In the next instalment of her regular column, top economic commentator and What’s Next? author Lyric Hale discusses how the growing infrastructure of cloud servers, data centres and undersea fibre optic cables is having an enormous influence on the economic and political development of countries, particularly in Africa.
Author article by Lyric Hughes Hale
I live about thirty minutes from O’Hare, the second busiest airport in the world. On Sunday nights I like to watch the endless stream of airplanes making their way across Lake Michigan in orderly single file, like pearls strung along an invisible necklace. A hundred years ago, this beautiful sight would have been unimaginable. And in another five hundred years, our descendants might find it quaint that we flew in metal boxes across the sky. By that time, my son tells me, we could be travelling by means of underground vacuum tubes at speeds that will make it possible to go to Australia for the day, helping to destroy but not eliminate the tyranny of distance. He reminds me however that despite technological advances, there will always be limitations in the physical world that create natural boundaries, not only for human travelers but also for the transport of information. I believe that these limitations will not affect all nations equally, and will alter geopolitics.
Due to their high speed and low cost, it might appear that our communications networks have nullified geography, creating an even global playing field. Even if we gave every person on earth an iPhone in order to overcome the digital divide, this would not be true. The Internet is physical. It might sound ephemeral, but cloud computing is really is a just a fancy word for a noisy server farm right here on earth. Connectivity is related to a hierarchy that begins with a device, which is dependent upon an access to a network. The network in turn is built upon a domestic backbone, linked to regional and international fibre optic pathways.
Invisible to the user are the undersea and terrestrial cables and data centers that contain all that is necessary to make our lives work today. Getting these bits and bytes of data moving faster than they do now will force technology to confront the laws of physics. Data now travels through fibre at about two-thirds the speed of light. Even if the speed of light could be obtained, this would result in latency, or delays, that make time sensitive applications like online trading or gaming between the US and Australia too slow to be viable. As Internet latency becomes more of a competitive barrier for all applications, countries able to store, manipulate and move data quickly and cheaply will prosper and those countries that are literally out of the mainstream will suffer. Remember dial-up Internet access? That is what it is currently like trying to play an online game with someone in New Zealand, even with the best possible connection and latest device. The ping times are too great.
Australia and New Zealand are remote economies in telecommunications terms. A study by Mark Obren and Bronwyn Howell of the New Zealand Institute for the Study of Competition and Regulation, explains that in spite of huge investments in local broadband networks, these countries are more or less permanently disadvantaged whenever page load times, latency and long RTT’s (Round Trip Times) matter, which is most of the time internationally.
The overriding economic policy lesson for the Australian and New Zealand governments is that scale and distance cannot be ignored, even in respect of internet-enabled transacting. The economic and policy challenges in these countries are necessarily different from those in other localities. When analysing the benefits arising from investment in infrastructure, it is imperative that there is clarity about the extent to which that investment facilitates transacting within the local economy and where it facilitates international transacting. For small distant economies, investments focused upon improving local internet access infrastructure will have a material effect upon firms‟ economic performance only to the extent that those transactions are confined within the local economy – including on the basis of distributing locally-cached international data. Time-dependent interactive transactions will continue to be disadvantaged by distance. The claims that Australian and New Zealand government investment in ultra-fast local broadband access will facilitate a step-change in national economic performance fail to take account of the fact that whilst information might exhibit different economic characteristics, the technologies which transport and process it are still subject to decreasing returns arising from the unrelenting economics of scale, density and distance.
Which is ironic, because Australia is the only country in the world whose founding was a direct result of creating a uniform telegraph infrastructure between its states and territories.
So if Australia and New Zealand, with combined populations of only 25 million people are permanently sealocked, what is happening in other distant underserved markets? In order to provide international bandwidth, undersea cables and data centers are being built with amazing speed throughout the world.
Where is this development taking place? The map that matters is Greg’s Map (www.cablemap.info) which is interactive. Notice the location of cables that exist today, and cables that will be deployed shortly.
