Broadband Infrastructure in  North Asia and Central Asia Markets, Infrastructure, and Policy Options for  Enhancing Cross

Broadband Infrastructure in North Asia and Central Asia
Markets, Infrastructure, and Policy Options for Enhancing Cross‐Border Connectivity
Michael Ruddy
Director of International Research
Terabit Consulting
www.terabitconsulting.com
Part 1: Background and Methodology
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Project Scope
Between June and November 2013, Terabit Consulting performed a detailed analysis of broadband infrastructure and markets in 7 strategic markets in No. & Central Asia:
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Azerbaijan
Kazakhstan
Kyrgyz Rep.
Russian Fed.
Tajikistan
Turkmenistan
Uzbekistan
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Scope (cont’d.)
• The data and analysis for each country included:
 Telecommunications market overview and analysis of competitiveness
 Regulation and government intervention
 Fixed‐line telephony market
 Mobile telephony market
 Internet and broadband market
 Consumer broadband pricing
 Evaluation of domestic network connectivity
 International Internet bandwidth
 International capacity pricing
 Historical and forecasted total international bandwidth
 Evaluation of international network connectivity including terrestrial fiber, undersea fiber, and satellite
 Evaluation of trans‐border network development and identification of missing links
 Identification of key highway and rail projects www.terabitconsulting.com
Sources of Data
• Terabit Consulting has completed dozens of demand studies for submarine and terrestrial fiber networks worldwide
– Constant contact with operators, ISPs, and other stakeholders
• Terabit Consulting’s published reports include:
– The Undersea Cable Report
(1,500+ pages)
– International Telecommunications Infrastructure Analysis (1,000+ pages)
• Terabit Consulting’s data and intelligence covers infrastructure, demand, traffic flows, pricing, and market share
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Part 2: State of North and Central Asia Bandwidth and Broadband Markets
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Overview of Broadband Status
GDP per Int’l.
Capita, YE Band‐
2012 width per (PPP, Capita USD)
(Kbps)
Int’l. Connect‐
ivity
Domestic Connect‐
ivity
IP Transit Price
Competitive‐
ness of Telecom Market
Annual 1 Mbps Fixed and Broadband Mobile Subscription + Broadband Installation as % Infra‐
of Nominal GDP structure
per Capita
Azerbaijan
$10,800
22.4
Moderate
Adequate
Reasonably Priced
Somewhat Competitive
Relatively Strong
Reasonable
Kazakhstan
$14,000
16.5
Moderate
Relatively Strong
Reasonably Priced
Somewhat Competitive
Relatively Strong
Reasonable
Kyrgyz Republic
$2,400
0.893
Weak
Limited
Very Expensive
Somewhat Competitive
Limited
Very Expensive
Russian Federation
$20,900
17.4
Moderate
Relatively Strong
Inexpensive
Competitive
Strong
Extremely Affordable
Tajikistan
$2,300
0.313
Weak
Limited
Very Expensive
Somewhat Competitive
Very Limited
Very Expensive
Turkmenista
n
$9,600
0.125
Weak
Limited
Very Expensive
Not Competitive
Very Limited
Very Expensive
Uzbekistan
$3,500
0.259
Weak
Limited
Very Expensive
Somewhat Competitive
Limited
Very Expensive
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International Internet Bandwidth, YE12
Russian Federation: 2.5 Tbps
Kazakhstan: 275 Gbps
Azerbaijan: 205 Gbps
Uzbekistan: 7.8 Gbps
Turkmenistan: >1 Gbps
Kyrgyz Republic: 5 Gbps
Tajikistan: 2.5 Gbps
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Int’l. Internet Bandwidth per Capita (Kbps)
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1 Kbps per Capita or Less:
SERIOUS OBSTACLE TO DEVELOPMENT
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9x
7
1
n: International Fiber Connectivity
• The Study identified and analyzed 30 trans‐border fiber optic links in the region
– Across borders within the region and at the edge of the region (e.g. to China, Iran, and Afghanistan)
• Some transborder links form segments of multinational networks
