Subco Goes Wild: The New APX West, APX North, APX East, and APX East 2 Cables

Subco announced recently four new 24 fibre pair cables connecting Australia to Japan, Singapore, Guam, and the Continental US. This is obviously a multi-billion dollar undertaking. Now Subco owns the Oman-Australia and SMAP cables. It is also a consortium member on Indigo West and Indigo Central. So I believe Subco has significant retained earnings. Nonetheless, these new cables together probably come close to the $2 billion construction dollar mark. Moreover, hyperscalers don't buy capacity prior to successful execution. Indications of interest, yes, but not contractual commitments. LOIs are soft commitments. So this is a daring undertaking by one of the most successful private operators on subsea cables. For those new to the industry, a private operator generally is a wholesale player that owns an entire cable as opposed to a consortium member or a hyperscaler. However, the historical track record for private operators has not been great. So far Subco has an exception.

By 2001, private operators dominated the Atlantic routes. Most had been resurrected or would be resurrected out of bankruptcy: 360 Networks went bankrupt and became Hibernia, Tyco Telecom went bankrupt and became TATA's global subsea backbone, Global Crossing collapsed and Lumen (Level3) scooped it up, Flag went bankrupt in 2002 and was resurrected, etc. Most recently, Aqua Comms bit the dust and EXA absorbed most of its cable assets at cents on the dollar.

It is hard to believe Subco is financing this purely via equity. It is very likely involves debt and as Winston Qui of Submarinenetworks.com has hinted in his analysis, private cable operators and debt are like oil and water. They don't mix well. So my concern is that four cables sharply increases the project's leveraage and risk. Now some of these cables like the new high capacity connection between Singapore and Perth are certainly justified. Much more capacity is needed on that route. If Subco designs the cable to be diverse from current Perth landings and avoids this Perth protection zone, it is likely a home run. However, I don't know if a cable linking Australia to Japan makes a lot of sense given that Australia has less than 30 million people. Nor is it clear to me that APEX East 2, which connects Guam to LA, is a winner. Part of the idea may be to sell capacity to Google, which has six cables landing in Guam and clearly regards Guam as a traffic switching center that reduces its dependency on Singapore. The 4th cable, APX East, should be a home run because that route is low on capacity.

Overall, the project is possibly too ambitious. The mentality today is that AI is a gold rush and so carpe diem. In contrast, I believe the growing chasm between AI end user revenues (about a hundred billion dollars this year) and AI capital expenditures in the one to two trillion per annum range is alarming. 


Map of Subco's Four New APX Subsea Cables


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