Market Analysis – 83112504 – Indefeasible rights of use IRU for submarine cable or terrestrial cable systems

1. Executive Summary

The global market for submarine and terrestrial fiber capacity, acquired via Indefeasible Rights of Use (IRUs), is experiencing robust growth, driven by hyperscale data center expansion and generative AI. The market is projected to grow at a ~9.5% CAGR over the next five years. While demand is a significant tailwind, the primary strategic threat is escalating geopolitical tension, which complicates routing, elevates security risks, and increases project costs for this critical infrastructure. Proactive route diversification is now a core tenet of a resilient sourcing strategy.

2. Market Size & Growth

The total addressable market (TAM) for new submarine cable investment alone is estimated at $2.3 billion in 2024, part of a larger multi-billion dollar market for overall fiber capacity. Growth is fueled by unprecedented data demand from cloud, 5G, and AI workloads. The projected compound annual growth rate (CAGR) for investment in this sector is 9.5% through 2028. The three largest and fastest-growing geographic markets are 1) Transatlantic, 2) Intra-Asia, and 3) Europe-to-Asia.

Source: Internal analysis based on public project announcements and market reports [TeleGeography, Jan 2024]

3. Key Drivers & Constraints

1. Demand Driver (Hyperscale Investment): Cloud providers (Google, Amazon, Meta, Microsoft) are the primary source of demand, now funding over 75% of new submarine cable investment to support global data center traffic, which is doubling approximately every two to three years.
2. Technology Driver (AI & Edge Computing): The rise of large language models (LLMs) and distributed edge computing requires massive, low-latency bandwidth, driving investment in new, higher-capacity cable systems.
3. Geopolitical Constraint (Route Security): Increased tension in regions like the South China Sea, Taiwan Strait, and the Red Sea creates significant permitting delays and physical security risks. Cables are now viewed as strategic assets subject to state-level interference.
4. Supply Constraint (Concentrated Market): The market for turnkey cable installation is an oligopoly with only three major global suppliers. The global fleet of cable-laying vessels is limited, creating bottlenecks and extending project timelines to 3-5 years.
5. Capital Constraint (High Intensity): A single new transatlantic cable system requires $300M - $500M in upfront investment, creating a significant barrier to entry and favouring large, well-capitalized players.

4. Competitive Landscape

Barriers to entry are extremely high due to immense capital requirements, complex international permitting, and the need for specialized marine engineering expertise.

⮕ Tier 1 Leaders * SubCom: A fully integrated turnkey supplier (design, manufacture, install) with the world's largest fleet of cable ships. Differentiator: End-to-end project execution and capacity. * Alcatel Submarine Networks (ASN): A Nokia-owned company and major turnkey provider. Differentiator: Leader in high-fiber-count Spatial Division Multiplexing (SDM) technology. * Google: The largest single investor in submarine cables globally. Differentiator: Operates a vast private network (e.g., Equiano, Grace Hopper, Dunant) for full control over capacity and latency. * Meta: A primary driver of demand and major investor in consortium cables. Differentiator: Funds massive-scale projects like 2Africa, the world's longest-ever subsea cable.

⮕ Emerging/Niche Players * Aqua Comms: Focuses on carrier-neutral transatlantic and intra-European routes. * Seaborn Networks: Specializes in developing low-latency routes between North and South America. * Cinturion Corp: Developing the Trans Europe Asia System (TEAS), a new route connecting India, the Middle East, and Europe. * GlobalConnect: A key provider of terrestrial fiber and data center connectivity across Northern Europe.

5. Pricing Mechanics

An IRU represents a pre-paid, long-term lease (typically 15-25 years) for a set amount of capacity, usually one or more dark fiber pairs. The price is a one-time capital expenditure based on a share of the total system construction cost, which includes marine surveys, cable and repeater manufacturing, marine installation, and landing station construction. Pricing is typically quoted per fiber pair (FP). In addition to the upfront IRU cost, customers pay an annual fee for ongoing Operations & Maintenance (O&M), which covers repairs and network monitoring.

On modern SDM cables, capacity can also be sold as "spectrum" on a fiber pair, allowing buyers to light their own capacity using their own terminal equipment. This provides more flexibility than purchasing lit wavelengths. The three most volatile cost elements in new builds are:

1. Marine Installation: Day rates for cable-laying ships have increased by est. +20-30% in the last 24 months due to high demand, rising fuel costs, and a limited global fleet.
2. Geopolitical Risk Premium: Projects requiring permits in contested waters (e.g., South China Sea) or with elevated security concerns (e.g., Red Sea) now carry a risk premium that can add est. 5-15% to the total project cost.
3. Landing Station & Backhaul Construction: Civil works, power, and terrestrial fiber connectivity costs are subject to local inflation and permitting variables, with costs rising est. 10-15% in key North American and European hubs.

6. Recent Trends & Innovation

• Shift to Private Cables (2022-Present): Hyperscalers have moved from being members of large consortiums to being the sole owners of new "private" cables. This trend, exemplified by Google's Grace Hopper and Equiano cables, gives them full control over design, timeline, and capacity allocation.
• Dominance of SDM Technology (2021-Present): New builds have standardized on Spatial Division Multiplexing (SDM), which prioritizes a high number of fiber pairs (16-24 FP, up from 6-8) over maximizing data per pair. This architecture lowers the cost-per-bit and better serves hyperscale needs.
• Route Diversification & "Choke Point" Avoidance (2023-Present): Following recent cable cuts in the Red Sea and ongoing tensions in Asia, there is a surge in investment for new, diverse routes. This includes new transatlantic cables bypassing the UK, pan-Arctic routes, and systems connecting South America directly to Asia.
• Open Cable Architecture (2022-Present): The "Open Cable" model is now standard, allowing IRU customers to choose their own submarine line terminal equipment (SLTE). This prevents vendor lock-in and allows for upgrades to the latest transmission technology as it becomes available, extending the cable's economic life.

7. Supplier Landscape

8. Regional Focus: North Carolina (USA)

North Carolina has a high and growing demand for fiber capacity, driven by its status as a major data center alley. Hyperscale campuses from Apple (Maiden), Google (Lenoir), and Meta (Forest City) require massive terrestrial dark fiber IRUs for inter-campus connectivity and long-haul backhaul. While NC has no major submarine cable landing stations of its own, it is a primary beneficiary of the dense connectivity hub in Virginia Beach, VA, where multiple high-capacity transatlantic cables land (MAREA, Dunant, Grace Hopper). Terrestrial IRUs connecting NC data centers to Virginia Beach are a critical and competitive sourcing category. The state's favorable tax incentives and business climate continue to attract data center investment, ensuring robust demand for the foreseeable future.

9. Risk Outlook

10. Actionable Sourcing Recommendations

1. Prioritize Route Diversity Over Pure Cost. When sourcing new capacity, secure IRUs on at least two different cable systems with physically separate terrestrial and subsea paths. This strategy mitigates the High geopolitical and physical damage risks. Expect a 5-10% cost premium for this resilience, which is justified by the business continuity assurance it provides for critical operations.

2. Secure Dark Fiber IRUs for Core Needs; Lease Spectrum for Growth. For predictable, baseline demand (~70% of forecast), lock in favorable unit costs with long-term dark fiber IRUs on new SDM cables. For variable or burst-heavy workloads like AI training (~30% of demand), use shorter 1-3 year spectrum leases. This hybrid approach optimizes Total Cost of Ownership by blending capex certainty with opex flexibility.