May 30, 2025 • 48 mins
This week, why fixing the US air traffic control system won't happen overnight and the Trump administration's plan to fix it. Plus, how hyperscalers have taken over the business of undersea cables to support our growing data needs. Later, a look into the role of international students in the educational industrial complex and innovation ecosystem.
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Episode Transcript
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Speaker 1 (00:02):
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:19):
This is Wall Street Week. I'm David Weston, bringing you
stories of capitalism. This week we travel to the depths
of the world's oceans to explore the world of undersea
cables carrying ninety nine percent of the world's communications and
where there may be investment opportunities to address the ever
increasing demand. And in the wake of the Trump administration's
(00:39):
telling Harvard it could no longer have international students, we
look at the costs and benefits of the government going
to war with its universities. But we start with the
continuing focus on the nation's air traffic control systems. With
the Trump administration committing to fixing it. What does fixing
it mean? How long will it take? A safe in
(01:00):
the meantime.
Speaker 3 (01:06):
There's always a challenge that has to come with whatever
system they choose to do. But you're right in saying
the FA's air traffic control system is by far the busiest,
most complex, but at the same time the safest in
the world. So as we approach this, it's got to
be a unified approach, a collaborative approach with support of
all the stakeholders.
Speaker 4 (01:27):
Could just put vector.
Speaker 2 (01:28):
Out Mike McCormick went to teach air traffic management at
every Riddle Aeronautical University after a career at the FAA
as a control tower operator. He says that addressing the
outages and making the necessary changes are going to take
longer than we would like.
Speaker 3 (01:44):
It's like changing to tire on a bus while the
bus is rolling down the road. You can't shut down
the air traffic control system to upgrade it or to
fix it. You need to be able to keep the
system up and running while you deploy new technology and
you upgrade old equipment. Fixing the FAA's air traffic control
(02:10):
system requires a very structured, very formalized approach to what
is going to be done, When is it going to
be done, how is it going to be integrated into
the current system, and then how is it going to
be waterfalled or to the rest of the air traffic
control facilities across the country. So it's not going to
(02:32):
be an overnight and it's not going to be simple.
Speaker 2 (02:36):
We hear various stories about the system now using floppy
disks and using copper wires and things. At the same time,
I also understand there's been some modernization going on over time.
Are we going in the right direction right now or
do we need to change direction?
Speaker 3 (02:53):
Absolutely, the Federal evased miministration is going in the right direction.
They have been engaged in a multi tie decade improvement
program of the air traffic control system and they have
updated all the controller facing technology on the displays for
the controllers to state of the art to be able
(03:14):
to handle not just today's air traffic, but tomorrow's air traffic.
What needs to happen now is to support systems. A
lot of the backroom equipment that supports the larger system
has a definite need for an upgrade, and that's where
you hear things like still using floppy disks, still using
(03:35):
CDs because that equipment over time has not been able
to be upgraded due to lack of funding. So, with
improvement to the system a critical component of it, there
has to be reliable multi year funding available in order
to strategically plan and implement any improvement to the air
(03:55):
traffic control system.
Speaker 2 (03:57):
Reliable multi year funding you talk about. That's one of
the issues that we've heard about. Congress doesn't necessarily do
things in a regular way over a long period of time.
Is that a fundamental problem the way we funded.
Speaker 3 (04:12):
The Federal Evation Administration is generally funded on an annual basis.
They have an operations budget, then they have a facility's
equipment budget, and that budget is generally only good for
one fiscal year, so from October first to September thirtieth.
After that the money disappears.
Speaker 2 (04:32):
The need to reform air traffic control is becoming more
urgent as outages in the system and the resulting delays
become more frequent. The government agency responsible for reporting on
government programs and policies has taken a hard look at
the existing air traffic control system and found it to
be unsustainable.
Speaker 5 (04:52):
I FADE did this risk assessment to understand of the
existing systems, which ones are unsustainable, which ones might be
potentially unsustainab and need investments to modernize them. Many of
these systems are aging in face long standing challenges.
Speaker 2 (05:07):
Heather Kraus is the managing director of Physical Infrastructure at
the GAO, which produced a report on the overall state
of the air traffic control system in the United States
in March. She testified before Congress about its findings.
