Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : (LVLT) - Level 3 Communications -- Ignore unavailable to you. Want to Upgrade?

To: bob zagorin who wrote (3525)	5/24/2007 1:09:20 PM
From: tech101	Respond to of 3873

Network Capacity: A Speeding Train Heading Toward A Brick Wall Executives Fret At International Bandwidth Pricing By Jayne Stowell \| May 21. 2007 telecommagazine.com “Be very, very afraid!” says Mike Saunders of Level 3 Communications expressed this dire warning to carriers and other purchasers of Atlantic capacity. His view? Prices must - and will - rise by at least three times by 2010. Saunders based his assessment on the fact that the short term trans-Atlantic supply glut is rapidly being exhausted, that the marginal cost of system upgrades cannot be justified with today’s low prices and because no rational investor would deploy capital for a completely new submarine cable where there would never be any hope for a positive return on capital assuming current pricing. Although an alternative view was posed from the podium that the Atlantic over-supply situation doesn’t define the economics for the rest of the world, Saunders issued the further warning that unless the lessons from the Atlantic were carried to other parts of the world, those multiple competing initiatives were destined to follow the path to bankruptcy that most of the Atlantic carriers experienced in the early 2000’s. The companies who purchased those distressed Atlantic systems for pennies on the dollar then had hardly any capital return expectations – certainly not return expectations that would be required by investors in a completely new submarine cable. A new submarine cable cost is in excess of $500 million (depending upon route and configuration), compared with comparable assets that were purchased out of bankruptcy for less than $20 million. Jean Godeluck of Alcatel-Lucent Submarine Cables, a major manufacturer of submarine cables, echoed the view that prices must rise. The cost of purchasing and installing a new cable is not going to go down any further. The industry has gone through a loss-making period and must now “return to profitability or die”. The component costs of cable construction, such as copper and fuel, have risen dramatically over the past two years. Customers who had an expectation that the depressed, money losing prices from the past five years were an indication of future prices will have badly miscalculated their capital requirements and business plans. Manufacturers and the ancillary industries have looked for better margin customers in non-telecoms industries, such as oil and gas. Much of the industry capacity has been redeployed into these better paying markets. The consequences for the submarine industry are obvious – pay a rate that allows a degree of profitability or risk the permanent loss of critical, experienced resources. The supply chain implications are profound: until the retail user at the opposite end of the supply chain is prepared to pay for connectivity that had previously been regarded as “free”, the industry economic model will remain broken. Purchasers of capacity must factor price rises into their budget calculations for future years. The moves to a universal meshed infrastructure mean that no part of the world is immune from the inter-connected needs of a global customer base and the related cost/price implications. Are there any ways to reduce costs further as a route to profitability? Many executives would argue probably not given that rational cuts have already been taken and further cuts would probably degrade quality – a result that is just not acceptable for critical infrastructure. However, the plea for help went out for relief on regulatory matters, particularly in the U.S. Ferial Ara Saeed, the deputy U.S. Coordinator for Communications and Information Policy, having given an exposition of the State Department initiatives to encourage global connectivity, was in the audience to hear the strength of feeling from the platform regarding the archaic charging by the Federal Communications Commission for IBC fees. IBC fees are essentially a tax imposed upon certain classes of capacity purchasers that equates to 100 percent doubling of the cost of capacity sold in the U.S. – a tax wholly inappropriate for a governmental policy of encouraging communications deployment and usage. In an exceptional spirit of industry cooperation, the owners of trans-Atlantic submarine systems are currently lobbying the FCC for a revision of or removal of this tax which had its origins in a world where very small systems sold very small units of capacity primarily for international voice telephone calls. On a more optimistic note, Doug Burnett of the international law firm Holland and Knight, provided the insight that the U.S. is likely to ratify and sign this year the United Nations Convention on the Law of the Sea (UNCLOS). UNCLOS has been signed by most countries in the world but had been held up since 1993 by the U.S. Senate. Finally, this week, President Bush formally wrote to the U.S. Senate requesting the signature of this important international maritime agreement with the likely outcome of signature before year-end. The implications for submarine system developers landing cables in the U.S. is great as has been learned from bitter experience by those of us who have landed cables in California, Oregon or New Jersey. Those individual states have assumed authority and an obstructive approach to granting landing permits that has resulted in long and costly delays. Under the provisions of UNCLOS the individual state’s permitting authorities’ scope and procedures will be over-ridden by the positive provisions of this agreement. A glimmer of hope! Jayne Stowell, who has extensive knowledge of the submarine optical market segment, is a partner in the advisory firm, Futures Perfect (www.futures-perfect.com). More Information: Visions Of Bandwidth, But When? Submarine Telecom Looks To The Future In Baltimore PTC 07: Sub Telecom Boom, Bust, Boom? Industry Cautiously Positive, But Some Fret Study Finds Cost Of Telecom Services High In South Pacific Islands Research And Markets Report Details Telcos, Mobile, And Broadband In Islands Like Guam And Samoa Operators Invest US$500 M In U.S.-China Cable Consortium Promises 60 Times Current Capacity Message 23569233