This report looks at the infrastructure that supports Asia’s telecommunications markets. The regional market has been continuing its overall strong growth phase and with that there has been a correspondingly strong development of infrastructure. The report looks at the telecom infrastructure in each of the region’s economies. Governments across Asia have long recognised - some earlier than others - that there needed to be some encouragement of private sector investment to meet the demand for the all-important investment capital in the telecom sector. At the same time, it was generally well recognised that this strategy could not rely on local investment alone, and would inevitably mean a substantial level of foreign investment. Of course, despite this recognition, there has nevertheless been some resistance within governments to opening up the telecom sector to foreign investors and as a consequence the level of ‘encouragement’ has been variable.

The changing nature of the telecom market has also had a major impact on the approach to investment in infrastructure. With shifting revenue patterns across the market segments and falling ARPUs on many services, operators have been more selective about what they actually invest in. Telecom operators throughout Asia have been increasing investment levels on the back of carefully considered investment strategies. This has seen companies shifting business focus, looking for new ways to add value to existing revenue streams; it has also seen a strong desire to leverage new value from infrastructure that is already in place.

Over a number of decades the economies of Asia have progressively built substantial fixed-line national networks followed by national mobile networks. In many of the developing nations of the region, the building of fixed-line infrastructure was not far advanced before it was overwhelmed by the introduction of mobile infrastructure. This has created the phenomenon of ‘substitution’ in many of the markets of Asia (where mobile services perform the function of the non-existent fixed services.) Nevertheless, despite the unevenness in disposition, fixed infrastructure remains an important component in the overall development of the region’s telecom sector. By March 2008, Asia had infrastructure in place supporting a total of more than two billion telephone subscribers; of these, more than 630 million were fixed-line subscribers, the remainder of course being mobile subscribers.

More recently the focus of infrastructure building has shifted to the upgrading of domestic telecoms networks to Next Generation Networks. Basically, this process is seeing large scale investment by Asia’s leading telecoms markets in new-generation IP-based telecommunications networks. Those countries that have government backing for NGN roll-out are the ones that are setting the pace. Even some of the lesser-developed markets are pushing hard on this front.

In addition to the national networks, international connectivity remains central to the overall effectiveness of the region’s telecommunications services. Submarine cable routes criss-cross the Asia Pacific area, providing both intra-regional and inter-regional networks. This sector of the market has been characterised by fluctuating supply and demand, which in turn has seen somewhat erratic investment strategies. Over-supply of capacity has been a phenomenon in the market. More recently it has been recognised that investments need to be more focused on growth and less speculative. Starting in 2007, a series of new submarine cable projects were being proposed in the region, mainly trans-Pacific networks aimed at a particular predicted shortfall in capacity between Asia and the US as Asia’s broadband usage started to rapidly increase. However, it was not certain that all these projects would come to fruition, as their respective business cases undergo closer scrutiny.

In the meantime, players operating within the region, including VSNL, FLAG Telecom and PacNet (formerly Asia Netcom), among others, were lighting additional wavelength and fibre pairs on an ‘as-needed’ basis. By adopting this incremental approach to managing spare circuit inventories the operators were working to bring lit bandwidth supply and bandwidth demand into balance. Operators needed to make more of what capacity they already had before getting involved in a new round of submarine network construction and another boom. As the demand for wholesale services has continued to rise in Asia, still driven in the short term by voice services, but in the longer term by data services, there has been a boom in IP-based services, with the volume of international VoIP traffic into and out of Asia increasing at a rapid rate at the expense of the traditional IDD traffic. In the short term this has distorted the demand for bandwidth. However, in the longer term, this will inevitably lead to demand for more optical fibre networks to support the necessary increased bandwidth.

Asia - key developments in infrastructure - 2007 - 2008

• By March 2008, Asia had networks and infrastructure supporting a total of more than two billion telephone subscribers; of these, 630 million were fixed-line subscribers and just over 1.4 billion were mobile subscribers;
• Asia’s developed markets had started building their NGNs, with IP shaping as the primary delivery platform for telecom services across the region;
• The region’s mobile market was growing at an annual rate of almost 30% by mid-2008, maintaining the pressure on operators to expand infrastructure to support their growing subscriber bases and usage levels;
• It is estimated that Asia needs to invest at least US$1 trillion in new infrastructure over the next ten years to meet projected demand;
• Asia’s submarine cable market was again attracting investor interest as the earlier over-supply problem seems dissipated and increasing demand for bandwidth puts new pressure on capacity;
• Redundancy also remained a critical issue for submarine cable systems, providing an additional incentive for fresh investment in this form of infrastructure;
• The region saw a number of new satellite launches in 2007/08 and more were scheduled as a steadier pattern of growth in this segment of the market was observed.

Peter Evans
September 2008

Data in this report is the latest available at the time of preparation and may not be for the current year.