Today, Over-The-Top (OTT) companies such as Amazon, Google, Meta and Microsoft have a clear dominance in most submarine cable routes around the world, whether through their own infrastructure, consortiums or even long-term agreements such as fibre or capacity Indefeasible Rights of Use (IRU) agreements. With recent announcements of new long OTT cable systems in almost every ocean, the gap between OTTs and the telcos is widening every quarter.
The situation is familiar to those who were in the industry more than 20 years ago when state-owned telecom operators had national monopolies, but with one major difference, we are now facing the power of economies of scale that drive directly to global dominance in the wholesale market without regard to borders. While an incumbent telecom operator used to land in a country of a certain region that would serve as a beachhead for future investments in mobile operations, towers, urban/rural fibre network deployment, now the OTT scope has expanded to other countries far beyond the usual regional footprint to distant places across oceans to establish new data centres to secure their ultimate online products and services (e.g., online advertising, e-commerce).
If we apply this to the legal and regulatory aspects of the submarine cable industry, each OTT approaches customers, suppliers and local governments to negotiate its agreements in its own style but with similar results, conquering markets and gradually leaving less and less room for other telecom operators and new entrants to participate. And this should serve as a warning for the possible consequences it may have, as we clearly saw with the monopolies or dominant market participations of incumbent operators some years ago.
In this conservative article, we will analyse some of these behaviours and how they may have a greater impact than in the past decade if antitrust and telecom regulators do not act in time. Of course, we will try to identify some patterns, while not generalizing because they will not necessarily apply to all the parties involved.
Agreements with customers.
Typically, the dominant incumbent telecom operators used to impose their own IRU template agreements on their capacity suppliers, giving the former an extraordinary advantage from the outset of the contract negotiations. Certainly, most of the provisions were in their favour, such as indemnification clauses or even liability caps, without them having to justify or defend these provisions in any way during the negotiations.
At the same time, they would impose tougher terms on their own customers, leaving a gap between the two types of agreements. This allowed them to reduce their risk exposure and limit their liability for example when dealing with frequent fibre cuts. In some situations, this strategy would allow them to obtain additional credits subject to aggressive Service Level Agreements (SLAs) with their capacity suppliers, and after reselling the same capacity, they would not provide any compensation at all to their own affected customers.
They always won, and it was extremely difficult to deal with them because you knew they were abusing their dominant position in their local markets. And things are not far from that situation today with some OTTs.
The list of possible obligations to be imposed on capacity suppliers is endless: provision of contingency plans in case of outages (i.e. restoration capacity), reduced list of credit exceptions under SLAs (i.e. maintenance permit delays), or even step-in rights to change maintenance suppliers if they are unable to perform their activities within a certain timeframe, among others. And those same terms are probably not the same when OTTs sell their spare capacity to the rest of the telecom industry.
Add to that the fact that many OTT employees come directly from the telcos that are now their customers or suppliers. So, there is little room for surprises. They are notorious for knowing every network design flaw or the best terms and conditions you can ask for. And in some cases, they will push for tougher provisions that were not even considered in their previous jobs. The same goes for those in government who have to deal with OTTs. More consideration and kindness at the negotiating table is a characteristic of OTT representatives that should not be lacking in these scenarios of never-ending revolving doors in both the private and public sectors.
Another type of negotiation has evolved in recent years with the OTT need to circumvent local regulations with cable landing party agreements. The role of many telcos today is often reduced to providing services to hyperscalers at their landing stations, without even owning the new system or being a user of its capacity, serving merely as a submarine cable landing permit holder.
This ancillary role should not be a sufficient excuse for telecom companies to accept any kind of abusive terms in these agreements, such as assuming responsibility for environmental risks related to the laying and operation of submarine cables, occupational safety and labour aspects of seabed or beach manhole operations. Risk allocation should not be transferred from the real owner of the seabed infrastructure and local regulations should be respected by both parties.
In all of these agreements, it is recommended to be properly advised by lawyers with international exposure to negotiations with OTTs, who can identify these specific practices and propose alternative ways to reach affordable solutions for both sides. In other contexts, such as negotiations between telecom companies and other national operators, the balance of power is different, and solutions tend to be more equitable.
Contracts with suppliers.
It is well known that OTTs have enhanced bargaining power with cable suppliers and installers due to volume and cash flow advantages. This translates into competitive advantages over the telcos with better time response for having a new system and its spare parts ready.
Accordingly, OTTs are moving faster than the latter, conquering new markets when conditions are optimal, as these markets are inexorably abandoned by owners of 25-year-old cables who find it difficult to replace them with newer ones and compete with this higher capacity and cost-effective new infrastructure.
With the current low number of cable maintenance vessels available due to geopolitical constraints, strong competition from the oil/gas and offshore wind industries, and with an average age of 24 years of the global fleet, telecom companies find it difficult to launch new systems unless they join with the OTTs in new cable consortiums. Otherwise, the launch of new submarine cable nearby is indeed a high-risk operation that may soon be surpassed by a more capable system at a lower cost.
