Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: This is Wall Street Week. I'm David Weston, bringing you
Speaker 2: stories of capitalism. This week we travel to the depths
Speaker 2: of the world's oceans to explore the world of undersea
Speaker 2: cables carrying ninety nine percent of the world's communications and
Speaker 2: where there may be investment opportunities to address the ever
Speaker 2: increasing demand. And in the wake of the Trump administration's
Speaker 2: telling Harvard it could no longer have international students, we
Speaker 2: look at the costs and benefits of the government going
Speaker 2: to war with its universities. But we start with the
Speaker 2: continuing focus on the nation's air traffic control systems. With
Speaker 2: the Trump administration committing to fixing it. What does fixing
Speaker 2: it mean? How long will it take? A safe in
Speaker 2: the meantime.
Speaker 3: There's always a challenge that has to come with whatever
Speaker 3: system they choose to do. But you're right in saying
Speaker 3: the FA's air traffic control system is by far the busiest,
Speaker 3: most complex, but at the same time the safest in
Speaker 3: the world. So as we approach this, it's got to
Speaker 3: be a unified approach, a collaborative approach with support of
Speaker 3: all the stakeholders.
Speaker 4: Could just put vector.
Speaker 2: Out Mike McCormick went to teach air traffic management at
Speaker 2: every Riddle Aeronautical University after a career at the FAA
Speaker 2: as a control tower operator. He says that addressing the
Speaker 2: outages and making the necessary changes are going to take
Speaker 2: longer than we would like.
Speaker 3: It's like changing to tire on a bus while the
Speaker 3: bus is rolling down the road. You can't shut down
Speaker 3: the air traffic control system to upgrade it or to
Speaker 3: fix it. You need to be able to keep the
Speaker 3: system up and running while you deploy new technology and
Speaker 3: you upgrade old equipment. Fixing the FAA's air traffic control
Speaker 3: system requires a very structured, very formalized approach to what
Speaker 3: is going to be done, When is it going to
Speaker 3: be done, how is it going to be integrated into
Speaker 3: the current system, and then how is it going to
Speaker 3: be waterfalled or to the rest of the air traffic
Speaker 3: control facilities across the country. So it's not going to
Speaker 3: be an overnight and it's not going to be simple.
Speaker 2: We hear various stories about the system now using floppy
Speaker 2: disks and using copper wires and things. At the same time,
Speaker 2: I also understand there's been some modernization going on over time.
Speaker 2: Are we going in the right direction right now or
Speaker 2: do we need to change direction?
Speaker 3: Absolutely, the Federal evased miministration is going in the right direction.
Speaker 3: They have been engaged in a multi tie decade improvement
Speaker 3: program of the air traffic control system and they have
Speaker 3: updated all the controller facing technology on the displays for
Speaker 3: the controllers to state of the art to be able
Speaker 3: to handle not just today's air traffic, but tomorrow's air traffic.
Speaker 3: What needs to happen now is to support systems. A
Speaker 3: lot of the backroom equipment that supports the larger system
Speaker 3: has a definite need for an upgrade, and that's where
Speaker 3: you hear things like still using floppy disks, still using
Speaker 3: CDs because that equipment over time has not been able
Speaker 3: to be upgraded due to lack of funding. So, with
Speaker 3: improvement to the system a critical component of it, there
Speaker 3: has to be reliable multi year funding available in order
Speaker 3: to strategically plan and implement any improvement to the air
Speaker 3: traffic control system.
Speaker 2: Reliable multi year funding you talk about. That's one of
Speaker 2: the issues that we've heard about. Congress doesn't necessarily do
Speaker 2: things in a regular way over a long period of time.
Speaker 2: Is that a fundamental problem the way we funded.
Speaker 3: The Federal Evation Administration is generally funded on an annual basis.
Speaker 3: They have an operations budget, then they have a facility's
Speaker 3: equipment budget, and that budget is generally only good for
Speaker 3: one fiscal year, so from October first to September thirtieth.
Speaker 3: After that the money disappears.
Speaker 2: The need to reform air traffic control is becoming more
Speaker 2: urgent as outages in the system and the resulting delays
Speaker 2: become more frequent. The government agency responsible for reporting on
Speaker 2: government programs and policies has taken a hard look at
Speaker 2: the existing air traffic control system and found it to
Speaker 2: be unsustainable.
Speaker 5: I FADE did this risk assessment to understand of the
Speaker 5: existing systems, which ones are unsustainable, which ones might be
Speaker 5: potentially unsustainab and need investments to modernize them. Many of
Speaker 5: these systems are aging in face long standing challenges.
Speaker 2: Heather Kraus is the managing director of Physical Infrastructure at
Speaker 2: the GAO, which produced a report on the overall state
Speaker 2: of the air traffic control system in the United States
Speaker 2: in March. She testified before Congress about its findings.
Speaker 5: So around seventeen, we found to be somewhat concerning in
Speaker 5: terms of the timelines that they have as well as
Speaker 5: four of those systems not having baselines, so not knowing
Speaker 5: when those systems will be delivered, so important that FA
Speaker 5: focuses on what are the most critical systems? How are
Speaker 5: they going to mitigate risks in the meantime as they
Speaker 5: are working through the modernization efforts and then delivering on
Speaker 5: those modernization plans.
Speaker 2: Modernization is part of the problem, but far from the
Speaker 2: only part. What about the controllers who run the system?
Speaker 2: There's general consensus about their being outstanding professionals.
