ev/Ebitda of 6.4 times," it says. However, iust like data rates, the average selling prices of submarine cables are also trending downwards.Yet, even after factoring in the depreciation of assets,the research ho"use still views TdC's entry into the submarine cable business as a positive. "We estimate that GTL will Senerate RM4r million in revenue by 2013 on the assumption that it leases out 2o0cBit/sec of its capacitybase of+socbit/sec.As this is a predominantly fixed cost business (mainly

depreciation and finance), acceleration in

backhaul networks are needed. "Also, there is a limit to the spectrum frequencies that each mobile operator is allocated for data transmission," he saYs. Not wanting to be left behind, TdC has also got the ball rolling by proposing to acquire companies, of which one has a 10% stake in a iubmarine cable that runs from Japan to the West.

revenue generation can have an exponential impact on profitability.In deriving our estimates,we have assumed that unit pricing on the cable will fall 61o/" between 2o1o and 2015," it says. Already, the government has proposed an Entry Point Proiect thatwill see the construction of a Malaysian submarine cable in order to cope with the projected demand by 2o2o. Just by looking at the fact that more released by than 80% of Malaysia's data traffic travels In an initiation report on TdC Macquarie Equities Research, it has a posi- outside the country, these submarine cative view of these acquisitions, which also bles could prove invaluable in the long run. includes data centre AIMS. "with Asia-Pa- However, telcos will have to be wary of the cific data traffic expected to grow 35olo per issue of capacity oversupply in the future. annum from 2Oo9 to 2014 to 17 exabytes per At the end of the dayrwhat really matters is month (according to the Cisco Visual and their balance sheet.