Developing an explanatory model for the firm investments in submarine optic telecommunication cables

Abstract

Interconnection with the internet is important for the business climate in a country. Therefore it is relevant for governments to understand the factors that influence the investments in submarine communication cables. However there is no singly comprehensive theory that explains the investments in this industry. Therefore the research question in this paper is: What factors explain the investment decisions in submarine communication cables? A pluralistic research framework is create based on three theories; resource-based view, transaction cost economics and transaction cost regulation. Analysis with help of this framework results in a list of factors that can explain the investments in submarine cables. These factors are used in a comparative qualitative case study between the Netherlands and Spain. In this way a first step is made to develop and validate an explanatory model for firm investment behaviour in submarine communication cables. Outcome of the analysis show that content and application providers and telecom operators have different investment strategies. Content and application providers invest in diverse connections between their datacentres as part of a vertical integration. Telecom providers connect regions which have high data transit demands.