Speaker 3: States Federal Aviation Administration is short over three thousand air
Speaker 3: traffic controllers across the entire system, and that came about
Speaker 3: not just overnight, but it took decades to reach that
Speaker 3: level of shortfall. And essentially what happens whenever there is
Speaker 3: a government shut down, the FA cannot hire or train
Speaker 3: air traffic controllers. This was disacerbated by the pandemic when
Speaker 3: over year the FA could not hire a single controller
Speaker 3: and could not train new controllers. That has led to
Speaker 3: where the system is today with over three thousand controllers
Speaker 3: short across the country. The only way out of that
Speaker 3: is to hire and train new controllers and every Reddal
Speaker 3: Aeronouk University is proud to be a part of that initiative.
Speaker 3: As we enter into agreement with the FAA, we are
Speaker 3: authorized and certified by the FAA to test our students
Speaker 3: to the same level that the FA Academy does, enabling
Speaker 3: them to be hired directly to fair traffic control facilities
Speaker 3: upon graduation. Previously, it would take one to two years
Speaker 3: post graduation for one of our students entered the controller workforce.
Speaker 3: Now can happen within days.
Speaker 1: By the time that the air traffic controllers can get
Speaker 1: a new piece of equipment, it's about seven or eight
Speaker 1: years old. It's not as modern as there should be.
Speaker 1: It took forever for the air traffic control system to
Speaker 1: have a GPS system.
Speaker 2: Elaine Chow was the Transportation Secretary under President Trump during
Speaker 2: his first term.
Speaker 1: It's a tribute to the men and women of the
Speaker 1: air traffic control that they can keep the system kind
Speaker 1: of safe and maintained with their expertise.
Speaker 2: Secretary Chow agrees that the path to overhauling air traffic
Speaker 2: control in the United States is long, but the problem
Speaker 2: may be in the very structure of the system.
Speaker 1: In twenty seventeen, there was an effort under the first
Speaker 1: Trump administration to reorganize the structure of the air traffic
Speaker 1: control and basically it would take the air traffic control.
Speaker 1: It's not privatizing yet because it's being put into a
Speaker 1: nonprofit organization, but rather I call it liberating the FAA
Speaker 1: and the air traffic control. Basically liberating the air traffic
Speaker 1: control from FA and even more succinctly, the federal government,
Speaker 1: so that air traffic Control, like many others structured like
Speaker 1: this around the world, would be their own entity. They
Speaker 1: would have their own nonprofit status, they would have their
Speaker 1: own board of directors, but more importantly, they would use
Speaker 1: their own funding of resources and be able to use
Speaker 1: it for long term planning.
Speaker 2: As you look around the world, has anyone done this?
Speaker 2: Can we go to school in any other country in
Speaker 2: the way they've handled this well.
Speaker 1: Canada is a primary example, Great Britain, Australia. There are
Speaker 1: many other countries who have taken air traffic control out
Speaker 1: of the government process and put it separately in its
Speaker 1: own nonprofit organization. And by doing that it allows this
Speaker 1: nonprofit air traffic control system to plan ahead have control
Speaker 1: over one hundred percent of its budget and be able
Speaker 1: to purchase equipment at a very timely rate and very
Speaker 1: efficiently as well.
Speaker 3: There's been discussion for over twenty years now on what
Speaker 3: to do about the United States air traffic control system.
Speaker 3: The US is the only Western nation that still has
Speaker 3: air traffic control system fully operated by the central government.
Speaker 3: All the other Western nations, including our neighbors to the
Speaker 3: north and south and across the Pacific and Atlantic, have
Speaker 3: transitioned to either a privatized or corporatized air traffic control system.
Speaker 3: In general, that has worked out very well for those
Speaker 3: They ran into a bit of a problem during the
Speaker 3: pandemic because it's based upon user fees and that is
Speaker 3: apportion generally of a ticket tax that would fund it.
Speaker 3: The FA's air traffic control system is by far the busiest,
Speaker 3: most complex, but at the same time the safest in
Speaker 3: the world. So as we approach this, it's got to
Speaker 3: be a unified approach, a collaborative approach, with support of
Speaker 3: all the stakeholders. So you have to have support a passengers,
Speaker 3: support of aircraft manufacturers, supporting airlines, support a generally vasue community,
Speaker 3: and of course support of the whole government. In order
Speaker 3: to make a decision on which we had to go. Unfortunately,
Speaker 3: to this point that has not.
Speaker 2: Existed coming up connecting the world from Rio to Tuvalu.
Speaker 2: This is a story about connection, no matter what the distance,
Speaker 2: no matter what the conditions, whether it's air traffic controllers
Speaker 2: connecting with airplanes landing at Newark Airport.
Speaker 3: We lost our radar, or.
Speaker 2: President Trump connecting with British Prime Minister Cure Starmer for
Speaker 2: a joint transatlantic news conference.
Speaker 4: This looks like the kind of a hookup that's not
Speaker 4: going to be causing any problems, and your voice comes
Speaker 4: through beautifully gear. So I just want.
Speaker 6: To do it.
Speaker 2: When it comes to connecting, there is no substitute for
Speaker 2: undersea cables. Thousands of satellites may orbit the Earth, but
Speaker 2: more than ninety nine percent of global Internet traffic still
Speaker 2: flows through fiber optic cables laying on the ocean floor.
Speaker 2: A single high capacity cable installed today can transmit half
Speaker 2: a peti bit over a million home high speed internet connections.
Speaker 7: Private networks for the largest of the companies, rely upon
Speaker 7: subse cables for their logistical planning, their transport, their just
Speaker 7: in time deliveries, logistics, finance, health, education, science, technology, sharing,
Speaker 7: It all goes over subsea cables, the loss of which
Speaker 7: would mean life as we know it would be gone.
Speaker 8: If you think about that, you will start to understand
Speaker 8: how incredibly important undersea cables are, both in terms of
Speaker 8: our connectivity, our ability to communicate across the world, our
Speaker 8: ability to run digital technology, but also essentially the national
Speaker 8: security risk.