– Trans Asia‐Europe (TAE)
– Proprietary limited‐participation networks such as • Transit Europe Asia (Rostelecom), TTK Eurasia Highway
• Europe‐Kazakhstan‐Asia
• Europe‐Russia‐Mongolia‐China (via Mongolia Railway)
– Europe‐Persia Express Gateway (EPEG)
• Only one border without connectivity
– Armenia‐Azerbaijan
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International Bandwidth Infrastructure
AZERBAIJAN, RUSSIA, KAZAKHSTAN: INTERNATIONAL INFRASTRUCTURE SUFFICIENT BUT NOT OPTIMAL
KYRGYZ REPUBLIC, TAJIKISTAN, TURKMENISTAN, UZBEKISTAN: INTERNATIONAL INFRASTRUCTURE
IN CRITICAL NEED OF EXPANSION
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Russian Federation: Int’l. Infrastructure
• 7 international submarine fiber optic cables
– reach is limited to adjoining regions (Scandinavia, Black Sea/Eastern Mediterranean, Sea of Japan/East Sea)
• Europe‐Asia transit networks operated by Rostelecom, VimpelCom, and TTK; new transit networks recently activated by MTS and MegaFon
– ‘Big Four’ + TTK = 750,000+ route km of fiber
• Trans‐border links within the study region: Azerbaijan/EPEG (4), Kazakhstan (at least 3 crossings, multiple interconnections)
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Kazakhstan: Int’l. Infrastructure
• TAE (to China, Kyrgyz Republic, Uzbekistan)
• Kazakhstan benefits from at least 10 trans‐border fiber crossings within the study region
• Kazakhtelecom international connectivity = 290 Gbps as of mid‐2013:
– Russian Federation: Rostelecom, VimpelCom, MegaFon, TTK
– Kyrgyz Republic: Kyrgyztelecom, ElCat, Saima Telecom
– China: China Telecom, China TieTong, China Unicom
– Turkmenistan: Turkmentelecom
– Uzbekistan: Uzbektelecom
• Kazsat‐2 (2011), Kazsat‐3 (2015)
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Azerbaijan: Int’l. Infrastructure
• TAE (to China, Kyrgyz Republic, Uzbekistan)
• Russian links to Rostelecom, MegaFon, TTK
• Link to Turkey via Nakhchivan Autonomous Republic
• TIC Iran link forms primary connection to Nakhchivan
• EPEG: Delta Telecom = transit operator
• Instrumental in spearheading TASIM initiative
– Will include Trans Caspian Link
• AzerSat‐1 (launched February 2013), LEO satellite (2015), 2nd
telecom satellite (2016)
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Uzbekistan: Int’l. Infrastructure
• TAE (to Kazakhstan, Turkmenistan)
• Additional crossings to Kazakhstan (2), Kyrgyz Republic, Tajikistan
• Afghanistan (used as part of Rostelecom’s ‘Europe‐
Afghanistan’ network)
• Uzbekistan is ‘doubly landlocked’ – making its continued reliance on trans‐border links impractical – Places country at mercy of at least two transit operators
• IP Transit: $1,510 in 2010; $347 in mid‐2013
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Kyrgyz Republic: Int’l. Infrastructure
• TAE (loop to Kazakhstan completed in 2000; redundant segment added in 2007)
• Kyrgyztelecom links to Tajikistan, Uzbekistan
• Kyrgyztelecom link to China intended to reduce reliance on Kazakhstan and Uzbekistan transit, but China Telecom reported interconnection issues
• ISP ELCat aggressively implementing fiber to China, Kazakhstan, Tajikistan www.terabitconsulting.com
Tajikistan & Turkmenistan: Int’l. Links
• Tajikistan: Trans‐border links to Kyrgyz Republic, Uzbekistan, Afghanistan, China (unconfirmed)
• Turkmenistan: TAE to Iran and Uzbekistan, links to Kazakhstan and Afghanistan
– restrained network development due to ISP license revocations in 2000, shutdown of MTS in 2010 (only competitor to Turkmentelecom/Altyn Asyr/ Turkemenistan Online)
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Part 3: Why a Coherent, Open‐Access, Cost‐Effective Pan‐Asian Fiber Infrastructure Would Benefit the Region
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Why a Coherent Pan‐Asian Infrastructure Would Benefit the Region
Reason #1
In Kyrgyz Republic, Tajikistan, Turkmenistan, and Uzbekistan, the development of telecommunications and Internet services, as well as each country’s overall economy, has greatly suffered as a result of weak international infrastructure.
