The Deadly Mistakes That Wholesale Subsea Cable Providers Make: Part 1

I've been in telecom since 1992. This qualifies me as an 'old fart' or 'dinosaur fossil' as American teenagers would say. This means I've seen every mistake made by subsea cable capacity owners.

1. Buying lots of capacity between cable landing stations, but owning no fibre from the CLS to the customers' destinations, namely the popular carrier neutral data centers. You can't be competitive if you must buy 100G or 400G metro waves from a UK landing station to Slough Equinix. Lease a dark fibre pair ring and light it with DWDM. Don't be penny wise and pound foolish. Those network investments will dramatically improve operating margins. The amazing thing is that PPT members of cable consortiums make this mistake all the time. If it is worth spending $55 million for an undersea fibre pair, then it is worth adding a couple million to the pot for back haul IRUs.

2. Refusing to extend the network to new locations unless the order achieves an investment threshold rate of return. A single order is almost never going to justify lighting a new POP. But if the site is important, do it as long as the sales order covers power and space. Network expansion is strategic. You can't be a slave to a silly finance rule that every build must achieve a minimum rate of return. I see this all the time. Competitive carriers are not exempt. This is bean counting elevated to the level of sublime stupidity. POP coverage is crucial for success. A network's value reflects how well connected it is.

3. Poorly designed contracts for power, colo space, right of way charges, and undersea maintenance. Wholesale subsea markets are subject to long term downward price pressure with cost per bit falling, but staff, power, cross connect, and other operating expenses rising. Contracts should include volume discounts for space, power, and cross connects to alleviate the financial impact of pricing pressure. There should be escape clauses as well. I believe many US carriers that expanded to Europe at the advent of the Third Millennium locked themselves into high costs because the contracts were based on the assumption of bandwidth price stability. For example, Lumen had costs of goods of $428 million on $653 million of revenue in fiscal 2022. This would include right of way charges, power, colocation, undersea maintenance fees, and other real estate costs. It does not include overhead which account for most staff. Legacy costs can kill a business. I suspect they played a large role in Lumen's European struggles.