Speaker 2: Some one point three million kilometers of those cables snak
Speaker 2: across the world's ocean floor. Eduardo Matteo is head of
Speaker 2: strategy for NEC's Submarine division.
Speaker 9: The basic anatomy of subse cables are very long, these
Speaker 9: stunts pipes that have optical fibers inside a certain amount
Speaker 9: of optical fibers and every certain amount of kilometers ninety
Speaker 9: one hundred kilometers, these signals that travel along the fibers
Speaker 9: need to be re energized, amplified, energized from the sea
Speaker 9: from the landing stations. So it's a very unique network.
Speaker 9: That amplifier that sits in the middle of the ocean
Speaker 9: receives power from thousands of kilometers away.
Speaker 2: As important as undersea cables are to all global communications,
Speaker 2: most of us don't hear about them until there's an interruption,
Speaker 2: which happens about two hundred times a year, sometimes because
Speaker 2: of wear and tear, but sometimes in suspicious circumstances. That's
Speaker 2: why experts like NJFX CEO Gill Sentilles and Norwegian infrastructure
Speaker 2: builder Petter Narbo have a system to reroute traffic and
Speaker 2: keep the data moving.
Speaker 10: So while we get to shallow water, we bury it on.
Speaker 10: The need the sea bed to protect the cable so
Speaker 10: it's not hit by some troller vessel or an anchor
Speaker 10: by a chance. But you can wonder, like northern parts
Speaker 10: of Norway, in Slowbart we had an incident like two
Speaker 10: and a half years ago where one vessel had traveled
Speaker 10: across the cable one hundred and thirty times and then
Speaker 10: it was able to ram the cable and make.
Speaker 11: A power outage on the cables.
Speaker 10: And you can question whether that was intentional or not,
Speaker 10: but it was a Russian vessel. If there's an outage,
Speaker 10: that's why we come to places like the New Jersey
Speaker 10: Fiber Saints that interconnects with you know, six or seven
Speaker 10: of these different Subsey cables, so.
Speaker 11: Our facility is prepared to support subse cables and these
Speaker 11: cables need redundancy on land as well. It's no longer
Speaker 11: possible at a single point of failure. We've got twenty
Speaker 11: six terrestrial cables that lead the NJFX in four directions
Speaker 11: aerial underground, which allow diversity for these subse cables have options.
Speaker 11: Something happens on land, whether it's a highway or railroad,
Speaker 11: we could reavert that traffic in a different bath.
Speaker 2: The first undersea cable was laid in the eighteen fifties,
Speaker 2: stretching from Ireland to Newfoundland, with Queen Victoria christening it
Speaker 2: by sending a telegram to President Buchanan. In the twentieth century,
Speaker 2: telegrams gave way to telephone calls, and then the US
Speaker 2: deregulated the telephone companies just as the Internet arrived on
Speaker 2: the scene, opening up the market to new players and
Speaker 2: fueling a boom in competitive investment in submarine cables.
Speaker 12: We have always been focused on being the best in
Speaker 12: the world at moving optical bits.
Speaker 2: Gary Smith runs CNM, whose technology powers the modern global Internet,
Speaker 2: providing the networking systems and software that increase each cable's
Speaker 2: capacity even as more and more are installed.
Speaker 12: Basically, down each end of a piece of fiber, you
Speaker 12: put different colors of light and pull them out at
Speaker 12: the ends into you know, virtual fibers, and the first
Speaker 12: technology we had in this space, we think we can
Speaker 12: make you know, four fibers out of the single fiber,
Speaker 12: and they said, that's fantastic. We don't think we'll ever
Speaker 12: need four. By the time we got to deploy it,
Speaker 12: it was eight and they said, we're never going to
Speaker 12: use eight fibers. And now we're putting literally, you know,
Speaker 12: thousands of virtual fibers down a single fiber.
Speaker 2: In the boom years of the nineteen nineties and early
Speaker 2: two thousands, building transoceanic cables seemed like a great business
Speaker 2: to be in.
Speaker 13: I was like, where do we build the next one?
Speaker 13: How do we leverage the debt and equity markets to
Speaker 13: get the capital? And then this deploy it very very quickly.
Speaker 2: Mike Constable was a global crossing during that time, a
Speaker 2: company that pre sold capacity to telecom carriers before cables
Speaker 2: even hit the water. But then the music stopped, and.
Speaker 13: At that stage, the all the sculation about how much
Speaker 13: data the world was going to need was not being
Speaker 13: accurately analyzed and forecast. So suddenly the debt levels were
Speaker 13: super high and they couldn't pay off that debt. So
Speaker 13: ultimately there was a collapse. Investment pretty much stopped. Around
Speaker 13: two thousand and two, investment in subse cables effectively stopped,
Speaker 13: and it took a long time to see investment come back.
Speaker 12: Everybody built so much capacity with this kind of technology
Speaker 12: because all of a sudden we could scale up the fibers.
Speaker 12: The challenge was no one knew what to do with
Speaker 12: that capacity, right, and no one would pay for it.
Speaker 2: For years, nothing new was built. But the twenty first
Speaker 2: century brought new demands, this time for financial transactions measured
Speaker 2: not in milliseconds but in microseconds. Michael Lewis captured it
Speaker 2: in Flashboys a World War. Speed meant profit. Joe hilt Now,
Speaker 2: with a Nova Financial new Works, led the commercial team
Speaker 2: behind a bold new cable called the Hibernia Express. You
Speaker 2: were particularly involved, as you say, in the financial part
Speaker 2: of the business, and obviously people really want to be
Speaker 2: able to trade fast.