This also has a side-effect to the detriment of the telcos: they are no longer on the priority list of the cable system suppliers. Therefore, it is imperative that their supply agreements for the deployment of new cable systems or their cable maintenance agreements include special provisions that penalize any delay in the supplier's fulfilment of its obligations. Whereas a decade ago a cable-laying operation could easily be suspended due to routine overhaul, today each situation must be analysed more carefully to determine whether the priority order has been altered to serve other nearby customers with deeper pockets.
Dealing with governments.
As noted above, negotiations with OTTs and governments have specific characteristics that are different from those that took place two decades ago with dominant local telecom operators. The latter were interested in landing in a new country to deploy fibre to the home, use spectrum in the mobile band, and do other retail business that demonstrated their intention to build long-term relationships and their commitment to providing a public service to the local population. And that was indeed a good card for both sides to play in any negotiations for years to come.
In contrast, the negotiations between current OTTs and local governments seem to exchange any investment in submarine cables for suitable conditions to install and operate their data centres in the hinterland. Normally, these investment agreements, under Memorandum of Understandings or similar, will be confidential, leaving the population and the rest of the public sector bereft of the proper scrutiny.
However, the implementation phase has raised sensitive issues related to the environmental impact of their infrastructures. Several legal actions against the installation of data centres have been initiated around the world, when local populations and community organizations demand to know the rationale behind the environmental permits granted and insist on the technical reports that support them being published.
In Uruguay, where droughts are not uncommon, the water consumption of a new OTT data centre was calculated to be equivalent to the daily consumption of 55,000 people. In 2024, following a lawsuit filed by a university researcher, the Court of Appeals granted the request to require local authorities to publish the environmental technical reports, arguing that water is a fundamental constitutional right and that there is no objective reason to keep such information reserved or secret. As a result, the OTT lowered the figures for their projected water consumption.
The public debate would then revolve around the idea that the major infrastructure investment in the form of a package of data centre and submarine cable system is good for the local ICT sector or even the GDP, as informed by consultancy reports paid by the OTTs, or that the sustainability basis of these assets is in line with international standards, usually based on studies from non-independent NGOs.
Prevention is better than cure.
Certainly, the role of public officials is not an easy one, given the risk of losing much-needed investments that are difficult to obtain, especially in less developed countries. Ten years ago, they would have relied on the national telecom operator to deploy the same cable system and attract new data centre investors, whereas in 2024, the economies of scale used by OTTs gives less space to any of these players.
The public sector should also promote policies that encourage investment in submarine cables to improve connectivity for all players in the telecommunications industry. This includes actively promoting the diversification of cable suppliers that meet the required security standards. It is a matter of not losing digital sovereignty, which should allow each country to respond more quickly in the event of an emergency, such as the multiple cable failures that occurred in several countries in West Africa in March 2024, where redundancy plans failed, and cable maintenance ships were delayed in reaching the affected zone.
Their key role now obliges national telecom regulators to level the playing field and create a regulatory environment that ensures fair competition between OTTs, local telcos or even new entrants. They should first ensure fair access rules that guarantee all stakeholders have fair and reasonable access to new submarine infrastructure. For example, earlier this year, Qatar's Communications Regulatory Authority launched a public consultation on the "CRA Reference Offer for Access to Submarine Cable Landing Station (SCLS) International Connectivity (ROA for SCLS) Services" 1.
In addition, they should eliminate new barriers to entry for telecommunications companies. For example, in Panama, cable owners were recently required to patrol territorial waters to prevent fishing in cable zones, which is a matter exclusively for coastal states, and not every cable owner can afford such costs, apart from OTTs.
To ensure long-term connectivity, governments should also actively condition the granting of new cable licences on the commitment of each cable operator to dedicate a percentage of its traffic to national use. Neutrality and traffic prioritization rules should be carefully considered to avoid any indirect circumvention of this condition. Indeed, it is not sufficient to require a cable owner of a new system to sell a fibre pair or capacity services to a local telecom operator if the latter subsequently resells them.
Regarding cable protection, OTTs are usually not interested in taking legal action against those who have damaged their submarine cables. There could be several reasons, one of which is to avoid bad publicity. However, this strategy does not benefit the sector, which needs to actively investigate and prosecute the perpetrators to create a deterrent effect in the country and region. Governments should therefore impose strict obligations to report these incidents promptly to allow law enforcement to investigate. Any untimely investigation usually ends with a final report citing "unknown causes" as the reason for damage to a submarine cable.
