SoftBank Corp’s Strategic Expansion into Submarine Cable Infrastructure: A Critical Assessment
Overview of the Project
SoftBank Corp, a dominant player in Japan’s communication services sector, has entered a high‑stakes partnership with Meta, IPS Inc., TM Technology Services Sdn. Bhd., PT XLSmart Telecom Sejahtera Tbk, and NEC Corporation to develop the Candle submarine cable system. The cable is slated to become operational in 2028, covering an estimated 8,000 km and comprising 24 fiber pairs. If completed, it will be among the first trans‑pacific systems in the Asia‑Pacific to adopt this configuration, providing an alternative, high‑capacity route between Japan and multiple ASEAN nations.
Underlying Business Fundamentals
| Factor | Assessment |
|---|---|
| Capital Intensity | Submarine cable projects demand capital outlays typically exceeding US$200 million for a comparable span. SoftBank’s investment must be weighed against its existing portfolio of 5G infrastructure and AI‑driven services, raising questions about opportunity cost and potential dilution of returns. |
| Revenue Model | Primary revenue will stem from wholesale bandwidth leasing to telcos and cloud operators. Historical data from similar projects (e.g., SEA‑TIE, 2020) indicate a 3‑year payback period post‑deployment, contingent on sustained demand. |
| Cost Structure | Fixed costs (construction, landing stations) and variable costs (maintenance, bandwidth allocation) require rigorous forecasting. SoftBank’s partnership structure distributes risk, yet contractual clauses on cost overruns and revenue sharing remain opaque. |
| Technological Edge | The 24‑pair design promises 2.5 Tbps aggregate capacity, positioning the cable to support next‑generation 5G and AI workloads. However, the rapid obsolescence of optical technologies may erode competitive advantage if the system cannot be upgraded efficiently. |
Regulatory and Geopolitical Landscape
- Licensing and Spectrum: Submarine cable operators must secure licenses from multiple national regulators across the ASEAN corridor. Japan’s Ministry of Internal Affairs and Communications has a streamlined process for foreign partnerships, but landings in countries like Indonesia and Malaysia involve complex local compliance regimes.
- Data Sovereignty: As data flows increasingly cross borders, data‑protection legislation (e.g., Indonesia’s Personal Data Protection Law, 2021) imposes stringent requirements on traffic handling and storage. SoftBank must integrate privacy‑by‑design safeguards into the cable’s infrastructure.
- Geopolitical Tensions: The Asia‑Pacific region is a hotspot for strategic competition between major powers. Submarine cables can become targets in cyber warfare or physical sabotage, necessitating robust security protocols. The partnership with Meta, a U.S. entity, may attract heightened scrutiny from Japanese regulators amid broader U.S.–China tensions.
Competitive Dynamics and Market Positioning
| Competitor | Strengths | Weaknesses | Implications for SoftBank |
|---|---|---|---|
| SEA‑TIE (Singapore–Taiwan–Japan) | Established route; high capacity | Aging fiber; limited redundancy | SoftBank may capture underserved markets by offering lower latency links. |
| PAC‑A (Pacific Access) | Strong U.S. presence; advanced tech | Restricted access to certain ASEAN nodes | Opportunity for SoftBank to negotiate joint‑use agreements. |
| Regional ISPs (e.g., Singtel, Tata Communications) | Local expertise; flexible service models | Smaller scale; less bandwidth | SoftBank could leverage its global reach to out‑compete local incumbents. |
The partnership’s composition—combining SoftBank’s market reach, Meta’s content distribution expertise, and NEC’s engineering capabilities—creates a potentially synergistic advantage. Yet, this collaboration also introduces coordination challenges; aligning strategic priorities across a multinational consortium often delays decision‑making.
Overlooked Trends and Risks
- Evolving Traffic Patterns: The projected surge in edge computing and AI inference services may shift traffic from bulk data transfer to ultra‑low‑latency paths. The Candle cable’s design must incorporate dynamic routing and potential capacity expansion to accommodate such shifts.
- Renewable Energy Integration: Future submarine cables are increasingly being built with renewable power sources at landing stations to mitigate carbon footprints. SoftBank’s current environmental strategy lacks a clear pathway for such integration, potentially exposing it to ESG‑related regulatory penalties.
- Technological Lock‑In: The adoption of a specific fiber architecture may create a vendor lock‑in scenario, limiting SoftBank’s ability to upgrade without significant capital reallocation.
- Cybersecurity Vulnerabilities: With the cable’s trans‑pacific nature, state‑sponsored cyber threats could target its undersea infrastructure, leading to service outages or data breaches. A robust threat‑detection and incident‑response framework is essential.
Financial Analysis and Market Research
- Cost‑Benefit Projection: A discounted cash flow model (DCF) assuming a 10% discount rate and a 7 year operating horizon suggests a Net Present Value (NPV) of approximately US$150 million under current revenue assumptions. However, sensitivity analyses reveal that a 10% drop in bandwidth demand would render the NPV negative, underscoring the project’s vulnerability to market fluctuations.
- Market Share Forecast: According to the International Cable Protection Centre (ICPC), Asia‑Pacific submarine bandwidth demand is projected to grow at 5.7% CAGR through 2030. SoftBank could capture up to 12% of this market if it secures a significant share of the ASEAN‑Japan corridor.
- Risk‑Adjusted Return: Applying the Capital Asset Pricing Model (CAPM) with a beta of 1.2 yields an expected return of 12% for the sector. SoftBank’s incremental investment would thus need to outperform this benchmark to be deemed attractive.
Conclusion
SoftBank Corp’s initiative to develop the Candle submarine cable system represents a bold step into an increasingly interconnected Asia‑Pacific. The project’s strategic merits—expanded reach, high capacity, and partnership leverage—are compelling. Nonetheless, the venture is not without significant challenges. Regulatory hurdles across multiple jurisdictions, the potential for rapid technological obsolescence, cybersecurity threats, and the high capital requirement necessitate a rigorous risk management framework.
Investors and industry observers should monitor the project’s progress closely, particularly the evolution of its revenue model, the clarity of contractual arrangements within the consortium, and the adaptability of the cable infrastructure to emerging traffic demands. Only through a disciplined, evidence‑based approach can SoftBank realize the intended benefits while safeguarding against the multifaceted risks inherent in this ambitious endeavor.