Wednesday, 08 April 2020

The death of the consortium model and the rise of OTTs

by Harry Baldock, Total Telecom
Tuesday 18 February 20

The latest panel session from the Submarine Networks EMEA 2020 event provided insights into the future of financing in the subsea cable industry

The consortium approach to financing subsea cables was popular for many years, but recent years have seen it mostly replaced by joint build projects.   Part of the reason for this were the bureaucratic issues surrounding such large groups of players trying to reach a consensus.   “The upgrade fees in a consortia could be a nightmare,” said Giuseppe Sini, Head of Retelit International Business Unit, Retelit, highlighting one of the many ways in which heightened bureaucracy delayed projects during a consortium approach…

The consortium approach to financing subsea cables was popular for many years, but recent years have seen it mostly replaced by joint build projects.
 
Part of the reason for this were the bureaucratic issues surrounding such large groups of players trying to reach a consensus.
 
“The upgrade fees in a consortia could be a nightmare,” said Giuseppe Sini, Head of Retelit International Business Unit, Retelit, highlighting one of the many ways in which heightened bureaucracy delayed projects during a consortium approach. The joint build model allows for a much easier time managing your own fibre and makes upgrading much easier.
 
When the session’s audience were asked to raise their hand if they disliked the joint build approach, it was telling to see that none did so.
 
However, the consortium approach is not entirely redundant. Indeed, latent elements of the old consortium model lay hidden within the joint build model; in a group of cobuilders, it is not uncommon for one or more builders to represent a group of investors.
 
“A hybrid approach like this represents the vestiges of the consortium system,” said Mike Hollands, director, market development and strategy at Interxion. 
 
One of the great advantages of the joint build model over the consortium approach is the reduced need for discussion throughout the project. However, Hollands noted that Interxion has yet to see a significant efficiency benefit as a result of the cobuild model. While there are fewer conflicting voices, there is no less discussion and bureaucracy, he said. The submarine network industry must work harder to reduce unnecessary chatter that holds back the project’s agility.
 
One of the major drawbacks of the consortium approach is that each of the players have different needs, requiring different landing points and backhaul to suit their purpose. With the open system approach, these players can collaborate for the vast majority of the route, before then diversifying out to their own respective markets. It is this flexibility that marks a major benefit of this joint build model.
 
It is this same flexibility that facilitates the investment dynamic between the OTT players, with their interest in linking their hyperscale data centres, with traditional operators, who have their own myriad of needs.
With OTT players involved in the majority of large builds in the current environment, the panel were asked if they believed future of the subsea industry would see the OTT dominance continue.
 
Some routes will, by their nature, be driven by OTT demand, especially the longest routes, explained Monica Martinez, cable business marketing director of Telxius. But smaller regional routes may still be feasible without the reliance on OTTs. 
 
Martinez highlighted a Telxius route from Guatemala to Chile as an example of a route being built without OTT partners. In these routes there is less investment required and also significant demand from carries for improved coverage and reduced latency.
 
However, for longer transoceanic routes, it seems the OTTs are here to stay.
 
‘They [the OTTs] are the demand,” said Sini. “You can build with or without them, but ultimately they are the ones supplying that demand.”
 
The submarine industry must be adaptive and anticipate the needs of the OTTs, as well as the more traditional carriers, if they are to bloom in the coming decade.
 
 
Want to keep up with all the latest news from the subsea cable industry? Follow Submarine Networks EMEA 2020 on Twitter at #SubNetsEMEA
 
 
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