Investing for Future You — A Look at Subsea Cables
Let’s pretend it’s December 2025.
Where do you think your investments will be? More to the point, what sort of stocks are you holding in your portfolio?
Given that interest rates are likely to be next to nothing, chances are future you may only be holding stocks, bullion, and crypto.
But what sort of stocks do you want to be hanging onto during the mid-20s?
Bank stocks? Maybe.
Gold miners. Well of course.
You’d definitely want to make sure you have a couple of copper miners, battery metal makers, and even the odd rare earth company as well.
Tech stocks. You can’t wade into the future without the sort of companies that are shaping it.
And you’d also want some infrastructure stocks as well.
But perhaps you need to think a little bit outside the box…
We’ve only got nine lives
Today, I bring to you the most boring investment idea in Australia.
I know, I know. That’s no way to present a new idea to you. I’m meant to dazzle you with exciting news. But just because an idea is exciting doesn’t make it a good, long-term investment.
See, I prefer the slow-burn investment ideas.
The sorts of investments that are part of a five-year or decade-long trend.
Something that might be small, but a crucial piece to a puzzle.
Something you’ve probably never realised how crucial it is to Australia…
Because without this key infrastructure, the whole of Australia stops. Hear me out…
There are just nine subsea cables that bring the internet to Australia.
That’s it. These nine cables lay on the ocean floor and give us our digital connection to the world.
It’s worth noting, there’s a total of 378 subsea cables on the ocean floor…it’s just that Australia has only nine of them.
When the subsea cables break — and they often do — Australia’s internet traffic is rerouted to the other active cables.
You know all those times the internet has been slow for no reason? You’ve probably blamed it on a satellite. Or your telco. Or the heat. Or your neighbour piggybacking on your bandwidth…
While sometimes that’s the answer…more often it’s because of damage to subsea cables.
Boat anchors damage them, as do natural events like tectonic plates shifting, and sharks taking the odd nibble out of them.
So, when these subsea cables go dark, we all feel it.
More to the point, reliable internet is vital to the Australian economy. Something we were rudely reminded of this year when we were forced to work from home and school our kids…at the same time.
Even if you shove aside social media and shopping, businesses run their operations online.
The Fat Tail Media customer service team uses a VoIP (Voice over Internet Protocol) operated service. That means our calls rely on the internet, not copper cabling.
Then there’s cloud storage. Most companies use this to store their data.
In fact, I can’t even tell you the last time I used my external, one-terabyte hard drive to back up my PC. Microsoft weaves it’s magic while I sleep, and my digital life is placed in the cloud.
This might shock you, but there’s also no guarantee the company you work for is using a cloud server based in Australia.
More and more cold-climate countries are setting up cloud storage facilities. It’s cheaper to keep the servers cool where the temperature stays low most of the time.
And Microsoft is dabbling in underwater server facilities. Meaning the cool temperatures of the ocean help keep the servers cool.
The point is all of this information is stored offshore.
Yet we need it here on this giant, sunburnt patch of dirt.
Furthermore, Telstra says the usage of subsea cables in Australia alone is growing at 30% per annum.
In 2014, around five terabytes of data transmitted daily. As at the end of last year, it was 14 terabytes.
That’s not an increase. That is an explosion of data.
Those nine subsea cables are critical to the transfer of information to Australia.
Not only that, subsea cables have a minimum lifespan of 25 years. Half of our subsea cables were laid in the late ‘90s to early 2000s. Meaning some of them are only a couple of years away from being ‘decommissioned’.
Given the unprecedented rise in internet traffic, they not only have to be replaced…but new ones have to be laid down as well.
One snip and *poof*
A few years back, when Edward Snowden revealed the US had been spying on the world, most of us were shocked.
Then, we adapted to this invasion of privacy. We reopened our social media accounts and joked about the FBI agent who monitors our daily habits.
Brazil, on the other hand, took action.
On the back of the Snowden leaks, Brazil began planning a subsea cable that links the country directly to Portugal — completely bypassing the US and the UK in the process.
This move would drastically reduce the US ability to spy on Brazil.
But subsea cable warfare is not a new tactic.
Sure, Snowden brought to light the US’ abuse of privilege by spying on the world but targeting subsea cables has been a strategy since World War One.
Both Germany and England would attempt to damage telegraph cables to cut off their respective enemies’ communications.
Back then, a cut telegraph cable simply meant phone communication was down. Very few people had access to this anyway.
Today, however, it’s different.
A damaged subsea cable doesn’t just stop telephone calls. It prevents the Aussie economy from sharing information…something that is vital to our modern lives.
With so few physical internet links to the rest of the world, Australia is increasingly vulnerable to espionage from outsiders.
We are seeing this threat to national security being publicly recognised by our governments.
The war of words between Australia and China isn’t new. It’s been building since the Gillard government banned Chinese tech companies from the NBN network.
In 2018 this stepped up a notch, when the Australian government said it wouldn’t allow Huawei to ‘land’ a subsea cable from China to Australia.
Just to really drive it home, the Aussie government then prevented China landing a subsea cable in both the Solomon Islands and Papua New Guinea.
China had been wooing the Solomon Islands with the offer to build a ‘free’ subsea cable link to ensure the island nation’s digital connection.
Australia swooped in and booted China out of the discussion. Taxpayers will now foot the bill for the estimated $90–200 million subsea cable link to PNG and the Solomon Islands.
Will this be another waste of government spending?
Think of subsea cabling as critical government infrastructure. No different to the railways, bridges, and roads that connect people in a city.
The difference with the subsea cabling to smaller island nations, however, is about the Australian government protecting the South Pacific.
Australia’s biggest security risk isn’t a rising Chinese military power. It’s about being able to maintain our digital link to the rest of the world…in order for our economy to continue.
Laying expensive subsea cables is part of ensuring that economic security.
Without our internet connection, we are looking at a national blackout.
Critical to national security
Subsea cabling isn’t a trendy or stock-of-the-moment investment idea. Laying data cabling is an extraordinarily long process, costing hundreds of millions of dollars.
And any cables put down are there for decades.
Our reliance on the digital economy means Australians need constant and continuous digital access.
Furthermore, the Aussie government is taking steps to block China — our biggest trading partner, no less — from connecting subsea cables to our neighbours.
These are two factors that signal the importance of these cables to Aussie investors.
Sure, subsea cables aren’t sexy. I’m sure this may be the most boring idea you’ll read about this week.
But they play a crucial role in keeping the Aussie economy moving.
And there’s a strong chance additional subsea cables will be a joint private/government infrastructure project in a few short years.
Australia’s economic prosperity and national security will rely on it.
Editor, The Daily Reckoning Australia
PS: Our publication The Daily Reckoning is a fantastic place to start your investment journey. We talk about the big trends driving the most innovative stocks on the ASX. Learn all about it here.