Serving the Digital Revolution
The subsea landscape of the Middle East region is experiencing a number of changes, from new cable systems
increasing the availability of international capacity, to the growing capacity pressures resulting from the continued deployment of Next Generation Networks (NGN), offering a portfolio of capacity hungry services to end-users.
The total demand for international capacity from the Gulf countries has shown significant year on year growth. This has been fuelled by the deployment of fibre broadband and ADSL, continued penetration of mobile broadband, and the emergence of regional content providers.
As with any rapidly changing industry it will be critical for telecom wholesalers and service providers alike to be prepared for fluctuating business drivers affecting both the revenue and the cost front. However, the key participants in the subsea landscape future will be the regional regulators who will need to foster and shape a fair and sustainable telecom landscape by promoting open access principles in the telecom regulatory framework.
Up until the announcement of the construction of the Gulf Bridge International (GBI) Cable in 2008, the Gulf region was relatively dependent on a limited number of systems for international connectivity, such as the Falcon and FOG cable systems. In recent years, the region has seen an influx in the construction and announcement of new subsea cables systems and competing terrestrial systems.
These latest systems include the Tata TGN Gulf Cable System, the JADI fibre optic network system, the Regional Cable Network (RCN) connecting similar countries as the JADI cable, and the Europe Indian
“We are predicting that circuit price erosion in the region will continue in the future as the
competition intensifies with average annual prices declining in the region of 15-20%.”
Gateway (EIG) primed to launch at the end of 2011 and of which BT is a partner.
The two terrestrial cables (JADI and RCN) provide connectivity to Europe through Istanbul, Turkey and serve as an alternative route to link the Arabian Peninsula to Europe avoiding the geographical bottleneck for subsea cables in Egypt. This is particularly important considering the issues cable operators face in securing crossings through Egypt. These cables have also seen active participation from major telcos en route, such as Saudi players Saudi Telecom and Mobily, and UAE’s Etisalat taking stakes in the new cables.
The wholesale capacity market will become increasingly competitive as the new regional systems light their networks, with the system ready-for-service dates for these cable systems not far off from one another.
The capacity flooded markets of the 1990s dotcom crash are a poignant reminder of what can happen when there is a surge in capacity – the entire market can be drastically affected as competition heats up on quality, diversity, and pricing.
We have already observed strong price erosion on the international capacity circuits connecting the Middle East, Europe, and Intra Gulf countries. An upgrade to SeaMeWe-4 in 2008 nearly tripled available capacity between Europe and Egypt, offering consortium members additional capacity at a very low incremental cost and dramatically reducing the prices. We are predicting that circuit price erosion in the region will continue in the future as the competition intensifies with average annual prices declining in the region of 15% to 20%.
It is worth noting that even though wet (subsea) circuit prices continue to fall, this has not been reflected beyond the landing point with local operators still holding high prices for the backhaul – therefore city to city prices for circuits between Europe and the Middle East are still very high compared to other regions across the globe. In future this will pose an issue for consumer and business broadband pricing and it is an area where regulators could intervene to support access for second tier operators and ISPs.
The ‘Open Access’ approach to landing stations and regulated backhaul pricing has already provided benefits to the end users in countries where regulatory intervention was implemented such as the UK and India.
The international capacity price reductions are expected to have an observable downstream effect on the telecom services pricing for both consumers and businesses.
ESTIMATED DESIGN CAPACITY OF REGIONAL MIDDLE
EAST CABLE AND TERRESTIAL SYSTEMS (GBPS)
The average consumer bandwidth price in the Middle East region is on average higher than the pricing levels in Europe and Asia.
Some regions have seen a significant reduction in end user pricing as a result of the increased available international capacity.
According to The Economist, Africa has seen a 90% drop in end-user consumer data prices as result of the increased availability of capacity from the arrival of new subsea systems in 2010.
While it is unlikely that the Middle East will experience the same level of price reductions as in Africa, mostly due to Africa’s reliance on satellite connectivity, the Middle East should experience consumer service pricing level drops on par with current pricing levels seen in more mature markets.