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The Impact of Low International Bandwidth & Weak International Infrastructure
• At the macro level: a major obstacle to economic and human development
– Detachment from digital economy
– Continued economic inefficiencies and restrained growth
– Lack of access to critical social development tools including telemedicine, distance learning, scientific/research networks
• More specifically within the telecom environment: higher wholesale and consumer prices, and lower broadband adoption rates
– Kyrgyz Republic, Tajikistan, Turkmenistan, Uzbekistan:
IP Transit >$100 per Mbps per month
• Compared to Singapore: $10 per Mbps
• Compared to Russia: $4 per Mbps
• Compared to USA: $1 per Mbps
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Weak Int’l. Bandwidth Impacts Consumer Pricing
1 Mbps Broadband Connection: Annual Subscription + Installation as a % of Per‐Capita GDP
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Why a Coherent Pan‐Asian Infrastructure Would Benefit the Region
Reason #2
Despite their developed international connectivity, the three wealthiest markets in the study (Azerbaijan, Kazakhstan, and Russia) would greatly benefit from improved pan‐regional terrestrial fiber.
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Pan‐Regional Fiber Would Also Benefit Wealthy Markets • Pan‐regional fiber would compensate for existing shortcomings of the countries’ international networks and help to place them on a par more connected markets in Western Europe, Southeast Asia, and North America
– Russia’s submarine connectivity is limited to adjoining regions
– Existing Europe‐to‐Asia transit infrastructure can’t compete
• Stimulating demand in Kyrgyz Republic, Tajikistan, Turkmenistan, and Uzbekistan would benefit entire region
– By creating larger addressable opportunities for neighboring markets, in telecom as well as other sectors of the economy
– Increased demand for Russian content
• 96% of Uzbek users visit Russian‐language websites
• 90% of downloaded content in Kyrgyz Republic is Russian language
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Why a Coherent Pan‐Asian Infrastructure Would Benefit the Region
Reason #3
Coherent pan‐Asian terrestrial fiber optic infrastructure would benefit markets across the continent and beyond, and help address one of the international bandwidth industry’s most pressing concerns, namely the lack of reliable, cost‐effective Europe‐to‐Asia bandwidth.
In financial terms, the viability of constructing coherent pan‐
Asian terrestrial fiber optic connectivity can likely be guaranteed by capturing even a small portion of bandwidth demand between East Asia and Western Europe. www.terabitconsulting.com
Strong Europe‐to‐Asia Bandwidth Demand
2007
2008
2009
2010
2011
2012
20
50
50
50
110
140
Sea‐Me‐We‐3 (SMW3)
150
150
200
200
200
200
i2i (ISCN)
160
160
310
640
640
640
TGN‐TIC (Tata Indicom India‐Singapore (TIIS))
320
320
480
480
480
960
Sea‐Me‐We‐4 (SMW4)
640
640
1,500
1,500
1,700
2,000
Falcon
500
500
1,390
1,390
2,590
2,590
80
100
110
240
260
640
2,560
240
240
FLAG Europe‐Asia (FEA) (formerly FLAG )
Seacom / TGN Eurasia
India‐Middle East‐Western Europe (I‐ME‐WE)
Europe‐India Gateway (EIG)
Gulf Bridge International Cable System (GBI) /MENA
TOTAL ACTIVATED EUROPE‐TO‐ASIA SUBMARINE CAPACITY (Gbps)
CAGR (2007‐2012)
480
1,790
1,820
4,010
4,620
41.2%
6,710
10,050
Source: The Undersea Cable Report 2013
by Terabit Consulting
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Terrestrial as a Solution for Submarine
Source: The Undersea Cable Report 2013
by Terabit Consulting
The global telecommunications industry is desperate for a cost‐effective solution that would avoid undersea choke points.
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A Pan‐Asian Terrestrial Network Would Be More Competitive than Europe‐Asia Submarine
Submarine
Terrestrial
Connectivity
Cable station to cable station, with expensive backhaul
POP‐to‐POP
Repair
Faults take weeks to repair; ships Networks accessible by highway running costs $50,000+ per day
can be quickly repaired at low cost
Capacity and Long‐haul limited to 8 fiber pairs; Unlimited capacity with proper Upgrades
submerged electronics poses duct installation and maintenance
limitation
Costs
Unrepeatered 3‐fiber pair cable: $12,500 per km, marine services $20k‐$40k / km
$1,250 per km with marginal fiber costs of as low as $60 per km
Risk and Reliability
No viable alternative to Egyptian bottleneck
Mesh configuration could offer “five nines” if properly designed
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Part 4: The Case for Installing a Terrestrial Pan‐Asian Fiber Optic Network Along Highway Rights‐of‐Way
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International Highway Infrastructure
• In the near‐term, many of the countries in the region will be upgrading existing highway infrastructure and installing new links
• Simultaneous installation of high‐capacity fiber and ducts would be a negligible marginal cost in most projects
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Major Investments in Transport Infrastructure
Country
Major Upcoming Transport Investments
Azerbaijan
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Modernization of all major highways by 2015.
