Bandwidth Pricing Report April 2006

This month’s Bandwidth Pricing Report provides

an overview of Asia-Pacific supply, demand, and
TeleGeography’s price trends. TeleGeography also explores the
potential implications of the Asia Netcom and

Bandwidth Pricing Report C2Ccn transactions on the market. Price trend

Inside this issue:
Asia-Pacific Market
Overview . . . . . . . . . . . . . . . . . 1
Bandwidth Demand . . . . . . . . 1
Bandwidth Supply. . . . . . . . . . 2
Intra-Asia Pricing Trends . . . 2
EAC C2C Merger . . . . . . . . . . . 3
Intra-Asian Market
Outlook . . . . . . . . . . . . . . . . . . . 3
Price Watch . . . . . . . . . . . . . . . 4
Asia-Pacific Market
Overview
Two recent transactions have reshaped the Asia-
Pacific undersea cable market. China Netcom sold
its international subsidiary, Asia Netcom, to a group
of private equity groups led by Ashmore Investment
Management. The C2C Cable Network (C2Ccn)
exited receivership and received a significant capi-
tal infusion from a group of investors that again
included Ashmore.
analysis is based primarily on pricing data com-
piled by TeleGeography Research for its Wholesale
Bandwidth Pricing Database Service (http://www.
telegeography.com/products/bandwidth_pricing/
index.php). Price trends discussed in this article
reflect Monthly Recurring Charges (MRC) based
on one year lease contracts, exclusive of installation
charges.
Demand
Intra-Asian bandwidth demand grew 90 percent in
2005, after having increased 68 percent during 2004.
Bandwidth demand was driven primarily by rapid
increases in intra-regional Internet traffic. While the
majority of Asian Internet capacity is trans-Pacific,
intra-Asian bandwidth has grown far more rapidly
than trans-Pacific capacity. In 1999, trans-Pacific
Internet capacity was 15 times greater than intra-
Asian capacity. By 2005 this ratio had fallen to only
1.7 to 1.

Figure 1. Intra-Asia STM-1 Annual Price, Q4 2002—Q4 2005

$250,000 Hong Kong-Tokyo

Hong Kong-Singapore
Hong Kong-Seoul
$200,000 Hong Kong-Taipei
Median Monthly Lease Price (USD)

TeleGeography Research $150,000

Washington, DC Office
1909 K Street, NW
Suite 380
Washington, DC 20006 USA
$100,000
http://www.telegeography.com

For further information, please

contact:
$50,000
Robert Schult
+1 401 619 0232
rschult@telegeography.com
$0
Stephan Beckert
+1 202 741 0042 2002 Q4 2003 Q4 2004 Q4 2005 Q4
sbeckert@telegeography.com

Source: TeleGeography research © PriMetrica, Inc. 2006

© PRIMETRICA, INC. 2006 1

Bandwidth Pricing Report
Supply
Prior to 2001, two consortium cables—SeaMeWe-
3 and APCN—and the private FLAG Europe-Asia
cable provided the majority of intra-Asian capacity.
These older-generation systems have limited capacity
and are no longer active sellers in the market. The
surge in new capacity sales in has been led by four
regional systems: the APCN-2 consortium cable,
C2Ccn, Asia Netcom’s EAC, and the FLAG/REACH
North Asia Loop (NAL). These four systems have
a maximum upgradeable capacity of at least 2 Tbps
each.
All four of these cable systems will undergo sig-
nificant capacity upgrades in 2006. EAC, FLAG/
REACH NAL, and APCN-2 have been, or will soon
be, upgraded. VSNL International owns a dark fiber
pair on C2C, and plans to light this fiber pair in the
third quarter of 2006 to connect its Tata Indicom
and its VSNL Trans-Pacific cable. While these
upgrades will significantly increase the supply of lit
capacity in the market, none of these cable systems
will be operating at more than 10 percent of their
potential design capacity.
Figure 2. Intra-Asia STM-1 Quarterly Price, Q2 2005—Q1 2006
$16,000
$14,000
Median Monthly Lease Price (USD)
$12,000
$10,000
$8,000
$6,000
$4,000
2005 Q2
Source: TeleGeography research
© PRIMETRICA, INC. 2006
April 2006
Price
Median prices for wholesale capacity on intra-Asian
routes have declined more slowly in past year than
in any period since the construction of the first new
cable systems in 2001. Median STM-1 prices on
four key intra-Asian routes declined an average of
more than 76 percent between the fourth quarter
of 2002 and 2005 (see Figure 1. Intra-Asia STM-1
Annual Price, Q4 2002—Q4 2005). However, most
of the decline occurred between 2002 and 2004,
while prices stabilized in 2005. Between the second
quarter of 2005 and the second quarter of 2006,
median STM-1 lease prices on these same routes
declined by an average of only 4 percent (see Figure
2. Intra-Asia STM-1 Quarterly Price, Q2 2005—Q1
2006). A few carriers have even instituted modest
price increases in recent months.
Large influxes of new capacity have, historically,
often resulted in rapid price erosion. However,
the ongoing upgrades on intra-Asian routes reflect
strong underlying demand growth, rather than spec-
ulative builds. System operators have indicated that
they intend to keep post-upgrade prices at or near
current levels.
Hong Kong-Taipei
Hong Kong-Seoul
Hong Kong-Singapore
Hong Kong-Tokyo
2005 Q3 2005 Q4 2006 Q1
© PriMetrica, Inc. 2006
2
Bandwidth Pricing Report April 2006

Malaysia, Hong Kong, the Philippines, Singapore,

EAC and C2C
The fact that Ashmore Investment Management has
a significant stake in both EAC and C2C suggests
that these systems could potentially be operated
under a consolidated entity. This consolidation of
ownership may deliver some advantages:
Thailand, Brunei, and Vietnam to the west coast of
the U.S., via Guam and Hawaii. Currently, these
Southeast Asian countries have no direct submarine
cable link to the U.S., and must route trans-Pacific
capacity via Japan.

