Amazon’s Cloud Arm Makes its First Big Submarine Cable Investment

Amazon Web Services has made its first investment in a submarine cable project, looking to improve capacity on the global network connecting the data centers that host its cloud services.

When the Hawaiki Submarine Cable comes online – target live date is in June 2018 – it will provide considerably more bandwidth between the US, Australia, and New Zealand than available today. The cable is expected to reduce latency for AWS users operating between these three countries.

Amazon has agreed to become the cable’s fourth anchor customer, and its financial commitment provided the last bit of funding necessary to kick off the submarine construction project, a person familiar with the deal who wished to remain anonymous told Data Center Knowledge.

The 14,000-kilometer cable will provide a much welcomed third competitor to the two submarine cable systems on the US-Australia route today: Telstra Endeavour and Southern Cross Cable Network.
The Hawaiki Submarine Cable is a carrier-neutral system that will stretch from Sydney in Australia and Mangawhai in New Zealand all the way to Pacific City in the US, making stops at American Samoa and Hawaii islands.

The system will be manufactured and installed by TE SubCom - a subsidiary of the American industrial networking giant TE Connectivity (formerly Tyco Electronics) that operates a fleet of eight specialized cable ships. The cable system will offer more than 30 Terabits per second of capacity, featuring coherent D+ fiber design and 100 x 100 Gbit/s wavelengths.

Oregon’s Pacific shore is an important place on the global connectivity map. A lot of transpacific network traffic enters the US through the high concentration of submarine cable landing stations in the Oregon towns of Hillsboro, Nedonna Beach, Pacific City, and Warrenton, from where it is carried south to data centers and carrier hotels in Silicon Valley and Los Angeles or inland.

​Because of this, there is a fairly large data center cluster in Hillsboro and the surrounding area. Amazon’s US West cloud availability region is hosted in data centers in Oregon, as well as GovCloud, its dedicated cloud region for government agencies.

Figure 10 - Hawaiki Cable Map

Source: Hawaiki Cable Co.

Intercontinental connectivity is crucial to cloud service providers of Amazon’s caliber, who try to offer customers as many global location options for hosting their virtual infrastructure as possible. As more and more companies start using cloud services and the amount of data created and exchanged in general keeps growing rapidly, demand for this kind of connectivity is on the rise, and so is construction of submarine cables to address the demand.

AWS currently runs 33 Availability Zones across 12 geographic regions worldwide, including one in Sydney. Another five regions and 11 Availability Zones have been announced and will launch sometime next year. These involve new data center projects in Canada, China, India, the US, and the UK.

 “The role of the network, as well as the many AWS Regions around the world, is especially important for our customers looking to run global businesses and become more agile,” said Paul Migliorini, managing director of AWS Australia and New Zealand. Increasingly, companies of all sizes and across all industries in ANZ are using the AWS Cloud to drive innovation in their business while reducing the costs of their IT operations. With AWS, our customers are also able to expand internationally in minutes.”

“We are seeing a resurgence of subsea cable projects to support global cloud deployments and growth of international data traffic,” Equinix CEO Stephen Smith said on the company’s first-quarter earnings call this month. “There are more than 50 global submarine cable projects under consideration over the coming two years, which places Equinix in a great position to win a portion of this next generation of submarine cable investment.”

Amazon’s biggest rivals in the cloud services market, Google and Microsoft, have both made big investments in submarine cable construction projects.

The Faster cable system, backed by Google and several Asian telecommunications and IT services companies, is expected to come online this year. Another big project is the New Cross Pacific Cable System, which is backed by Microsoft and a group of Asian telcos. NCP is expected to come online in 2017.
Both will land in Oregon on the US side.

The three anchor customers of the Hawaiki cable besides Amazon are British telco Vodafone, REANNZ, a government-backed New Zealand research and education network, and the American Samoa Telecommunications Authority, the US territory’s government-owned incumbent carrier.

Source: www.datacenterknowledge.com, Data Center Dynamics

ANALYSIS: This is a major event in the ongoing global development of submarine fiber optic cable systems. Amazon represents the fourth "Over The Top" (OTT) or "Content Provider" to make a significant investment in a submarine fiber optic cable, the others being Google, Microsoft, and Facebook.

The fact that Amazon's commitment pushed the Hawaiki project over the funding line, enabling its owners to put the turnkey supply contract with TE SubCom into force is also significant. Without this commitment, Hawaiki had a US$150M funding gap which looked unbridgeable. Similarly, Microsoft's decision to become an anchor tenant for the transatlantic system, AE Connect, enabled this project to go ahead when its inception, from a demand-supply point of view, looked premature. Microsoft has gone on to partner with Facebook for another diversely-routed transatlantic cable, "Marea", indicating that the traditional supply-demand economics which have driven submarine cable development by telecom carriers for the last 30 years has been abandoned, at least on the major intercontinental routes.

In other words, the Content Providers are now clearly in the driving seat for major intercontinental submarine fiber optic cable systems. It is almost inconceivable that a private submarine cable system on one of these routes can now be built without the participation, either in the former of equity or anchor tenancy, of one or other Content Provider. Two Europe-Asia consortium cables are currently under construction without the participation of this group but they may be the last. Facebook has already participated in the Asia Pacific Gateway consortium and Google led the SJC consortium. Interestingly, both of these cable systems went through long gestation periods, possibly because of a clash of philosophies between the traditionally conservative telecom carriers and the very aggressive content providers.

​Does this mean that cables are being built that should not be built, and are we therefore heading towards another market meltdown as occurred in 2002? In the case of the Australia-New Zealand-US route, there certainly is a strong case for another independent private cable to challenge the monopoly of Southern Cross (Telstra's Endeavour cable only goes as far as Hawaii). The question mark over Hawaiki is whether the management team, consisting of executives that failed to build the SPIN cable system, New Zealand businessmen with no experience in wholesale international submarine capacity trading, and a new Content Provider, can successfully operate this major undertaking. More generally, there is a concern that the industry is over-building again on major routes. As long as Content Providers are building for their own internal demand (end users, data center synchronization, and the "Internet of Things"), prices for wholesale capacity should hold up but, if this new class of submarine cable owners decide to sell wholesale capacity to Third Parties, this will almost certainly lead to hypercompetition, consolidation, and Chapter 11 filings.