Speaker 14: Yeah, And I think we saw that there was a
Speaker 14: cable system that was built between New Jersey and the
Speaker 14: Chicago Mercantyle Exchange that was built as a straight line, right,
Speaker 14: and we said, wow, we're a cable system provided in
Speaker 14: the Atlantic. Somebody must need between the two financial pillows
Speaker 14: of the world in New York and London. Twenty eleven,
Speaker 14: we'd started begun signing clients that would become financial customers
Speaker 14: on the system, and when we did that, we started
Speaker 14: to do subse surveys.
Speaker 2: Wall Street helped finance it alongside Chinese partner Huawei, but
Speaker 2: that set off alarm bells in Washington, and as the
Speaker 2: pressure mounted, the message was clear the project wouldn't get
Speaker 2: approved if it relied on Chinese technology.
Speaker 14: We originally had started out with Huawei. Global Marine had
Speaker 14: decided to move away from wahweih Global Marine about mid
Speaker 14: project right, and most of that was based on the
Speaker 14: United States and feelings towards companies like Huawei and H
Speaker 14: three C.
Speaker 2: At that time, Huawei was out along with its technology,
Speaker 2: and in came te SubCom and Sienna.
Speaker 14: So we did need to make a change in our equipment,
Speaker 14: and we chose to have a bigger relationship with Siena,
Speaker 14: you know, so much like we laid the cable systems
Speaker 14: with t SubCom. We decided to make Sienna at that
Speaker 14: point in time our the facto standard for wavelength services.
Speaker 12: Frankly, the whole Huawei piece was really a wake up
Speaker 12: call for the West you know, in general around the
Speaker 12: criticality of this infrastructure. By deploying this infrastructure, letting someone
Speaker 12: you know else have that infrastructure was you know, was
Speaker 12: a real challenge.
Speaker 2: Unlike others, Sienna hadn't partnered with Chinese firms for years.
Speaker 2: That was seen as a mistake until it wasn't.
Speaker 12: And we decided really to be sort of in some
Speaker 12: ways the sort of our main competitor around the world
Speaker 12: was Huawei, so we decided to be, you know, the
Speaker 12: antithesis of that. We had no manufacturing in China. We
Speaker 12: were very unusual in that regard, but that was a
Speaker 12: strategic decision on our part. Now you look at the
Speaker 12: marketplace now and you see a very bifurcated market between
Speaker 12: those that utilize Huahweh and those that don't want to,
Speaker 12: which is really a proxy for geopolitical divide that you're
Speaker 12: seeing in the world. Governments are very conscious of it now.
Speaker 12: It's not just left to normal commercial decision making, for sure.
Speaker 2: Mike Constable was tapped to lead Huawei Marine as the
Speaker 2: Chinese giants sought to push past US resistance. But as
Speaker 2: geopolitical tensions continued to rise, the US stood firm.
Speaker 13: So that was really quite damaging at that time. Slowly
Speaker 13: the our access to vietitions to bid on a number
Speaker 13: of projects started to dry up. Way while our marine
Speaker 13: weren't able to build cables into the US, we were
Speaker 13: not able to build cables into Europe and to other
Speaker 13: nations such as Australia. In fact, at the time we
Speaker 13: had won a contract to build a cable from Solomon
Speaker 13: Islands to Australia and that was subsequently terminated.
Speaker 2: The US intervened in several planned Transpacific cables, including the
Speaker 2: Pacific Light Cable Network linking Hong Kong and California. According
Speaker 2: to Jennifer Bacchus, acting head of the State Department's Bureau
Speaker 2: of Cyberspace and Digital Policy, it came down to one
Speaker 2: word trust.
Speaker 8: What started to become apparent to us is that we
Speaker 8: do not see the world in the same way that
Speaker 8: China sees the world, and that ultimately, while we view
Speaker 8: this as a positive way to work together, to bring
Speaker 8: people together, I think the Chinese view it as a
Speaker 8: way to control, surveil and steal, and so as a result,
Speaker 8: I think it's been a gradual realization that we don't
Speaker 8: have the same worldview. We don't share the same values.
Speaker 2: Specific light cable was one that was going to go
Speaker 2: to Hong Kong got shut down. Is that why you
Speaker 2: decide not to allow them to have a land station
Speaker 2: in Hong Kong?
Speaker 8: So on the Pacific like cable, Yes, What it would
Speaker 8: do is if it landed in Hong Kong, the Chinese
Speaker 8: government could very easily access that landing station and both
Speaker 8: take any information they wanted to exfiltratee it, steal it,
Speaker 8: call it what you want. They also could potentially use
Speaker 8: that access to interrupt the data flows, to reroute the
Speaker 8: data flows. There's no way to tear apart espionage from
Speaker 8: intellectual property, theft from essentially having the dagger poised at
Speaker 8: your neck that you're going to cut off somebody's communications network.
Speaker 2: Is there a cost here in protecting so the data
Speaker 2: that you suggest to potentially US businesses competing with their
Speaker 2: Chinese counterparts in third parts of the world.
Speaker 8: What we found in going around the world is that
Speaker 8: there's enthusiasm for trusted connectivity, especially when you're talking about
Speaker 8: subse cables and when you talk about how do you
Speaker 8: attract investment into a country, whether you are a small
Speaker 8: island state or a large country. They want advanced Western technology,
Speaker 8: they want AI, they want data centers, they want hyperscale cloud.
Speaker 8: You look at sort of the share of the market
Speaker 8: that HMN Tech, which is the Huawei company, is had
Speaker 8: worldwide where they were five years ago versus where they
Speaker 8: are today. They're on a downward trajectory as countries, economies,
Speaker 8: and people embrace the idea that they want to have
Speaker 8: sovereignty and control over their information and over their future
Speaker 8: success and prosperity.
