Supporting the exabyte
Back in November we noted the exponential growth in data demand from the Australian population. One question that sprung to mind is whether Australia has the infrastructure to support such high demand growth and this needs to be answered on several levels.
The ‘internet backbone’ of Australia can basically be divided into three parts; international submarine cables (fibre cables that connect ‘Australia’s internet’ to that of the rest of the world), domestic intercity fibre (fibre wires between and within cities, used by businesses, internet service providers and other telco’s) and the last mile (the connection from the exchange to your house).
Fibre capacity within and between cities is already sufficient to meet future demand levels (but is still being expanded) and the last mile is being upgraded by NBN, but how about submarine cables? There’s a resource that investors can monitor to find out the progress of new pipes, their expected capacity of new pipes and capacity of existing pipes (see here).
Evidently, the future is one where the maximum capacity of our submarine cables internationally will be far greater than where they are today – so the answer to our above question is a resounding yes (assuming NBN can make the grade).
This effects firms such as Vocus (ASX: VOC) and TPG (ASX: TPM), the former which leases submarine cable capacity on a wholesale basis and the latter which owns its own cable (PPC-1). Resellers of retail internet services such as iiNet Limited (ASX: IIN) and M2 Limited (ASX: MTU) are likely to have access to more favourable pricing as supply will be greater than demand for many years to come. However, assuming iiNet is acquired by TPG, it may be able to use that cable instead.
Scott Shuttleworth is an analyst at Montgomery Investment Management. To invest with Montgomery, find out more.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
INVEST WITH MONTGOMERY
