SUBMARINE TELECOMS INDUSTRY REPORT – SECTION 2.1: HISTORIC FINANCING PERSPECTIVE
Like the ownership model, system financing is broken down into Multiple Owner versus Single Owner with the addition Multilateral Development Banks (MDB). A Multiple Owner system is typically self-financed where the individual companies come up with the financing by themselves – generally without having to seek outside financial aid or rely on capacity pre-sales. A Single Owner system is usually financed through a combination of an investment bank capital and capacity pre-sales. Both Multiple Owner and Single Owner systems can receive funding from an MDB.
MDBs such as the World Bank and its affiliates are increasingly willing to promote communications infrastructure and to lend in high-risk circumstances where commercial banks will not. MDB interest rates are typically lower than commercial financings and have a more lenient approach to waivers and default scenarios. However, social policy and development goals of those institutions can often impose additional reporting and compliance costs. (Gerstell, 2008) Even so, MDB investment has been sporadic since 2009, accounting for only a handful of systems. (Figure 23)
Generally, Multiple Owner cables use a prospective system for their own traffic, diversifying risk generally through self-finance among its members and affording a range of expertise. Single Owner cables generally raise a system’s capital for construction and operation of the network, though the securing of such funding can be a challenge. Single Owner cables also typically rely on sales to third parties and these systems tend to require outside equity investment more than Multiple Owner systems. However, this is changing as more OTT providers build systems for themselves as they generally do not need to rely on outside sales and use their systems for internal infrastructure.
The industry has invested more than $50 billion in submarine telecoms cables since 1987. Over 90 percent of this total investment has been by Multiple Owner systems, while Single Owner and MDB systems have accounted for five percent of total investment, each. (Figure 24)
In the recent 2015 to 2019 period, the industry has invested nearly $8 billion in submarine telecoms cables. Multiple Owner systems account for 68 percent of total investment, while Single Owner systems are responsible for 23 percent and MDBs have accounted for 9 percent over this time period. Single Owner and MDB financing have seen a noticeable increase over the last five years compared to historical trends. (Figure 25)