Speaker 2: And that's where we turn next to the investment prospects
Speaker 2: for the boom and bust business of undersea cable. Who's
Speaker 2: doing the investing, what are the economics, and what are
Speaker 2: the opportunities. Undersea cables may be ubiquitous, they may be
Speaker 2: something all of us use every day without even knowing
Speaker 2: about it. But are they a good investment and who's
Speaker 2: doing the investing? Enter the hyperscalers, led by Google with
Speaker 2: its investment in the trans specific Unity cable.
Speaker 7: In twenty ten, Google invested in a single fiber pair,
Speaker 7: which we thought initially was going to be enough capacity.
Speaker 7: But the one thing Google and all of the hyperscalers
Speaker 7: always get wrong is forecasting and demand models. Demand has
Speaker 7: always outstripped actual need. So shortly after completing Unity, we
Speaker 7: started on a second transpact cable called Faster, because that's
Speaker 7: what we kept getting told, build it faster, we need
Speaker 7: it now.
Speaker 2: Jane Stowell was the first employee for Google's subse unit
Speaker 2: when the Hyperscaler moved into the business, connecting their data
Speaker 2: centers around the globe.
Speaker 7: There was definitely a rising need with Google driving that need.
Speaker 7: So I had never done Latin American cables before, so
Speaker 7: I turned my attention there and put together a consortium
Speaker 7: to build from the US to Brazil, and then a
Speaker 7: second mini consortium to build from Brazil to Uruguay and
Speaker 7: then onward to Argentina. One of the important things to
Speaker 7: understand about putting together consortium is sometimes it can take
Speaker 7: as long to build a consortium as it does to
Speaker 7: build a cable. If you build it yourself, you can
Speaker 7: move much faster. There are three primary reasons. One is cost,
Speaker 7: the second is speed to market, and the third is
Speaker 7: network architecture technology. Google wanted control all three elements.
Speaker 2: You said that historically it's been very difficult to predict demand,
Speaker 2: that often people are wrong with demand. What is the
Speaker 2: risk today that there's overbuilding going.
Speaker 7: On, I think relatively low because we had been building
Speaker 7: cables for the Internet and for the cloud, for cloud computing.
Speaker 7: The next advent is AI. This is not just about cables.
Speaker 7: This is about cables that are connecting the lifeblood of
Speaker 7: data centers and for artificial intelligence. You need to build
Speaker 7: the the artificial intelligence models first before you can have
Speaker 7: the inference for anything that's useful for you and me.
Speaker 7: So building those models requires mass, mass amounts of data
Speaker 7: transport to key data centers that are modern, energy efficient,
Speaker 7: plentitude of energy and nearby access to subsea cables. So
Speaker 7: you will see a whole new model of data centers
Speaker 7: moving outside of city centers to locations with the large
Speaker 7: amounts of reliable power and ready access to big fat
Speaker 7: types of subsea cables.
Speaker 2: One such fat pipe is the Hafru cable connecting New
Speaker 2: Jersey to Norway's low cost renewable energy. Petter Narbo, executive
Speaker 2: Chairman of Bulk Infrastructure with Google and Meta on the project.
Speaker 10: Norway has about one hundred percent of releuble energy, so
Speaker 10: and we have a surplus of it because we have
Speaker 10: one hundred years a history of building hydropower plants from
Speaker 10: high altitude lakes that runs intracts to the river into
Speaker 10: the ocean where we harvest the energy several times. So
Speaker 10: that's why Norway is such a good place for laws
Speaker 10: and computes and the new power hunger industry that we
Speaker 10: see today.
Speaker 2: For hyperscalers like Google and Meta, building and owning subsea
Speaker 2: cables became much more than simply a cost of doing business.
Speaker 2: It was the backbone of their growth, and they decided
Speaker 2: they couldn't rely on others. They had to invest and
Speaker 2: build for themselves and work directly with firms like SubCom
Speaker 2: for the cable and gear and Siena to provide the
Speaker 2: optical technology.
Speaker 12: The entry point for us was actually aligned around the
Speaker 12: cloud players coming into that space, because all of a
Speaker 12: sudden you needed very high speed performance and capacity step
Speaker 12: function more than you'd seen in the past. And so
Speaker 12: the timing of that, you know, was such that these
Speaker 12: cloud players really wanted a very high performance you know,
Speaker 12: submarine cables. Their ambitions are you know, into all the
Speaker 12: you know, most of the countries around the world and
Speaker 12: submarine without that submarine cable capacity, and no one was
Speaker 12: going to build it for.
Speaker 2: Them given the demand. Why is it that others didn't
Speaker 2: step in to build what the Hyperscalers needed. Projsbenergy is
Speaker 2: infrastructure managing director at KKR and says that the economics
Speaker 2: are quite different for subc cables than for other private
Speaker 2: equity investments.
Speaker 15: What has happened historically is that though data demand has
Speaker 15: gone up exponentially, the price of data has come down
Speaker 15: substantially over time. So if you owned the cable itself
Speaker 15: and you owned the fibers, you would have effectively a
Speaker 15: depuciating asset from a pricing power perspective. Data centers are
Speaker 15: quite different because data centers, again, yes you're in a
Speaker 15: specific availability zone or connected into network architecture, but the
Speaker 15: value of that land should be appreciating overtime, right the
Speaker 15: value you're not selling bandwidth and connectivity. You're selling power
Speaker 15: and real estate, very strategic real estates within a certain
Speaker 15: availability zone on network architecture.
Speaker 2: So if it's the hyperscalers who are destined to be
Speaker 2: the dominant investors in the undersea cables themselves, what does
Speaker 2: that leave for other investors?
Speaker 13: Where we do say private equity and digital infrastructure funds
Speaker 13: coming into the market is in the services or the
Speaker 13: support companies. The support the market. So the digital infrastructure
Speaker 13: frunds and private equity appliers aren't investing in grain failed
Speaker 13: networks or building cable systems themselves. They are very focused
Speaker 13: on broadly speaken on the service industry that supports this
Speaker 13: critical infrastructure.