Baku‐Tbilisi‐Kars railway (with access to Europe).
Kazakhstan
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USD$19 billion in new highways by 2014, focusing on China‐to‐Asia. New China‐Europe rail link.
Kyrgyz Republic
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Bishkek‐Osh‐Sary Tash North‐South highway will undergo a USD$800 million reconstruction over the next five years.
Russian Federation
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By 2020, Russian Federation expects to build or reconstruct 7,400 kilometers of federal highways and 6,700 kilometers of regional and municipal roads. Tajikistan
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Construction and improvement of several hundred kilometers of roads, especially linkages with China, has been undertaken with funding from the ADB and the Chinese government. Turkmen‐
istan
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Improvement of highway links to Turkmenbashi is anticipated as part of EU’s TRACECA program.
Uzbekistan
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May, 2013: Uzbekistan and the ADB signed a loan agreement for USD$220 in financing for the country’s national highway project. Nov., 2013: Uzbekistan and China signed an agreement for a USD$400 million loan to include construction of rail linkages to China.
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Installing Fiber within a Road Project
• In the US (high labor‐cost market), conduit+fiber installation during open road construction costs between USD$6,000 and USD$18,000 per kilometer
• Road installation costs at least USD$1.8 million per lane, per kilometer
• Cost of fiber network installation during open road construction: much less than 1% of project total
Photos: Terabit Consulting
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Part 5: The Case for Intervention to Ensure Network Development
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Market Failure: Broadband Divide
• The analysis showed that the growing chasm between the broadband “have” and “have‐not”
markets results in vast differences in:
international fiber connectivity
domestic connectivity
the pricing of IP transit capacity
the competitiveness of telecommunications and Internet market
– fixed and mobile broadband infrastructure
– the affordability of consumer broadband services
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• This impacts overall economic growth and development.
• Landlocked markets can’t compete using the existing trans‐border (bilateral) infrastructure. www.terabitconsulting.com
The Need for Intervention
Intervention (by government or int’l. organizations) is required to ensure the implementation of a pan‐
Asian terrestrial fiber optic network for 5 reasons:
1.To overcome the region’s vast broadband inequality and assist landlocked nations.
2.To ensure that the region receives broadband services on a par with more developed markets.
3.To finance or assist in financing a major capital project that is unlikely to be fully financed by the private sector.
4.To pool and leverage private‐sector resources which are disparately insufficient.
5.To stimulate and facilitate future private investment through market development and maturation.
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Options for Government/UN Participation
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Available Public‐Private Partnership Options
Special Purpose Vehicle (SPV) Model with Government/Organizational Shareholding
•Network operators form a special purpose vehicle to assume full responsibility for the development, operation, and maintenance of the pan‐Asian terrestrial network. •Government, organizational, and/or developmental entities make capital contributions to the SPV and receive equity stakes and/or
capacity on the network. •The contributor(s) receive a seat on the board of the SPV, thereby ensuring that policy goals are achieved.
•A regulatory framework is adapted to ensure that the SPV’s outcome fulfills policy goals and improves the overall welfare of the region. •The contributor’s equity stake may be divested once certain milestones are achieved, or alternatively may be held until the winding‐
down of the SPV.
Special Purpose Vehicle (SPV) Model with Government/Organizational Contribution
•Network operators form a special purpose vehicle with full responsibility for the pan‐Asian terrestrial fiber optic network.
•The government, organizational, and/or developmental entities make capital contributions to the SPV.
•The contributor(s) do not receive equity or capacity on the network.
•However, the contributor(s) do participate in the creation of the SPV’s governance framework, and receive a seat on the board of the SPV.
•Mechanisms are instituted to ensure that policy goals are met.
Build‐Operate‐Transfer (BOT)
•Following an open tender process, a concession is granted to one or more network operators for a fixed long‐term duration (typically 20 years).