Speaker 5 (05:22):
So around seventeen, we found to be somewhat concerning in
terms of the timelines that they have as well as
four of those systems not having baselines, so not knowing
when those systems will be delivered, so important that FA
focuses on what are the most critical systems? How are
they going to mitigate risks in the meantime as they
are working through the modernization efforts and then delivering on
(05:45):
those modernization plans.
Speaker 2 (05:48):
Modernization is part of the problem, but far from the
only part. What about the controllers who run the system?
There's general consensus about their being outstanding professionals.
Speaker 3 (06:00):
States Federal Aviation Administration is short over three thousand air
traffic controllers across the entire system, and that came about
not just overnight, but it took decades to reach that
level of shortfall. And essentially what happens whenever there is
a government shut down, the FA cannot hire or train
(06:21):
air traffic controllers. This was disacerbated by the pandemic when
over year the FA could not hire a single controller
and could not train new controllers. That has led to
where the system is today with over three thousand controllers
short across the country. The only way out of that
is to hire and train new controllers and every Reddal
(06:42):
Aeronouk University is proud to be a part of that initiative.
As we enter into agreement with the FAA, we are
authorized and certified by the FAA to test our students
to the same level that the FA Academy does, enabling
them to be hired directly to fair traffic control facilities
upon graduation. Previously, it would take one to two years
(07:05):
post graduation for one of our students entered the controller workforce.
Now can happen within days.
Speaker 1 (07:15):
By the time that the air traffic controllers can get
a new piece of equipment, it's about seven or eight
years old. It's not as modern as there should be.
It took forever for the air traffic control system to
have a GPS system.
Speaker 2 (07:27):
Elaine Chow was the Transportation Secretary under President Trump during
his first term.
Speaker 1 (07:33):
It's a tribute to the men and women of the
air traffic control that they can keep the system kind
of safe and maintained with their expertise.
Speaker 2 (07:44):
Secretary Chow agrees that the path to overhauling air traffic
control in the United States is long, but the problem
may be in the very structure of the system.
Speaker 1 (07:53):
In twenty seventeen, there was an effort under the first
Trump administration to reorganize the structure of the air traffic
control and basically it would take the air traffic control.
It's not privatizing yet because it's being put into a
nonprofit organization, but rather I call it liberating the FAA
(08:15):
and the air traffic control. Basically liberating the air traffic
control from FA and even more succinctly, the federal government,
so that air traffic Control, like many others structured like
this around the world, would be their own entity. They
would have their own nonprofit status, they would have their
(08:36):
own board of directors, but more importantly, they would use
their own funding of resources and be able to use
it for long term planning.
Speaker 2 (08:47):
As you look around the world, has anyone done this?
Can we go to school in any other country in
the way they've handled this well.
Speaker 1 (08:54):
Canada is a primary example, Great Britain, Australia. There are
many other countries who have taken air traffic control out
of the government process and put it separately in its
own nonprofit organization. And by doing that it allows this
nonprofit air traffic control system to plan ahead have control
(09:17):
over one hundred percent of its budget and be able
to purchase equipment at a very timely rate and very
efficiently as well.
Speaker 3 (09:27):
There's been discussion for over twenty years now on what
to do about the United States air traffic control system.
The US is the only Western nation that still has
air traffic control system fully operated by the central government.
All the other Western nations, including our neighbors to the
(09:48):
north and south and across the Pacific and Atlantic, have
transitioned to either a privatized or corporatized air traffic control system.
In general, that has worked out very well for those
They ran into a bit of a problem during the
pandemic because it's based upon user fees and that is
apportion generally of a ticket tax that would fund it.
(10:09):
The FA's air traffic control system is by far the busiest,
most complex, but at the same time the safest in
the world. So as we approach this, it's got to
be a unified approach, a collaborative approach, with support of
all the stakeholders. So you have to have support a passengers,
support of aircraft manufacturers, supporting airlines, support a generally vasue community,
(10:31):
and of course support of the whole government. In order
to make a decision on which we had to go. Unfortunately,
to this point that has not.