The growth is taking place in Africa. 7 out of 10 of the world’s fastest growing economies are in Africa, and it is also the world’s fastest growing telecommunications market, both in terms of cables linking the continent to the rest of the world, and in terms of terrestrial connectivity, overtaking Asia.
Michael Last, writing in Global Telecoms Business explains the phenomenon:
Nowhere else is telecoms growing as rapidly as in Africa. Unencumbered by legacy systems, investment in terrestrial optical fibre networks is prodigious. New technologies are quickly adopted, giving rise to a dramatic increase in mobile usage and business applications for a mobile platform.
We are in the middle of a three-year phase of fibre optic submarine deployment around Africa, by the end of which (2013) the continent will be on a par with the rest of the world in terms of high speed connectivity.
Greg’s Map was created by Greg Mahlknecht, a software developer who just happens to live in South Africa. I asked him to comment on what his cable map means for economic development in Africa overall.
The choke points in Africa are definitely the national infrastructure-the international links are coming along nicely and there is already a surplus and more connections will serve to drive these costs down even more. It seems that once the connectivity is in the country, data centers follow and prices are driven down quite aggressively. Here in South Africa, they literally can’t build the datacenters fast enough to keep up with the demand.
Greg also referred me to a colleague in South Africa named Steve Song (manypossibilities.net) who spends a lot of time thinking about the differential development of emerging economies based upon telecommunications infrastructure. His map shows the locations where cables “land” in Africa.
He agrees that Africa is poised for a boom, and made the following points:
- Coastal countries that have fibre landing points are definitely at an advantage compared to their landlocked neighbours
- Countries with 3 or more cables landings (South Africa, Kenya, Nigeria) are poised to become regional hubs for sub-Saharan Africa
- National fibre infrastructure has not caught up in terms of competition to the undersea cables. In many African countries it is more expensive to get to the coastal landing point than it is to get from there to Europe
- Every country on the continent has at least one national fibre project, many if not most are being financed and/or built by the Chinese
Chinese investment in Africa has been a prickly topic, though mostly related to resources. I asked Steve what he thought about China’s role in telecommunications in Africa. “Mostly I think it is a quid pro quo. The Chinese are making out like bandits but here in Africa we really need the infrastructure so it works out.” Huawei, the Chinese telecoms giant, currently derives just under 15% of its revenue from its African operations. Bolstered by vendor financing, Chinese government aid, and resource swaps, ZTE and Alcatel Shanghai Bell are also players in this market. The Japanese who are also competing for African business are not as sanguine. According to JETRO, the Japan External Trade organization, “There are important military and security considerations linked to China’s penetration of the African telecommunications market.”
The role of telecommunications in geopolitics is not new. In Cornwall, England, the Porthcurno Telegraph Museum is dedicated to the preservation of the history of the undersea telegraph cables that were the backbone of British imperialism.
“Britannia rules the waves”, but from the 1850s until the 1920s, Britain ruled both under and over the waves – it had the world’s strongest navy and dominated the global submarine cable business. Britain’s dominant position in global politics, finance and trade helped entrepreneurs, like Sir John Pender, build a global business financing, laying and operating cables. No wonder critics likened it to a vast ‘octopus’ that destroyed or strangled competition. By the 1890s, the ‘octopus’ was the main reason why Britain owned two thirds of the world’s cables.
However, from the early 1900s, Britain faced increasingly strong competition from the United States, Germany and France in economic, military and political terms. Its rivals also expanded their cable networks, which finally began breaking the British monopoly. Faced with the additional threat of wireless telegraphy, Britain’s ownership of the world’s cables had dropped to a half by the mid-1920s.
So perhaps we have found a new metric by which to measure political power—the cables that link nations to other nations and regions, the networks which allow their citizens to communicate with each other, and the RTT, the round trip time for data to travel between continents. It is the new Law of the Sea.
Lyric Hughes Hale is a writer and contributor to a range of publications, including the Financial Times, Los Angeles Times, USA Today, Current History and Institutional Investor.
What’s Next? Unconventional Wisdom on the Future of the World Economy by David Hale and Lyric Hale is available now from Yale University Press.