TNAG-2247-FCO40-3230-Business-interests-in-Hong-Kong-Cable-&-Wireless-1991 — Page 100

3) Implications of Technological Developments for Market

Liberalisation

3.1

Over the past forty years major technological advances have reduced long-distance transmission costs by 90% or more. Even today this trend continues with develop- ments in fibre optic technology. Fibre optic transmission rates have increased from 45 megabits per second (MBPS) to over 2.2 gigabits per second (GBPS) today. Considerably more traffic can now be transmitted along the same fibre pair.

3.2 The implication of this development for operators is a significantly reduced cost-to- serve for long-distance communication. An example of this decrease is the cost-per- circuit (voice path) between New York and London. The cost-per-circuit on TAT 7 (the seventh Trans-Atlantic cable) was US$23,167 as recently as 1983. By 1986 this had fallen to US$8,873 on TAT 8, and the 1992 TAT 9 cable was predicted to cost only US$4,476 per circuit (see Exhibit 5). Dr Charles Kao of the Chinese University of Hong Kong, an expert in fibre technology, has estimated that the cost of the actual raw fibre has fallen to approximately one cent per metre.

Exhibit 5: Decreasing Costs of Transatlantic Telephony

EXAMPLE OF INCREASING CABLE CAPACITY -

TRANSATLANTIC (TAT) ROUTE

COST PER VOICE CHANNEL ON TRANSATLANTIC (TAT) ROUTES

CABLE CAPACITY NUMBER OF VOICE

CHANNELS

40000

30000

20000

10000-

TAT 1

TAT 5

TAT 2 TAT 3 TAT 4

COST PER VOICE

CHANNEL

US$

600000

TAT

TAT 1

450000

-TAT2

300000

TAT

TAT 6

TAT 7

150000

TAT 5

TAT 6 ($25k) TAT 7

TAT &

·(59%).

1956

1960

1964

1968

1972

1976 1980

1984

1988

1956

1960

1964

1968

1972

1976

1980

1984

1988

YEAR

YEAR

Source: US Industrial Outlook

3.3 The combination of a global increase in the use of international facilities and the declining cost of the infrastructure has resulted in sharply reduced costs for interna- tional calls. Unfortunately, the improved economics of international traffic have not necessarily resulted in significantly lower tariffs. Only in those markets where international competition has emerged are we beginning to witness aggressive tariff decreases. However, international switched services remain one of the most profitable segments for service providers.