Blips on the Radar Screen: The Case for Sustained Stability in New - PowerPoint PPT Presentation

Blips on the Radar Screen: The Case for Sustained Stability in New Subsea Systems Development Market Thomas A. Soja, John Manock, S. Hansen Long T Soja & Associates, Inc. Boston, MA USA

Presenter Profile Tom Soja is an international telecoms infrastructure analyst and consultant and is founder and president of T Soja & Associates, Inc. (TSA). TSA is a global research and market advisory firm specializing in demand forecasting, bandwidth usage, network infrastructure planning, and capacity price analysis. TSA has provided consulting and feasibility studies for more than 70 submarine cable and fiberoptic infrastructure projects worldwide. TSA’s Tom Soja clients include service providers, investors, governments, infrastructure developers and President equipment manufacturers for which it provides tsoja@tsoja.com analyses, syndicated reports, databases, and news +1 (617) 787-0100 (ofc) services including the TSA NewsFeed TM , now in it’s +1 (617) 283-7362 (mob) 10 year of daily publication.

Introduction Resurgence in Systems Demand � Potential for spike – Boom-Bust redux? � Suppliers’ dilemma � Mitigating factors – I nvestment / payback timing – Consolidation of interests – Availability of resources – New Entrants? � Thesis: – Sustainable ‘normality’

Makings of Potential Spike (1) Systems Under Contract as of 2007 67,000 Potential Contracts (2) Expected Contract Awards in 2007 131,000 (3) Positive Movement in 2006, Expected Future Contract Award 85,000 (4) Potential Long-Term Projects 72,000 TOTAL 354,000 Future Potential Systems Sub-Total (3's & 4's): 157,000 TM 2007 Source: TSA Radar Screen Report

What’s the Same / What’s Not Funding Sources � Wall Street debt & quick IPOs � Eastern shift � Strategic builds – less about raw demand Players � A duck is a duck � Consolidation � Consortiums � Fewer pure carriers’ carriers Products � The wave trend � Ring shift to mesh

Evolution of Market Drivers Niches Broaden Out � Lead by less intensely competitive markets � Some government initiatives � Feeder cables Return of Transoceanic Systems � Major driver today � Focus on filling global gaps � ‘Late bloomer’ markets

Blips, Announcements, Contracts, RFS 180,000 Annualized Cable by RFS 355,000 156,000 160,000 Monthly RFSs 354,000 Radar Screen 261,000 140,000 Announced 229,000 120,000 (1) Systems Contracted in 2007 67,000 102,000 (2) Expected Contract Awards in 2007 131,000 100,000 Future Potential Systems (3's & 4's) 157,000 80,000 55,000 60,000 38,000 40,000 20,000 4,000 0 N o v - 0 5 J u l- 0 6 N o v - 0 6 J u l- 0 7 N o v - 0 7 J u l- 0 8 N o v - 0 8 J u l- 0 9 N o v - 0 9 J u l- 1 0 N o v - 1 0 J u l- 1 1 N o v - 1 1 J a n - 0 6 M a r- 0 6 M a y - 0 6 S e p - 0 6 J a n - 0 7 M a r- 0 7 M a y - 0 7 S e p - 0 7 J a n - 0 8 M a r- 0 8 M a y - 0 8 S e p - 0 8 J a n - 0 9 M a r- 0 9 M a y - 0 9 S e p - 0 9 J a n - 1 0 M a r- 1 0 M a y - 1 0 S e p - 1 0 J a n - 1 1 M a r- 1 1 M a y - 1 1 S e p - 1 1

Method: Projected Cable Manufacturing 10,000 15,000 20,000 25,000 5,000 0 Nov-05 Jan-06 Mar-06 � � May-06 Completing cable mfg 4 months prior to RFS at latest Cable production begins within 2 months of contract Jul-06 Single System Example: 15,000 Sep-06 Nov-06 ! Jan-07 Mar-07 May-07 $ Jul-07 Sep-07 Nov-07 1,154 Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09 Jul-09

