Underwater cables are a vital piece of the AI buildout and internet — investment is booming
News Summary
Over 95% of international data and voice call traffic travels through nearly a million miles of underwater communication cables, which are vital for government communications, financial transactions, and the internet. Demand for subsea cables is surging as tech giants race to develop computation-intensive AI models and connect their growing networks of data centers. Investment in new subsea cable projects is expected to reach around $13 billion between 2025-2027, nearly double the amount invested from 2022-2024. Big Tech companies like Meta, Amazon, Google, and Microsoft are heavily investing in their own subsea cable projects to support their cloud computing and AI infrastructure. Meta's Project Waterworth will connect five continents, while Amazon announced its first wholly-owned project, Fastnet. While most cable damage is accidental, experts note a significant uptick in suspected sabotage incidents, particularly in the Baltic Sea and around Taiwan, corresponding to increased tensions between Russia-Ukraine and China-Taiwan. NATO has launched 'Baltic Sentry' to safeguard critical underwater infrastructure. The U.S. Federal Communications Commission (FCC) has tightened rules on foreign firms building cables connecting to the U.S., citing security concerns from China and Russia, and prohibiting the use of hardware from companies like Huawei and ZTE.
Background
Underwater communication cables form the backbone of the global internet and data transmission, carrying over 95% of international data and voice traffic. Since the first commercial telegraph subsea cable was laid in 1850, technology has evolved from coaxial cables to fiber optics, vastly increasing capacity and speed. Over the past decade, "webscale" players like Meta, Google, and Amazon have become major players in the subsea cable market, now representing approximately 50% of the overall market. These companies directly invest in infrastructure to meet their growing data center interconnection and AI development needs, reducing reliance on traditional telecom operators. However, the vulnerability of this critical infrastructure is increasingly evident. Cable damage can lead to nationwide internet outages, affecting financial transactions and basic communications. Recently, geopolitical tensions, particularly between the U.S. and China, Russia and Ukraine, and China and Taiwan, have heightened concerns about intentional sabotage of subsea cables.
In-Depth AI Insights
What are the true strategic motivations behind Big Tech's direct investment in subsea cables? Is it merely to meet AI's data demands, or are there deeper competitive and control considerations? - Beyond meeting the explicit demands of AI and data center interconnection, Big Tech's direct investments reflect a need for end-to-end control over their core infrastructure. This not only ensures bandwidth and reduces latency but also optimizes cost structures and lessens reliance on third-party providers, thereby enhancing their competitive edge in cloud computing and AI. - It's also a supply chain resilience strategy, allowing companies to better manage risks by owning and operating their cables, especially given increasing geopolitical uncertainties, and avoiding service degradation due to third-party disruptions. - Furthermore, this could be a defensive strategy to prevent competitors from gaining an advantage through control of critical infrastructure, or from imposing undue restrictions on data transmission in the future. How will the U.S. FCC's tightened regulations on subsea cable construction and Big Tech's avoidance of Chinese suppliers reshape the global digital infrastructure landscape? - This will accelerate the "decoupling" of global digital infrastructure, potentially leading to a Western-centric network aligned with the U.S. and its allies, and possibly another network dominated by China. This split will be not only physical but also in technical standards and data flow. - Such policies will lead to further localization and diversification of the supply chain, increasing market share for Western cable manufacturers and installers (like Alcatel Submarine Networks) but potentially also driving up construction costs and slowing deployment speed. - In the long term, this could result in internet fragmentation, where users in different regions might experience varying efficiencies in accessing specific content and services, making data sovereignty and data flow even more complex geopolitical issues. What do the "militarization" risks of subsea cables under geopolitical tensions mean for investors? - Increased operational risk and insurance costs: The risk of cable disruption, whether accidental or intentional sabotage, is rising. This will directly increase repair costs, insurance premiums for operating companies, and potentially affect the fulfillment of service contracts. - Divergent valuations for critical infrastructure companies: Cable assets with greater resilience, more redundant paths, or government/military protection will command higher valuation premiums, while those in high-risk areas or relying on single paths face greater discounts. - Opportunities for the defense and security sectors: Demand for technologies related to subsea infrastructure protection, monitoring, and repair will grow significantly, presenting new growth areas for defense contractors, marine technology firms, and cybersecurity companies. - Heightened data sovereignty and localization trends: Governments will be more inclined to build cables entirely controlled by their own nations or allies to ensure national data security, potentially spurring more regional cable projects and altering data center siting strategies.