While there may be a glut of fiber-optic cable in the United States, China's demand for broadband Internet access is rising so fast that companies there could actually have to lay more cable in the next few years, according to industry executives and analysts.
Asia Netcom, previously known as Asia Global Crossing, now a unit of state-controlled China Network Communications Group Corp., is working with its parent to build a new fiber-optic pipeline into China through the northern seaside city of Qingdao.
The installation will be Asia Netcom's second landing point into China and could increase the speed of Internet traffic between China and countries such as Japan and South Korea by about 30 percent, Asia Netcom President and Chief Operating Officer Bill Barney said in an interview.
In a presentation at a telecommunications trade show in Singapore on Tuesday, Barney is expected to predict that the existing bandwidth running in and out of China could be used up as early as mid-2007. At the end of this year's first quarter, China boasted 28.3 million broadband users and 98.8 million Internet users, according to the Ministry of Information and Industry.
Other Asian companies that own undersea fiber, including FLAG Telecom Holdings Limited, a British company bought by India's Reliance Industries Ltd. in early 2004, are upgrading their networks in Asia to handle stepped-up traffic. "We are seeing [high] demand for capacity out of China and into China," said FLAG Asia-Pacific President Owen Best, who is based in Hong Kong.
It's not a given that broadband growth in China will require laying new fiber. Much of the cable that is connecting China to the outside world can still be upgraded significantly to allow companies to carry more Internet traffic on existing lines. FLAG's loop of cable around North Asia, for instance, is using "way less than half" of its current capacity, according to Best.
In addition, many of the new services that are driving broadband growth in China -- including people downloading movies from the Internet and playing complicated, multiplayer computer games -- might not require increased connectivity in and out of China. Although some of that content comes from Web sites based in the United States, much of it is being downloaded from servers inside China, meaning it doesn't need to be piped into the country via undersea cables, analysts say.
But upgrading cables running under the sea floor is more complicated and expensive than upgrading those on land, meaning that it may make sense to lay some new cable in Asia. "It would not surprise me if in a couple of years we actually had some more construction," said Andrew M. Odlyzko, a professor at the University of Minnesota and a former researcher at AT&T Corp. who has studied bandwidth issues.
Indeed, the only fiber cable running directly from China to the western United States, which is owned and operated by a consortium of companies, is "basically full," said Alan Mauldin, a senior analyst at TeleGeography Inc., a telecommunications research firm in Washington. Providers are getting around that by routing traffic on cables through Japan, he said.
Internet traffic moving around Asia grew 434 percent last year from 2003, according to TeleGeography. The growth on trans-Pacific routes was 119 percent. The group doesn't have figures on traffic growth on routes inside China, Mauldin said.
But China's Internet growth does not necessarily mean big profits for undersea-cable companies like Asia Netcom and FLAG, which are still struggling with the telecom-boom era legacy of huge overcapacity in their markets. Prices for leasing wholesale cable have plummeted over the past five years as supply has outstripped overall demand. Barney said prices have recently stabilized in Asia, however, and may even start an upward trend.
In highly regulated China, unlike markets such as the United States, "there were never 700 different telephone companies building networks across the country," Barney said.
That means there are fewer lines in and out of China and more of an opportunity for carriers to build more -- or at least see an increase in prices on existing lines. Asia Netcom will be "very close" to profitability this year, he added.