Cable Market Harvard Case Solution & Analysis

CABLE MARKET

From the past 150 years, the business sector for submarine cables was depicted by moderate, cyclical expansion and incremental mechanical progressions, yet in the 1990s, the telecommunication industry changed due to rapid growth in technological improvement in the cable industry. Overall deregulation, developing worldwide business, new voice and information requisitions, and the production of the Internet reshaped the business.

Therefore, clients required more transmission capacity rapidly, and submarine cables offered the likelihood production on economies of scale. Broadcast & Construction Maintenance Company (British) fabricated the first submarine broadcast cable framework in the middle of England and France in 1850. Eventually a worldwide system of broadcast cable was gradually created. There were few technological developments until the appearance of the coaxial cable. Initially, the coaxial cables could handle 90 simultaneous phone calls. Afterwards, the fiber-optic cable was developed in late 1980s, and it allowed to carry both voice and data signals. The first submarine fiber optic cable was Trans-Atlantic Telephone-8 (TAT-8), that handled 16,000 simultaneous phone calls to transfer data with the speed of 280 megabits per second. Dense wavelength division multiplexing (DWDM) was developed in 1995. Through this technology, data was transmitted on multiple wavelengths within a single fiber. 2.5 gigabits of data per second was allowed to transmit on a single wavelength, which was equivalent to 470,000 simultaneous phone calls on a single fiber-optic, but with DWDM, the data allowed to send 10 Giga bits per wavelength using eight different wavelengths. Through 1990 to 1999, global market for telecommunications grew at a compound annual rate of 10.2% and in amount it grew from US$348 billion to US$835 billion but it also caused the prices to decline with the rate of 20% to 40% per year and for the 10 years the compound annual rate was 25% at which the market grew.

Key Factors

In 1999 there were three cables for the transmission for Australia and among them SEA-ME-WE3 was accessible to the United States from the West Coast of Australia through Japan or China. Despite the fact that SEA-ME-WE3 had overabundance limit, it was not a perfect course for activity destined for the United States or Northern Asia, and it was disposed to cable malfunction because of the extensive shipping, dredging and fishing activities. These were the key factors that caused the transmission in Australia.

Competitor:

~        Southern Cross Cable Network:

SCCN was an US$1.2 billion Cable network company that at first furnished with 40 Giga bit per second of capacity. In 1998, three financers gave each of the 10 of the landing stations and financed the undertaking utilizing of US$920 million within senior secured loans with the debt to total capitalization ratio of 85%. The syndication was altogether oversubscribed because of the quality of presales responsibilities from trustworthy financers and the potential returns. SCCN started development in 1998 with a planned completion date in late 1999. Although, problems occurred that extended the completion time at least for six months and this substantially created problem for the SCCN, therefore SCCN depleted its financing in August 1999 and get hold of to option subsidize in anticipation of the task to be refinanced. Soon after financing was withdrawn, SCCN reduced the prices which had a noteworthy affect on demands. The expense of a STM-1 from Australia to the United States reduced from $37.8 million in mid-1998 to $12.9 million in September 1999. To remunerate clients who had as of now purchased capacity on the cable, SCCN gave extra free capacity with the goal that they would have the same expense for every unit of cable.

Key Success Factors

Demand:

In the year 1998 the expected demand was recorded in different regions for telecommunication with the expected growth in year 1999 as follows:

~        The growth in demand from North America to Europe cable network was 141% and was expected to be 95%.

~        The growth in demand from North America to Asia cable network was 41% and expected to be 47%.

~        The growth in demand from North to South America cable network was 59% and was expected to be 71%.

~        The growth in demand from Europe to Asia cable network was 83% and expected to be 88%.

~        The growth in demand from Europe to South America cable network was 60% and expected to be 75%.

~        The growth in demand from Africa to Middle East cable network was 50% and was expected to be 67%...........................

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