Speaker 2: Kkrc's opportunity in the services surrounding undersea cables, providing critical
Speaker 2: functions that hyperscalers need but prefer not to manage themselves.
Speaker 15: Subsea cables are to data centers what railway tracks are
Speaker 15: to railway stations. You can't just upgrade the stations in
Speaker 15: the terminals and have those tracks lying completely unrepaired and
Speaker 15: having them break down. You know, as traffic goes up,
Speaker 15: you've got to invest in both parts of the ecosystem
Speaker 15: to ensure that you have uninterrupted service, especially today when
Speaker 15: the cost of the downtime right for the OTTs, for
Speaker 15: the hyperscalers, for the e commerce players, the cost of
Speaker 15: network interruption has gone up meaningfully. It's mission critical infrastructure
Speaker 15: services provided through asset heavy companies, but not exposed to
Speaker 15: the actual volume and the price of that data that
Speaker 15: goes for that piper system.
Speaker 13: As an industry, we have a global flight of around
Speaker 13: sixty ships, and around thirty percent of that flight is
Speaker 13: going to reach its end of use by date within
Speaker 13: the next decade. So while we are putting tens of
Speaker 13: billions of dollars of investment into new cable systems as
Speaker 13: an industry, we're not putting the same sort of capital
Speaker 13: to help maintain these systems.
Speaker 15: Nobody wants to build a navy right to service their
Speaker 15: own subs needs, because that's also inefficient. You need independent
Speaker 15: service providers who can use those same vessels to service
Speaker 15: other people. To let us build the cable ships and
Speaker 15: service all the hyperskillers and the tel course, let them
Speaker 15: focus on their core competence, their revenue drivers, you know
Speaker 15: exactly what they want to be using their capital budget
Speaker 15: allowances towards, and let us stick on the button of
Speaker 15: managing the subscen needs.
Speaker 2: First came deregulation and the Internet boom and a rush
Speaker 2: to lay undersea cables. Then came the bust when overbuilding
Speaker 2: and deal making got ahead of business fundamentals. Now we're
Speaker 2: in the middle of a new boom powered by hyperscalers
Speaker 2: and the rise of AI data centers. So what's next?
Speaker 2: Smith says, Sienna is busier than ever, and they are
Speaker 2: just getting started, so.
Speaker 12: We're still at the very early days of this. If
Speaker 12: people are going to monetize all this investment that they're
Speaker 12: making in GPUs and AI, it's got to come out
Speaker 12: onto the network. It's got to come out of the datacience.
Speaker 12: I think as an ecosystem, as an industry, we're grossly
Speaker 12: underestimating how much capacity will be required.
Speaker 13: Is there a grete investment opportunity that demand drivers say
Speaker 13: there are, but really it is who is going to
Speaker 13: move into this space because it is dominated by the
Speaker 13: people who are moving the most data around the world.
Speaker 13: From the cable industry perspective, we're not quite sure exactly
Speaker 13: what the development of AI is going to do to
Speaker 13: the deployment of cables. I think, you know, it's obviously
Speaker 13: going to require a lot more cable deployments, just how
Speaker 13: much we're not sure.
Speaker 2: Coming up. Since World War II, the US government has
Speaker 2: partnered with the American universities on a wide array of
Speaker 2: research projects, but that partnership may be coming to an end.
Speaker 2: We take a look at what it could mean for
Speaker 2: business in the economy. This is a story about the
Speaker 2: cost of privatizing American innovation. For many years, the US
Speaker 2: has led the world in innovation, driven in large part
Speaker 2: by government funding of university research. But President Trump ramped
Speaker 2: up efforts to get higher education back into line with
Speaker 2: cuts in research funds and last week saying international students
Speaker 2: have to leave Harvard altogether. As Scarlet Food reports, the
Speaker 2: ramifications extend far beyond lecture halls and science labs.
Speaker 16: US research universities are the envy of the World Prize
Speaker 16: for their ability to attract top students and faculty who
Speaker 16: specialized academic work often seed economic clusters of innovation on
Speaker 16: and off campus, and that has led to technological breakthroughs
Speaker 16: from the birth of the Internet and GPS to life
Speaker 16: saving mRNA vaccines. Backstopping all of this uncle sam last year,
Speaker 16: the federal government funded sixty billion dollars of research at
Speaker 16: American universities.
Speaker 4: I signed an order creating the Department of Government Efficiency,
Speaker 4: which is now really waging more on government waste, fraud,
Speaker 4: and abuse.
Speaker 16: But this TREU re cycle is now under threat as
Speaker 16: President Trump targets elite schools in multiple ways, notably by
Speaker 16: pulling public funding and cracking down on immigrants, including international
Speaker 16: students reliant on student visas. All of this leads to
Speaker 16: an erosion of American soft power, a phrase coined by
Speaker 16: the late Harvard scholar and NIC director Joseph Nye.
Speaker 2: Soft powers the ability to get what you want through
Speaker 2: attraction ratherland, coersion, or payment, a.
Speaker 16: Power that the US has capitalized on for most of
Speaker 16: the last century.
Speaker 6: During World War Two and the United States leveraged its
Speaker 6: scientific excellence and the high quality scientists we had in
Speaker 6: universities and some of those that we attracted from abroad.
Speaker 6: And in the wake of World War Two, the government
Speaker 6: vastly expanded the amount of funding that it provided two
Speaker 6: American universities in order to conduct research on behalf of
Speaker 6: the American people. So this has led the United States
Speaker 6: to be a leader in innovation, in building the information
Speaker 6: economy that we have today, in health care, and in
Speaker 6: a wide variety of other fields that help us support
Speaker 6: our economic prosperity, in our security. And when you ask
Speaker 6: why is it that's such a huge proportion of Nobel
Speaker 6: Prizes get awarded to Americans, Why is it that the
Speaker 6: best scientists and engineers from all over the world want
Speaker 6: to come to the United States, It's because of this
Speaker 6: extraordinary partnership we've had here where the government says we're
Speaker 6: going to do research through these universities, We're going to
Speaker 6: fund that, and we're going to enable these universities to
Speaker 6: become the best in the world and produce these extraordinary
Speaker 6: innovations on behalf of the American people.