10,000 12,000 14,000 16,000 18,000 2,000 4,000 6,000 8,000 0 N o v - 0 5 J a n -0 6 M a r -0 6 M a y -0 6 Resulting Production Horizon J u l-0 6 S e p -0 6 N o v - 0 6 J a n -0 7 M a r -0 7 M a y -0 7 J u l-0 7 S e p -0 7 N o v - 0 7 J a n -0 8 M a r -0 8 M a y -0 8 J u l-0 8 S e p -0 8 N o v - 0 8 J a n -0 9 M a r -0 9 (1) Systems Contracted in 2007 * (2) Expected Contract Awards in 2007 (3) Positive Movement in 2006, Expected Future Contract Award (4) Potential Long-Term Projects M a y -0 9 J u l-0 9 S e p -0 9 N o v - 0 9 J a n -1 0 M a r -1 0 M a y -1 0 J u l-1 0 S e p -1 0 N o v - 1 0 J a n -1 1 M a r -1 1 M a y -1 1 J u l-1 1 S e p -1 1 N o v - 1 1

Managing Boom / Mitigating the Risk Supplier Choices � Adding capacity – cable production, cable ships, repeaters � New Entrants � Investment vs. Payback Cable Customer Choices � Priority premium � Wait it out � Near-term buyer

Overlapping Projects India - Asia Med-ME-India 40,000 rt-km 45,000 rt-km MTL I-ME-WE VSNL Intra-Asia Cable SEA-ME-WE-5 Orascom FLAG-NGN System 1: Asia FLAG-NGN Med AAG Indian Ocean Extension MTL Transpacific East Africa West Africa 75,000 rt-km 40,000 rt-km 30,000 rt-km Asia - America Gateway TEAMS Glo-1 Trans-Pacific Express CN WAFS EASSy FLAG-NGN Transpacific Infinity West Africa SEACOM EAC Transpacific SAT-4 FLAG-NGN Africa

Net Near-Term Consolidated Networks 180,000 Annualized Cable by RFS 294,000 160,000 Monthly RFSs 294,000 Radar Screen 200,000 140,000 Announced 176,000 114,000 120,000 (1) Systems Contracted in 2007 67,000 (2) Expected Contract Awards in 2007 69,000 100,000 Future Potential Systems (3's & 4's) 150,000 75,000 80,000 63,000 60,000 38,000 40,000 20,000 4,000 0 N o v - 0 5 J u l- 0 6 N o v - 0 6 J u l- 0 7 N o v - 0 7 J u l- 0 8 N o v - 0 8 J u l- 0 9 N o v - 0 9 J u l- 1 0 N o v - 1 0 J u l- 1 1 N o v - 1 1 J a n - 0 6 M a r- 0 6 M a y - 0 6 S e p - 0 6 J a n - 0 7 M a r- 0 7 M a y - 0 7 S e p - 0 7 J a n - 0 8 M a r- 0 8 M a y - 0 8 S e p - 0 8 J a n - 0 9 M a r- 0 9 M a y - 0 9 S e p - 0 9 J a n - 1 0 M a r- 1 0 M a y - 1 0 S e p - 1 0 J a n - 1 1 M a r- 1 1 M a y - 1 1 S e p - 1 1

Managing Boom / Mitigating the Risk Avoiding Stranded Investment � Supplier mfg upgrades / New plant & equipment � Investments payback in 2-3 yr range � Subject to next market lull � Competing markets for limited resources New Entrant Hurdles � Experience (specific track record) � Intellectual property � Financial backing (warrantee) � Long-term reliability

10,000 12,000 14,000 16,000 18,000 2,000 4,000 6,000 8,000 0 N o v - 0 5 J a n - 0 6 Netted Cable Production Horizon M a r- 0 6 M a y - 0 6 J u l- 0 6 S e p - 0 6 N o v - 0 6 J a n - 0 7 M a r- 0 7 M a y - 0 7 J u l- 0 7 S e p - 0 7 N o v - 0 7 J a n - 0 8 M a r- 0 8 M a y - 0 8 J u l- 0 8 S e p - 0 8 N o v - 0 8 J a n - 0 9 M a r- 0 9 (1) Systems Contracted in 2007 * (2) Expected Contract Awards in 2007 (3) Positive Movement in 2006, Expected Future Contract Award (4) Potential Long-Term Projects M a y - 0 9 J u l- 0 9 S e p - 0 9 N o v - 0 9 J a n - 1 0 M a r- 1 0 M a y - 1 0 J u l- 1 0 S e p - 1 0 N o v - 1 0 J a n - 1 1 M a r- 1 1 M a y - 1 1 J u l- 1 1 S e p - 1 1 N o v - 1 1

Conclusions � Industry is right-sized for long term � Incremental production increases more likely � Relationships to work through temporary boomlet � Large CapEx in P&E difficult to justify � Customer need for express networks � Ultimately gated by ability to install � Sustainable price / margin levels