More than 1 million kilometres of submarine cables traversing the ocean floor, each about as wide as a garden hose, transmit up to 99 percent of international data, underpinning global trade and communication. This vital digital infrastructure faces myriad threats, from earthquakes and typhoons to fishing nets and saboteurs. The United States derives significant advantages from its centrality in Asia’s subsea cables, which contribute up to USD169 billion to the U.S. economy annually and could benefit more U.S. workers and businesses as demand for digital products and services grows globally.
But realising those benefits will require the United States to step up its policy engagement on Asia’s cable networks, which are changing with China’s rise, the emergence of new regional hubs, and new transpacific routes designed to reduce risks and increase network resiliency.
Southeast Asia Infrastructure presents excerpts from the Center for Strategic and International Studies’ report titled “Securing Asia’s Subsea Network: U.S. Interests and Strategic Options” …
The United States derives significant benefits from its leading position in global subsea cable networks, which carry the vast majority of voice and internet traffic between continents. There are approximately 436 cables in service around the world, and dozens of them land on U.S. coasts. These systems support a wide and growing range of U.S. economic activities and have become even more important to workers and businesses during the Covid-19 pandemic.
The early stages of the pandemic led to a surge in internet traffic that subsea cables accommodated, accelerating the digitisation of modern economies. Connected communities were able to adapt and even benefit from shifts to online work, education, healthcare, and other activities. Students and teachers moved their lessons online, physicians and patients embraced new applications for remote consultation and treatment, and businesses adopted new tools for meeting and collaborating virtually.
Digitalisation will intensify with the arrival of 5G and the expansion of the Internet of Things, which will combine to unlock new possibilities in U.S. manufacturing. For example, the auto industry is using advanced sensors and real-time analytics to increase connectivity among vehicles, users, and their surroundings. Leading manufacturers are also using digitalisation to improve logistics and production planning, allowing for greater visibility and control of their global supply chains. Tying these activities together across continents requires a resilient network of subsea cables and the free flow of data across them.
Economic Impact of Subsea Cables
The full contribution of subsea cables to the U.S. economy is difficult to precisely estimate. As one industry expert put it, “Asking how important subsea cables are to a digitally-driven economy is like asking a fish how important water is.” One very rough, back-of-the-envelope method is to consider the size of the U.S. digital economy, which hinges on internet traffic, and the percentages of traffic that are routed internationally and carried by subsea cables. Doing so estimates the contribution of subsea cables to the U.S. economy at nearly $649 billion in 2019, or about 3 percent of U.S. GDP. Of that total, U.S. traffic routed through Asia is responsible for roughly $169 billion. Another telling indicator, depicted in Figure 1, is the contribution of U.S. digital exports, which rely on subsea cables and totalled $520 billion in 2020.
The U.S. financial sector, which is responsible for an estimated 6.7 million jobs and 7.5 percent of GDP, relies on subsea cables to support $10 trillion in daily transactions. Subsea cables also enhance the United States’ attractiveness as a financial hub. On the other side of the Atlantic, the European Central Bank found that the large number of international cables landing in the United Kingdom increased the number of financial transactions in London by as much as one-third, strengthening its position as a financial centre. With a high concentration of cable landings, New York and New Jersey enjoy similar network effects.
The rapid digitisation of economies is also opening up new opportunities for U.S. businesses to export. Services trade—spanning advertising, insurance, travel arrangement and management, accounting, auditing, and consulting—is increasingly digital. In 2020, U.S. digital exports of services enabled by information and communications technology totalled nearly $520 billion, with the Asia-Pacific region accounting for $122 billion (23.4 percent). Digital exports comprised nearly 88 percent of the total U.S. service trade surplus in 2020.
Today, U.S. workers and businesses are just scratching the surface of digital export opportunities. Just 1 in every 20 U.S. providers of business services exports, compared to 1 in 4 U.S manufacturers. Increasing U.S. digital exports would help create more opportunities for U.S. workers in professional and business services, which is now estimated to be the second-largest employment sector in the United States (after healthcare) and is expected to grow to approximately 21 million jobs by 2024.
Digital export opportunities are particularly important for small and medium-sized enterprises (SMEs), firms with fewer than 500 employees. SMEs make up nearly 98 percent of the 300,000 U.S. companies that export and account for about one-third of total U.S. merchandise exports. But only 1 in every 100 of America’s 30 million small businesses exports. In countries such as Germany and Switzerland with many Mittelstand firms, the share of SMEs that sell their products abroad is approximately 5 to 10 times larger on a per capita or per firm basis. If SMEs overcome these barriers to export, the U.S. Chamber of Commerce estimates they could create nearly 900,000 jobs.