Speaker 16: But first we start with the money.
Speaker 4: One of the most important initiatives is DOGE and we
Speaker 4: have cut billions and billions and billions of dollars. We're
Speaker 4: looking to get it maybe to a trillion dollars if
Speaker 4: we could do that.
Speaker 16: Under President Trump, the latest federal budget proposal slashes one
Speaker 16: hundred and sixty three billion dollars in non defense programs,
Speaker 16: including student aid and research funding. It's already led to
Speaker 16: the suspension of more than two billion dollars and funding
Speaker 16: for Harvard, eight hundred million in grants for Johns. Hopkins,
Speaker 16: four hundred million in funding cuts for Columbia. The list
Speaker 16: goes on.
Speaker 6: It's deeply worrisome. This pact between the government and research
Speaker 6: universities has been fundamental to the excellence of American research universities,
Speaker 6: and it has contributed tremendously to the prosperity, health and
Speaker 6: security of our country. And that pact has depended on
Speaker 6: the idea that the American government will come to universities
Speaker 6: and ask them to do research that is in the
Speaker 6: interests of the American people, and universities have done that spectacularly,
Speaker 6: making both the country and the universities stronger. Throughout that time,
Speaker 6: the American government has respected this principle of academic freedom.
Speaker 6: That means that when that research has undertaken, universities and
Speaker 6: their faculties can pursue the truth as they see it.
Speaker 6: What we're seeing now is the use of research and
Speaker 6: funding and the leverage that it gives the government over
Speaker 6: universities as a lever to try to change what it
Speaker 6: is they take, and that threatens to disrupt the quality
Speaker 6: of our universities and the principles that are fundamental to them.
Speaker 16: The funding that the government provides isn't easily replaceable either.
Speaker 6: There's no way the private sector could substitute for what
Speaker 6: American research universities are doing now, both on their own
Speaker 6: and in partnership with the government. And I suspect if
Speaker 6: you ask the private sector, right our tech companies or
Speaker 6: our farmer companies, they would agree with that. And the
Speaker 6: reason is because we do the kind of long term
Speaker 6: research that doesn't have the predictable immediate term or medium
Speaker 6: term payoff that is going to matter to our corporations.
Speaker 16: And the ripple effects stretch well beyond a university's physical campus.
Speaker 17: Many of our students, about three quarters of them live
Speaker 17: on campus.
Speaker 16: Michael Samwellian is a founding director of the Jacobs Urban
Speaker 16: Technology Hub at Cornell Tech in New York City. Cornell
Speaker 16: Tech and Johns Hopkins received donations from Michael R. Bloomberg,
Speaker 16: founder and majority owner of Bloomberg LP.
Speaker 17: So we work on building bridges between university research and
Speaker 17: and the city.
Speaker 16: He says, US universities have evolved beyond just places to
Speaker 16: learn in two key drivers of industry specific growth.
Speaker 17: Well, I think there's a really interesting shift that's happened
Speaker 17: over the past generation. Increasingly universities are urban. We're in
Speaker 17: the middle of New York City right now at Cornell Tech.
Speaker 17: There's an increasing shift of universities to be far more
Speaker 17: urban because that's where talent is and that's where diversity is.
Speaker 17: So in many cases, I think cities are learning that
Speaker 17: universities are economic powerhouses. I bicker with my dean every
Speaker 17: once in a while on is Cornell Tech a school
Speaker 17: or are we an economic development project? As an urban planner,
Speaker 17: I think of us as an economic development project one
Speaker 17: that New York City over a decade ago saw the
Speaker 17: power of universities in terms of increasing the tech talent
Speaker 17: that New York has and diversify in New York City's economy.
Speaker 17: So Cornell Tech was a mechanism to basically help diversify
Speaker 17: us not away from finance, but also make sure that
Speaker 17: New York City was going to be a tech powerhouse.
Speaker 17: We are a visual manifestation of tech in New York.
Speaker 17: New York City is probably the number two kind of
Speaker 17: VC destination for my the in for technology companies across
Speaker 17: the country, and back in twenty twenty you probably know this.
Speaker 17: There are more tech jobs in New York City than
Speaker 17: finance jobs that would not have happened without places like
Speaker 17: Cornell Tech and deep investment in the tracting schools in
Speaker 17: New York City. We recently did a report back in
Speaker 17: twenty twenty four to look at the economic impact of
Speaker 17: Cornell Tech, and every year we're bringing about three quarters
Speaker 17: of a billion dollars to New York City economy, and
Speaker 17: that's just six undred graduate students.
Speaker 16: One of the universities most dependent on federal funding is
Speaker 16: Johns Hopkins in Baltimore. From twenty twenty to twenty twenty three,
Speaker 16: Washington DC was responsible for just under twelve billion of
Speaker 16: its more than thirteen and a half billion dollar R
Speaker 16: and D expenditure, and people like Christy Weiskill, the head
Speaker 16: of Johns Hopkins Technology Ventures, are working to make sure
Speaker 16: there's a return on the government's investment.