Diversity: Carriers routinely seek to purchase capac-

ity on multiple systems. A combined EAC/C2C
system would be able to provide carriers with system
diversity through a single supplier. A carrier could
buy a 10 Gbps wavelength on one leg of C2C and
buy another 10 Gbps wavelength on one leg of EAC
without having to negotiate with multiple suppliers.
Competition: A combined EAC/C2C would leave
the FLAG/REACH North Asia Loop system as the
only real competitor in northern Asia. In South
Asia a combined EAC/C2C would be the only major
multi-country cable. Although APCN-2 serves
many of the same countries as EAC/C2C, most of
the capacity on this cable is used by the members of
the APCN-2 consortium, and only relatively small
capacity circuits are resold in the open market.
Outlook
For at least the near term, the outlook in the intra-
Asian market looks bright. Demand is outstripping
lit supply, driving system upgrades. Wholesale
demand for STM-16s and wavelengths is growing
faster than demand for lower-capacity SDH cir-
cuits. Asset ownership is consolidating, reducing
the number of competitors in the wholesale market.
The most significant caveat is that the proposed
new trans-Pacific systems could reduce demand for
intra-Asian capacity by providing customers direct
links between the U.S. and Asian countries, reducing
the need for intra-Asian links to connect to the U.S.
via Japan. Given these generally favorable market
conditions, TeleGeography believes that intra-Asian
capacity prices will remain relatively stable for the
foreseeable future.

Several recent developments could limit future

demand for capacity on both EAC and the C2Ccn:

New Intra-Asian Cable: VSNL is aggressively

expanding its network and may require more capac-
ity than that provided by its single fiber pair on
C2C. The company could opt to construct its own
intra-Asian system that would directly compete with
EAC/C2C

New Trans-Pacific Cables: Since most trans-Pacific

cables currently land in Japan, carriers seeking
to acquire trans-Pacific capacity routinely pair an
intra-Asian segment (such as Hong Kong-Japan or
Taipei-Japan) with a Japan-U.S. segment. On June
1st, China Telecom and China Netcom signed an
agreement with three overseas operators to build the
“Trans-Pacific Express Cable Network” connecting
the U.S., South Korea, China and Taiwan. The new
cable is expected to be completed in 2008. The net-
work will comprise a pair of optical cables with an
initial capacity of 960 Gbps. The system will even-
tually be extended to India and a number of other
countries in southeast Asia.

Telecom Malaysia, Reach and several unnamed car-

riers announced a new trans-Pacific cable, called
“Asia-America Gateway.” The cable will connect

© PRIMETRICA, INC. 2006 3

Bandwidth Pricing Report April 2006

Price Watch
TeleGeography’s Price Watch service allows market
participants to track recent pricing developments
at a glance. Price Watch tracks pricing changes on
nine key routes worldwide. Because pricing in some
regions, particularly on terrestrial routes, is distance-
sensitive, prices are stated both in absolute terms and
in dollars per Mbps per mile.
ing/). The online database provides access to capac-
ity prices on over 80 separate routes and capacities
between 2 Mbps and 2.5 Gbps.
Monthly lease figures are an average of the median
price over the previous three months.

Price Watch information is drawn from

TeleGeography’s Bandwidth Pricing Database (http://
www.telegeography.com/products/bandwidth_pric

March 2005 (USD)

Monthly Lease Price Monthly Lease Price/Mbps/Mile

E-1 OC-3 OC-48 E-1 OC-3 OC-48

Intra-European Routes
London - Paris $450 $2,500 $1.056 $0.076
London - Frankfurt $450 $2,750 $0.571 $0.045
London - Milan $580 $4,050 $0.487 $0.044
London - Madrid $750 $4,500 $0.479 $0.037

Transoceanic Routes
London - New York $650 $3,000 $0.094 $0.006
Los Angeles - Tokyo $1,400 $12,000 $0.128 $0.014

Trans-American Routes
New York - Los Angeles $6,000 $65,000 $0.016 $0.011
Los Angeles - San Francisco $1,850 $15,500 $0.035 $0.018
New York - Washington, DC $1,400 $12,500 $0.044 $0.025

March 2006 (USD)

Monthly Lease Price Monthly Lease Price/Mbps/Mile

E-1 OC-3 OC-48 E-1 OC-3 OC-48

Intra-European Routes
London - Paris $345 $2,300 $0.810 $0.070
London - Frankfurt $345 $2,350 $0.438 $0.038
London - Milan $500 $4,000 $0.419 $0.043
London - Madrid $550 $4,000 $0.351 $0.033

Transoceanic Routes
London - New York $575 $3,200 $0.083 $0.006
Los Angeles - Tokyo $1,400 $12,000 $0.128 $0.014

Trans-American Routes
New York - Los Angeles $6,100 $57,500 $0.016 $0.009
Los Angeles - San Francisco $2,000 $15,500 $0.038 $0.018
New York - Washington, DC $1,500 $15,000 $0.047 $0.029

© PRIMETRICA, INC. 2006 4