Inside Infrastructure: Subsea cables – the backbone beneath the AI boom

Following our last post looking up at satellites, this week Inside Infrastructure is looking down to explore their natural counterpart, an asset class that forms the backbone of the modern digital economy: subsea cables. Satellites offer global reach but comparatively limited bandwidth (for now), while subsea cables provide enormous bandwidth but lack the same geographic reach, making the two technologies complementary parts of the global connectivity ecosystem.

Today, subsea cable systems carry more than 99% of intercontinental data traffic, and international bandwidth demand is projected to double roughly every three years . Meeting that demand will require sustained investment not only in new cable systems, but also in the infrastructure and specialist services needed to operate and maintain them. That investment is already taking place across the subsea connectivity value chain. Recent examples include the joint venture between BT International and Verizon , involving the carve-out of international subsea cable infrastructure, on which Freshfields is advising BT Group . Freshfields also advised CPP Investments on its acquisition of a majority stake in Tarchon, a planned 1.4 GW subsea electricity interconnector between Germany and the UK, alongside Elia Group’s WindGrid.

Investment opportunities across the subsea cable value chain

For investors, the subsea cable sector offers different investment opportunities: participation in cable systems and their capacity revenues; ownership of landing stations and associated terrestrial infrastructure; and exposure to the specialist business services that construct, maintain and repair the cable system .

At the development and construction stage, opportunities arise in specialist suppliers, installation vessels and project companies developing new routes. At the cable level , investors may participate in a cable through a consortium governed by a construction and maintenance agreement, under which each member funds and owns a of the system and receives a corresponding capacity allocation, or through a privately owned special-purpose vehicle often backed by sovereign wealth funds or other financial or strategic investors. Consortium members may use their allocated capacity within their own telecommunications networks or monetize it by selling or leasing capacity to third parties. The commercial model is capital-intensive, as around 55–60% of project costs are incurred before the cable is ready for service. These costs are then recovered over an expected design life of the cable of approximately 25 years. Once operational, revenue is generated through the sale or lease of capacity. Project owners frequently secure anchor customers before construction starts through indefeasible rights of use (IRUs) lasting 10, 15 or 20 years, under which customers pay the charge for the full term upfront, usually at a discount to post-construction prices and contribute separately to annual operating and maintenance costs.

Landing infrastructure may further provide an interesting and potentially lower-risk entry point for investors seeking exposure to subsea cable growth without owning the wet cable system (i.e. the submerged segment) itself. An investor could develop or acquire a carrier-neutral landing-station platform that hosts multiple cable operators and generates revenue through long-term access arrangements, equipment colocation, cross-connects, power and cooling services, and links to terrestrial fibre networks and nearby data centres. An emerging trend is the development of routes and landing locations outside established cable hubs, as operators seek greater resilience, lower latency and more direct access to customers. For example, the planned $700 million WorldLink system is designed to connect the UAE with Turkey via Iraq and bypass the congested Suez Canal route, while serving international carriers and AI-related demand on a carrier-neutral basis. The potential scale of landing-station investment is illustrated by AWS’s planned Fastnet facility in Maryland, which is expected to comprise approximately 24,000 square feet with up to 5 MW of power capacity and demonstrates how landing stations can combine the characteristics of data-centre, fibre and other digital-infrastructure assets.

Maintenance and repair services provide a further entry point for investors. The global fleet dedicated to maintenance vessels comprises 29 vessels from 14 different providers with an average age of 29 years, and 21 are expected to require replacement over the 10 to 15 years, representing estimated capital expenditure of €1.3 billion to €1.7 billion. This creates potential opportunities in repair vessel and specialist marine services, which can provide opportunities due to continued cable deployment without assuming the utilisation risk of a particular cable system .

Hyperscalers: from tenants to owners

Hyperscalers have evolved from being purchasers of subsea capacity into major developers and owners of cable systems. The largest hyperscalers accounted for 71% of used international subsea cable capacity in 2024, compared with only 10% in 2014 . Although these systems are built primarily to support hyperscalers’ own networks, some hyperscalers make a limited proportion of their capacity available to third parties, creating an additional revenue stream while adding capacity to the wider wholesale market.

What investors should watch

Subsea cable systems present risks that differ from those associated with more conventional digital infrastructure. In particular, investors should consider the following:

Permitting risk: While international law generally protects the freedom to lay and maintain cables beyond territorial waters, every cable system must land in territory subject to a coastal state’s sovereignty. Depending on the jurisdiction, national approvals may be required to lay the cable through territorial waters, use the seabed, construct the beach manhole and the cable landing station. Some jurisdictions also restrict foreign ownership or operation of landing infrastructure, requiring a local landing party to hold the relevant permits and rights. Separate approvals may be required when a fault occurs, as a repair vessel may need permission to enter territorial waters. These procedures can materially extend an outage, making the validity of permits an important part of investor diligence.

Geopolitical and route risk: Conflict, territorial disputes and government policy can delay installation and repair or require a cable system to be rerouted. Difficulties in the Red Sea and South China Sea have already delayed projects and encouraged developers to explore alternative routes, while US opposition to direct China–US systems has supported new connections between Southeast Asia and the US. Route diligence should consider exposure to contested or concentrated corridors and the availability of alternative paths if a segment becomes inaccessible.

Regulatory scrutiny: Subsea cables and landing stations are increasingly treated as critical national infrastructure, meaning that an acquisition may be subject to foreign investment screening, sector-specific ownership restrictions or cable-landing approvals. Regulators may examine not only the identity and nationality of the investor but also its governance rights, the suppliers and equipment involved, and the jurisdictions connected by the cable system. The US has increased its scrutiny of cable systems involving certain foreign jurisdictions, while the EU’s NIS2 Directive and Critical Entities Resilience Directive impose a broader focus on cybersecurity and physical resilience. These regimes may affect transaction structure, due diligence and the ongoing compliance obligations of the cable operator and limit investment and exit opportunities.

Please register here to receive Inside Infrastructure blogs directly into your inbox.

^ Submarine Cable Infrastructures Informal Expert Group, Security and Resilience of EU Submarine Cable Infrastructures: Mapping, Risk Assessments, Stress Tests - Annex 75–76, 83 (Oct. 2025 ) ( Report on Security and Resilience of EU Submarine Cable Infrastructures | Shaping Europe’s digital future )

Submarine Cable Infrastructures Informal Expert Group, Security and Resilience of EU Submarine Cable Infrastructures: Mapping, Risk Assessments, Stress Tests - Annex 75–76, 83 (Oct. 2025 ) ( Report on Security and Resilience of EU Submarine Cable Infrastructures | Shaping Europe’s digital future )

^ Submarine Cable Infrastructures Informal Expert Group, Security and Resilience of EU Submarine Cable Infrastructures: Mapping, Risk Assessments, Stress Tests - Annex 90 (Oct. 2025) ( Report on Security and Resilience of EU Submarine Cable Infrastructures | Shaping Europe’s digital future )

Submarine Cable Infrastructures Informal Expert Group, Security and Resilience of EU Submarine Cable Infrastructures: Mapping, Risk Assessments, Stress Tests - Annex 90 (Oct. 2025) ( Report on Security and Resilience of EU Submarine Cable Infrastructures | Shaping Europe’s digital future )