The United States is also home to leading providers of subsea components and related services, as illustrated in Figure 2. SubCom, based in New Jersey, won nearly a quarter of the global market for subsea cable manufacture and installation from 2015 to 2019. Technology company Corning has produced fibre for more than half of all worldwide cable systems manufactured and installed by SubCom and its competitors and employs about a thousand workers at its manufacturing plant in Wilmington, North Carolina. U.S. companies Infinera, Ciena, and Cisco are among the main suppliers for submarine line terminal equipment and key transmission components.
Asia is leading global demand
International bandwidth used by global networks more than doubled between 2017 and 2019, according to TeleGeography. Demand has been growing fastest on links connected to Asia, as shown in Figure 3, which experienced a compound annual growth rate of 56 percent between 2015 and 2019.
New investments are key to meeting this rising demand, considering the massive capital expenditures required to produce and lay cables. Between 2020 and 2022, $8.1 billion worth of cables were launched, with routes crossing the Pacific amounting to $2.3 billion of this total investment. One transpacific cable system was brought online each year between 2016 and 2020, and at least eight additional systems are planned through 2024.
U.S. content providers are building much of this additional capacity to link their data centres and cloud networks. According to TeleGeography, content providers or “hyperscalers,” led by Google, Meta, Microsoft, and Amazon, added capacity at a compound annual rate of at least 70 percent between 2015 and 2019 across six of the world’s seven regions. As a result of this upsurge in capital expenditure, content providers have surpassed internet backbone providers to become the leading owners of subsea cable capacity.
Within Asia, Southeast Asia’s digital economy is growing especially rapidly and, according to Google, could reach $1 trillion by 2030. This is partially attributable to the Covid-19 pandemic, which accelerated the adoption and migration to digital channels such as mobile applications for financial services. Southeast Asia now has a total of 440 million internet users, with sectors such as e-commerce and food delivery powering growth. Twelve new cable systems are slated to begin service in Southeast Asia, Australia, and East Asia over the next three years.
While the regional landscape is evolving, the most significant risks to subsea cable systems remain physical and environmental. Delivering transpacific systems requires navigating numerous technical challenges. Fishing activities and vessel anchors are the largest source of cable “faults” (operating events that will eventually require repair) globally each year. Seismic activity presents another risk. The Luzon Strait between the Philippines and Taiwan is traversed by more than 10 cable systems but is prone to earthquakes and turbidity currents due to its location on the Ring of Fire. Major earthquakes in 2006 and 2011 damaged multiple cables in the region and motivated cable planners to further diversify future routes.
Illustrating these threats to connectivity—and their serious consequences—is the South Pacific nation of Tonga. In February 2019, a ship’s anchor severed the island’s only subsea cable, knocking out internet and voice connectivity and throwing the tourism industry in disarray. In January 2022, a massive volcanic eruption damaged the same international cable and a domestic one, cutting Tonga off from the global internet for weeks, impairing domestic communications and complicating humanitarian relief efforts.
Evolving security threats
Although non-malicious activities such as fishing and vessel anchoring remain the principal source of cable damage, both the private sector and policymakers have expressed increasing concern about deliberate attacks on subsea cables in light of increasing geopolitical tensions. Among the foremost risks are that vital cables might be destroyed or disabled by adversaries. In recent years, Russian activity near undersea cables has raised alarm bells, including a public warning from the head of the United Kingdom’s armed forces. State adversaries have two primary means to threaten cables: submarines and surface vessels that can deploy autonomous or manned submersibles. Non-state actors have also found ways to disrupt cable systems, such as by stealing optical amplifiers.
Severing multiple cables could serve a number of targeted strategic purposes, from sowing economic disorder to cutting off critical government and public communications during the early stages of a conflict. Considerably more difficult than destroying the cables is tapping them to steal and then decrypt data, which is so technically challenging as to be practically impossible. Moreover, the widespread use of encryption, discussed further in the next section, makes “tapping” cables increasingly unlikely and unprofitable.
The other category of threat is cyber or network attacks on enabling information technology hardware and software—threats that are common to all electronic communications networks. Another posited concern is potential vulnerabilities in the network management systems that private companies use to manage data traffic passing through the cables. Because of the industry’s ubiquitous use of encryption, attacking a network management system could have the same disruptive impact as a typical fibre cut but not expose data to theft.
The entire report can be accessed here.