•The network operators are assigned full responsibility for financing, operating, and maintaining the cable.
•Certain market privileges may be accorded to the network operators.
•The operators are allowed to retain all revenues during the period of its concession.
•Once the concession agreement expires, ownership of the network is assigned to the government(s) at no cost.
Awarding of Project Management Contract
•A tender is issued to select one or more network operators responsible for the construction, operation, maintenance, and commercialization of the pan‐Asian terrestrial fiber optic network.
•The contract recipient is paid to manage the cable and assume these responsibilities, including the sales of capacity to operators. The contract recipient’s management fees may be fixed or based on a percentage of revenue.
•The network remains the property of the Government(s), which collect all profits (less management fees). www.terabitconsulting.com
Part 6: Principles to Guide Network Development
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Principles to Guide Future Network Development
1. Fully integrated and coherent
– Mesh configuration to allow for in‐network healing in the event of physical cable outages or political instability affecting connectivity in specific countries.
2. Functioning and monitored as single, uniform network
– Existing multi‐national terrestrial networks cannot offer uniform quality‐
of‐service guarantees between endpoints (as good as “weakest link” or “weakest operator”).
3. Leveraging existing infrastructure
– Right‐of‐way procurement and uniform construction techniques would be enabled through the use of the Asian Highway network, Pan‐Asian Railway project, or power transmission networks.
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Principles to Guide Future Network Development
(Continued)
4. Cost‐effective
– With suitable transmission capacity and fiber count, a pan‐regional terrestrial fiber network could compete effectively with submarine cable on both a regional and intercontinental basis.
5. Open access and non‐discriminatory pricing
– In order to achieve development and policy goals, as well as to serve the region’s consumers, all purchasers of capacity must be able to access the network on an equal, non‐discriminatory basis.
6. Developed and managed by a Special Purpose Vehicle (SPV)
– SPV shareholding would ensure the neutrality and efficiency of the network
– Allows participation by all stakeholders while still maintaining arm’s‐
length terms over all capacity sales and leases.
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Part 7: Gaining Support for the Project
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Stakeholder Participation is Key
• The Study (pp. 34‐38) identifies more than 100 potential stakeholders in North and Central Asia that should be involved in the project, including:
– National Regulatory Authorities
– Incumbent Operators and Major International Gateway Operators
– Competitive Telecommunications Operators and ISPs
– Road and Railway Authorities/Operators
• Suppliers and contractors should also be consulted in the development stage.
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Convincing Governments of the Project’s Advantages
1. Benefits to consumers
– Better, more cost‐effective connectivity in the region will greatly reduce consumer prices in less developed markets and improve broadband reliability throughout the region.
2. Economic growth
– Improvement in ICT infrastructure yields:
• Increased demand for the output of other industries (demand multiplier)
• New opportunities for production in other industries (supply multiplier)
• New goods and services for consumers (final demand)
– It also increases firms’ innovation capabilities and increases the probability of new products, innovations, and organizations
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Convincing Governments of the Project’s Advantages
(Continued)
3. Increased government revenue
– Growth in economic output from ICT investment results in greater tax revenue
– Increased employment in the telecommunications sector
– Greater collections from telecom licenses and excise
4. Regional stability through better international and intercultural relations
– More efficient routing of trans‐border traffic would encourage trans‐border initiatives in the education, healthcare, and research sectors that would not otherwise be possible.
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Road Map / Next Steps
• Critical international connectivity weaknesses throughout Asia are being identified by Terabit Consulting
• As more market analyses are completed, the viability of a coherent pan‐Asian network is becoming clearer
• Detailed Feasibility Study (DFS) should be undertaken
• Rough Order of Magnitude (ROM) costing exploration should be initiated
• Determination of support among stakeholders
• Identification of financing options
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Terabit Consulting’s Overall Thoughts
• Terabit Consulting has worked on dozens of key fiber infrastructure projects in every region of the globe
• The Pan‐Asian network opportunity is among the strongest it has seen
• Commercially viable; initial evaluation of business case inputs are very positive
• The network would be critical to ensure broadband equality
and promote regional economic/social development
• Urgently needed by global telecommunications operators who must compensate for submarine cable choke‐points
• Urgently needed by governments and communications‐
critical industries that are compromised by submarine cable choke‐points and network isolation in landlocked countries
• However, the project can only be achieved with persuasive intervention by UNESCAP and governments
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