With regard to the operation of data centres, many authors have described them as a new form of digital colonialism 2 since the data of local residents may be transferred to other countries for unclear purposes. Accordingly, governments receiving these investments should first review their existing telecommunications, privacy, and digital services regulations to align them with the legal frameworks of other countries that have already been challenged and subsequently corrected in these areas. For example, to protect national consumer data and ensure compliance with data protection laws, the ownership and operation of data centres should be carefully controlled to prevent third party access to data flows and processing.
Self-regulation is no longer an option in any of the areas described above, especially for developing countries that need to preserve their digital sovereignty. A holistic approach based on a human-centred vision is urgently needed if these local governments are to truly control their own futures and leave no one behind.
And lastly, local governments should pay close attention to any market failures in order to promptly propose regulation to change any distortions in the competitiveness of the sector. As seen decades ago, the imposition of most-favoured-customer clauses can create a network effect that distorts a market. Therefore, early and timely scrutiny by regulators is essential, not when it is too late to react. Historically, these mistakes due to their inaction are more difficult to remedy with years of litigation, and usually court decisions come very late to really solve people's problems.
Investment stability.
In the past, dominant foreign telecom operators relied too much on the Bilateral Investment Treaties (BITs), agreements that set the terms and conditions for private investment by nationals and companies of one state in another state. They established arbitration procedures in the event of disputes over changes to the local rules to ensure effective safety and protection for the laying and operation of submarine cables. There are many arbitration decisions in favour of one side or the other, but certainly this litigation model has not been useful for these companies that wanted to invest in long-term assets in a region, and it attracted more antipathy and reluctance from other nearby governments as well.
Similarly, existing BITs should be carefully reviewed today, before welcoming with open arms any investment in these areas, to avoid a mistaken and unintended interpretation of them as granting any investor the right to override any environmental requirements for the sake of a speedy process in obtaining permits for a submarine cable and associated data centre installation.
Therefore, all government lawyers should check beforehand whether the applicable BIT effectively reinforces the right of the state to regulate the environmental requirements for permitting these submarine and onshore infrastructures. For example, the BIT should not be interpreted as a waiver of the requirement to obtain mandatory environmental impact studies prior to the installation of a submarine cable, nor, as seen above, should it allow unreasonable water consumption by a data centre to shatter the sustainability efforts of an entire community.
Moreover, in the pre-OTT era, the dominant telecom player relied on key local investments that directly reached end users (e.g., fixed voice services) to strengthen its bargaining position with government authorities and to expand its business more easily with additional permits and licences. It was common to hear warnings of divestment if their demands were not met by a local government, while trade unions also joined in with their concerns.
In the current landscape where hyperscalers in some particular cases have data centres that employ an average of only 100 people and use third-party cable landing stations, such players have different leverage with governments based on the volatility of their investments. They can easily sell any of their local assets and transfer their participation in cable consortiums without further consequences.
Hence, governments should also consider introducing stability clauses that require a minimum time frame for these particularly critical infrastructure assets, limiting the transfer of ownership or other indirect means such as fibre or capacity IRUs. Otherwise, they would be relying too heavily on a player who could pull the rug out from under them at any time.
Conclusions.
The years 2024 and beyond will be crucial to assess the benefits and constraints of the consolidated dominant positions of OTTs in the submarine cable industry. Local governments should be aware of these tendencies in the sector when designing their international hub strategy plans to show real practices that do not exclude telecom companies involuntarily or not, emphasizing the promotion of connectivity diversification with international security standards.
Also, telecom companies, now often relegated to a secondary role, especially those without an extensive footprint, need to be aware of their rights and obligations in any negotiation for capacity or fibre IRUs, or even as minor partners in new cable consortiums with OTTs. They should rely on good professional legal advice that can identify abuses and rely on local legislation as the bottom line to avoid inappropriate risk allocation and/or insurmountable costs.
Clearly, the public sector should view telcos and OTTs as key players in preserving digital sovereignty with a balanced regulatory environment that protects consumers, ensures fair competition, and promotes infrastructure investment and connectivity for all stakeholders. Given their experience in dealing with dominant telecom players to avoid harmful consequences for the population, it is now important not to reinvent the wheel, but to recognize that the challenges are of a different magnitude and require corresponding solutions.
2. See Mwema, E., Birhane A., “Undersea cables in Africa: The new frontiers of digital colonialism, First Monday, volume 29, number 4 (April 2024). Available at: https://dx.doi.org/10.5210/fm.v29i4.13637
Andrés Fígoli is the director of Fígoli Consulting, where he provides legal and regulatory advice on all aspects of subsea cable work. Mr. Fígoli graduated in 2002 from the Law School of the University of the Republic (Uruguay), holds a Master of Laws (LLM) from Northwestern University, and has worked on submarine cable cases for almost 21 years in a major wholesale telecommunication company. He also served as Director and Member of the Executive Committee of the International Cable Protection Committee (2015-2023).
This article was first published in Submarine Telecoms Forum Magazine #137 – July 2024
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