More investments in submarine cables necessary

-A +A

IN a day and age when Internet connectivity and speed are taken for granted, the damage to the Asia-America Gateway (AAG) submarine cable, which is partly owned by Telekom Malaysia Bhd (TM), raises a host of questions for the country’s stakeholders, and the solution could require more investment involving the big three telcos.

Since mid-September, users may have noticed a sudden slowdown in Internet speed. This is due to a fault in the 20,000km AAG connecting Southeast Asia with the US mainland across the Pacific Ocean, through Guam and Hawaii.

According to TM, repairs are scheduled to be completed by early October and steps were taken to minimise user impact. However, users attempting to access content on US-based servers, such as the bulk of Youtube.com videos, for example, still experience slower-than-usual connections.

The disruption raises concern among users and businesses about the country’s vulnerability to disruptions of a similar nature in the future. Meanwhile, investors will be wondering what the financial impact to TM will be as well as the potential impact on other telecommunication players if more investment needs to be rolled out to improve the nation’s cable diversity.

In a statement to The Edge, TM points out that it is one of 19 parties that have a stake in the AAG, and that the cost of repairs would be shouldered accordingly. However, the company would not reveal the expected financial impact.

“Repairs are expected to begin on Oct 1 and completed on Oct 6. However, we wish to highlight that these restoration works will be subject to the repair vessel obtaining clearance from the relevant local authorities, sea conditions, the identification of the actual location of the fault and the challenges presented working at great sea depths and pressure.”  

According to industry sources, the cable is believed to have been damaged by an undersea earthquake, and repairs could take longer than estimated if multiple sections are damaged. TM identifies the approximate area of the damage to be in the segment linking Hong Kong to Malaysia.

Feeding growing data demand

“Malaysia is unique because it accesses a lot of content that is hosted overseas. This is because Malaysians are proficient in English and a bulk of the English-language content is hosted on foreign servers, like the US. South Korea, for example, does not have this problem since most of its Internet users consume content that is in Korean, hosted on local servers,” explains Datuk Mohamed Sharil Tarmizi, chairman of the Malaysian Communications and Multimedia Commission (MCMC). 

Malaysia’s typical Internet usage is around 1.2TB/s and approximately 700 to 800GB/s of that data is bound for overseas servers, notes Sharil. He points out that Malaysia has over 11 international submarine cables that allow it to connect to the global network. When the AAG was damaged, traffic could simply be diverted along other routes.

TM in a statement points out that it has stakes in 13 submarine cable systems, including several that it utilises to carry traffic between the Asia-Pacific and North American region. In contrast, Singapore has 18 international submarine cables, although that doesn’t say much about the quality of the cable.

“TM has immediately taken pro-active steps by optimising our networks to reduce congestion and diverting traffic to alternative routes, thus minimising the impact to our users. It is worth mentioning in this specific incident, TM has at least two other alternative routes to divert its traffic,” TM says in a statement.

However, it acknowledges that AAG is “one of the important cable systems to TM”, although the amount of overall international traffic is not concentrated on AAG alone.

Nonetheless, users experienced degradation in connection quality, which raises the question whether Malaysia has sufficient cable diversity.

“Could we use another two, maybe three or four cables? Sure. The question is whether it is worth the cost. It is an exercise of risk-management. These cables are expensive, costing about US$600 million to US$800 million each,” says Sharil.

Currently, TM and Time dotcom Bhd are the only two companies that are investing in submarine cables, with TM doing the bulk of the investment for the country. Notably, although the country’s three largest telco operators – Maxis Bhd, Digi.com Bhd, and Axiata Group Bhd — are licensed to invest in international submarine cables, they have opted to lease the capacity instead.

For perspective, the combined market capitalisation of the big three is over RM153.22 billion, which is 5.7 times larger than that of TM and Time dotcom combined. On top of that, data has become the fastest-growing segment for the big three telco players, accounting for over one third of revenue.

Sharil points out that the demand for data in Malaysia is projected to almost double every year, growing from less than 20MB/s per household to more than 50MB/s per household by 2018. To accommodate this surge in demand, a huge amount of investment will be required — and this isn’t something that TM can do alone.

Whether the big three will undertake such investments remain to be seen. Certainly, they have the balance sheet to do it although it could involve trimming dividends if they were to head into a capex-intensive investment cycle.

The AAG is Malaysia’s most direct connection to the US

This article first appeared in The Edge Malaysia Weekly, on September 29 - October 5, 2014.