Speaker 18: Our role is to take the great ideas from our
Speaker 18: faculty in students and bring those to market. We really
Speaker 18: leaned into this a little over a decade ago when
Speaker 18: we realized that there was an opportunity to think about
Speaker 18: the application of so much of the amazing research here
Speaker 18: at Johns Hopkins, and also the opportunity for Baltimore. So
Speaker 18: we built a team that goes and speaks to our
Speaker 18: researchers and faculty about their most promising research ways that
Speaker 18: can change lives for the better, and then we connect them,
Speaker 18: help them pitch to the VC industry, help them connect
Speaker 18: with corporate America. And we've seen a dramatic increase in
Speaker 18: venture funding as a result of that.
Speaker 16: Why Scille says more than four billion dollars in venture
Speaker 16: capital has flowed into companies incubated by Johns Hopkins.
Speaker 18: There's a company in Boston called Lantheas that licensed Pilarify.
Speaker 18: It's a prostate cancer diagnostic that helps over two hundred
Speaker 18: thousand men a year with metastatic prostate cancer. Without this technology,
Speaker 18: clinicians would not be able to treat patients as well.
Speaker 18: And we are thrilled that this diagnostic allows a patient
Speaker 18: to basically view in technicolor what earlier clinicians had described
Speaker 18: as trying to diagnose a patient in black and white TVs.
Speaker 18: So this diagnostic, which is a product that brings in
Speaker 18: over a billion dollars a year for Lantheus, was developed
Speaker 18: here with nih dollars at Johns Hopkins.
Speaker 16: So given all that is, the US now at risk
Speaker 16: of losing its edge as a global destination for that
Speaker 16: scientific talent and innovation.
Speaker 18: Anytime there's uncertainty that can create potential problems. People might
Speaker 18: rethink where they study, what they study, how they study.
Speaker 18: We have the chance to seed that global dominance to China.
Speaker 18: China has increased research spending nine hundred percent in the
Speaker 18: last decade as a percent of GDP. Unless we continue
Speaker 18: to fund research, they will outstrip US in terms of
Speaker 18: patents companies innovation.
Speaker 16: Decades of government funded research has attracted a pipeline of talent,
Speaker 16: homegrown and increasingly from outside the US. When you think
Speaker 16: of America's most cutting edge companies, they often share some
Speaker 16: common traits. Giant market caps, global reach, and oftentimes founders
Speaker 16: and or CEOs born and raised abroad and educated in America.
Speaker 18: I believe that it's nearly half of fortune five hundred
Speaker 18: CEOs that are either immigrants or children of immigrants.
Speaker 17: Who's the next leader of a big multinational American company.
Speaker 17: They're the one to five chance that they were an
Speaker 17: international student.
Speaker 19: The US represents the premier destination for international students around
Speaker 19: the world.
Speaker 16: What's become clear is as much as US research universities
Speaker 16: depend on federal government money to operate and fund their research,
Speaker 16: they also depend on international students for the same starting
Speaker 16: with paying tuition that has come under direct threat when
Speaker 16: the Trump administration announced it would bar Harvard from enrolling
Speaker 16: international students. While the State Department halts interviews for student visas,
Speaker 16: a federal court has temporarily blocked the ban on Harvard.
Speaker 19: Over two hundred thousand international students work in the US.
Speaker 16: Mirriam Feldbloom is the president and CEO of the President's
Speaker 16: Alliance on Higher Education and Immigration.
Speaker 19: Overall, the Department of Commerce has simated that international students
Speaker 19: contributed fifty billion dollars to the US economy in twenty
Speaker 19: twenty three, twenty four. That actually makes international education of
Speaker 19: the tenth largest export in the US even though the
Speaker 19: students are coming here. International students are only six percent
Speaker 19: of total student enrollment and higher education, so we're not
Speaker 19: talking about a large population. But the contributions that international
Speaker 19: students provide by their skills, their talents, what they buy,
Speaker 19: what they do is far greater than what the six
Speaker 19: percent would indicate.
Speaker 16: As the Trump administration cracks down on public funding to
Speaker 16: universities and visas for international students, other countries like Canada, Australia,
Speaker 16: and the UK are stepping up their recruitment efforts. The
Speaker 16: administration's rhetoric would just discourage international students from choosing the
Speaker 16: US as a destination, and they'd end up gravitating away
Speaker 16: from the country. Is that something you can think about
Speaker 16: every day?
Speaker 19: There's no doubt that if there's continued rhetoric, policy proposals,
Speaker 19: and actions that discourage international students from coming. That impact
Speaker 19: will be seen in decreased enrollments in the fall.
Speaker 16: Does it lead to the closure of certain programs or
Speaker 16: innovative programs, or certain potential research breakthroughs.
Speaker 19: We know with based on history, based on research, that
Speaker 19: our research productivity will diminish. Probably the number of patents
Speaker 19: being filed will decline based on past history. We don't
Speaker 19: know what will be lost. We know things will be lost.
Speaker 19: And this isn't about internationals students or international talent or
Speaker 19: domestic talent. The US needs talent. I think one of
Speaker 19: the things that we have to acknowledge is that the
Speaker 19: climate of fear and anxiety and uncertainty that international students
Speaker 19: are feeling across the country at big and smaller institutions,
Speaker 19: public and private, highly elite, and those who are not
Speaker 19: known except to their community where they're beloved, is that
Speaker 19: it's also generating uncertainty and anxiety among researchers, staff, faculty,
Speaker 19: and others in these campus communities in which I am
Speaker 19: hearing from campus leaders that some of their faculties, some
Speaker 19: of their star faculty, are saying, I'm not quite sure
Speaker 19: if I should remain in the US. So again, the
Speaker 19: loss is not only about individual students who may be
Speaker 19: directly impacted, but it's about a community of generation of students, graduates, faculty,
Speaker 19: researchers who we may lose, and we're going to feel
Speaker 19: the impacts of that loss.
Speaker 2: That does it for us Here at Wall Street Week,
Speaker 2: I'm David Weston. See you next week for more stories
Speaker 2: of capitalism.