Optical Illusions: Content Providers and the Impending Transformation of International Transport Tim Stronge
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Optical Illusions: Content Providers and the Impending Transformation of International
Transport
Tim Stronge
Growth depends on content.
Illusion #1
Sometimes, we require motion to comprehend an
image
Source: http://www.michaelbach.de/ot/mot-biomot/index.html
Recognizing the new gestaltInternational Capacity Usage by Network Type
Recognizing the new gestaltInternational Capacity Usage by Network Type
Content providers are
building cables . . . sort of.
Illusion #2
Sometimes, we perceive motion that does not
exist
Source: http://www.ritsumei.ac.jp/%7Eakitaoka/index-e.html
Content really big on some routesInternational Capacity Usage by Network Type by Route, YE 2017
Demand shapes prices . . . but
not
in the way you think.
Illusion #3
Sometimes, we disregard established patterns
Source: http://www.kyb.tuebingen.mpg.de/research/dep/bu/more-on-this-topic/optical-illusions.html
Source: http://www.michaelbach.de/ot/fcs-hollowFace/index.html
A discovery about bandwidth
prices• Faster demand growth -> faster price declines
• Wait, what?
The magic is in the unit costs
• Let’s build a simple, hypothetical cost model:
• Ignore initial capital payoff
• Each cable has ~$7m annual opex
– Wet and dry O&M, backhaul fees, power, SG&A
• 100G upgrades = $100k now, falling 10% p.a.
• Each cable loaded with 6 Tbps in 2017
– Annual demand growth of 30% until fully loaded
Year 1 Year 2
Cost/Month $715,200 $734,760
÷ 100G Wave-Equivalents Sold ÷ 60 ÷ 78
= Cost per 100G Sold/Month = $11,920 = $9,420
Watch the denominator
Capacity drives cable unit costsCost Floor per 100G Wave Sold
Current avg. trans-Atl price
Price finally approaches cost floor?Cost Floor per 100G Wave Sold
Price ∆ if -15% p.a.
Content providers are a solution
to cable funding dilemma
. . . but also a problem.
Illusion #4
Sometimes, the closer we are to an object the less
we see
Source: http://cvcl.mit.edu/hybridimage/
A basic cash flow model
• Same parameters as previous model, except:
• New cable:
– RFS = 2020
– Construction = $150m
– IRU sales early; gradual transition to leases
Hypothetical cable cash flowAnnual Cash Flow: 0 of 6 Fiber Pairs Offloaded
Share the loadCumulative Cash Flow: 0 of 6 Fiber Pairs Offloaded
Share the loadCumulative Cash Flow: 2 of 6 Fiber Pairs Offloaded
Share the loadCumulative Cash Flow: 4 of 6 Fiber Pairs Offloaded
Annual Price ∆Required to Break Even
-17%
-13%
-10%
Content providers as buyers
• Good
– Lots of unanticipated
growth
– Lower unit cost
-> lower prices
– Heavily underwrite some
new cables
• Bad [?]
– Not ubiquitous
– Uncertain future
demand
– Market power shift to a
few buyers
– Content-only cables in
our future?
Final Words of Wisdom
Never be afraid to follow your dream!
Source: Jukin Media https://www.youtube.com/watch?v=69AmeXLnRfk
Final Words of Wisdom
Never be afraid to follow your dream!
Fire, like, BURNS bro!
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