Speaker 2 (10:39):
Existed coming up connecting the world from Rio to Tuvalu.
This is a story about connection, no matter what the distance,
(11:00):
no matter what the conditions, whether it's air traffic controllers
connecting with airplanes landing at Newark Airport.
Speaker 3 (11:06):
We lost our radar, or.
Speaker 2 (11:08):
President Trump connecting with British Prime Minister Cure Starmer for
a joint transatlantic news conference.
Speaker 4 (11:14):
This looks like the kind of a hookup that's not
going to be causing any problems, and your voice comes
through beautifully gear. So I just want.
Speaker 6 (11:22):
To do it.
Speaker 2 (11:31):
When it comes to connecting, there is no substitute for
undersea cables. Thousands of satellites may orbit the Earth, but
more than ninety nine percent of global Internet traffic still
flows through fiber optic cables laying on the ocean floor.
A single high capacity cable installed today can transmit half
(11:52):
a peti bit over a million home high speed internet connections.
Speaker 7 (11:57):
Private networks for the largest of the companies, rely upon
subse cables for their logistical planning, their transport, their just
in time deliveries, logistics, finance, health, education, science, technology, sharing,
It all goes over subsea cables, the loss of which
(12:20):
would mean life as we know it would be gone.
Speaker 8 (12:26):
If you think about that, you will start to understand
how incredibly important undersea cables are, both in terms of
our connectivity, our ability to communicate across the world, our
ability to run digital technology, but also essentially the national
security risk.
Speaker 2 (12:43):
Some one point three million kilometers of those cables snak
across the world's ocean floor. Eduardo Matteo is head of
strategy for NEC's Submarine division.
Speaker 9 (12:55):
The basic anatomy of subse cables are very long, these
stunts pipes that have optical fibers inside a certain amount
of optical fibers and every certain amount of kilometers ninety
one hundred kilometers, these signals that travel along the fibers
need to be re energized, amplified, energized from the sea
(13:18):
from the landing stations. So it's a very unique network.
That amplifier that sits in the middle of the ocean
receives power from thousands of kilometers away.
Speaker 2 (13:29):
As important as undersea cables are to all global communications,
most of us don't hear about them until there's an interruption,
which happens about two hundred times a year, sometimes because
of wear and tear, but sometimes in suspicious circumstances. That's
why experts like NJFX CEO Gill Sentilles and Norwegian infrastructure
(13:50):
builder Petter Narbo have a system to reroute traffic and
keep the data moving.
Speaker 10 (13:57):
So while we get to shallow water, we bury it on.
The need the sea bed to protect the cable so
it's not hit by some troller vessel or an anchor
by a chance. But you can wonder, like northern parts
of Norway, in Slowbart we had an incident like two
and a half years ago where one vessel had traveled
across the cable one hundred and thirty times and then
(14:20):
it was able to ram the cable and make.
Speaker 11 (14:23):
A power outage on the cables.
Speaker 10 (14:25):
And you can question whether that was intentional or not,
but it was a Russian vessel. If there's an outage,
that's why we come to places like the New Jersey
Fiber Saints that interconnects with you know, six or seven
of these different Subsey cables, so.
Speaker 11 (14:41):
Our facility is prepared to support subse cables and these
cables need redundancy on land as well. It's no longer
possible at a single point of failure. We've got twenty
six terrestrial cables that lead the NJFX in four directions
aerial underground, which allow diversity for these subse cables have options.
Something happens on land, whether it's a highway or railroad,
(15:04):
we could reavert that traffic in a different bath.
Speaker 2 (15:08):
The first undersea cable was laid in the eighteen fifties,
stretching from Ireland to Newfoundland, with Queen Victoria christening it
by sending a telegram to President Buchanan. In the twentieth century,
telegrams gave way to telephone calls, and then the US
deregulated the telephone companies just as the Internet arrived on
(15:29):
the scene, opening up the market to new players and
fueling a boom in competitive investment in submarine cables.
Speaker 12 (15:37):
We have always been focused on being the best in
the world at moving optical bits.
Speaker 2 (15:42):
Gary Smith runs CNM, whose technology powers the modern global Internet,
providing the networking systems and software that increase each cable's
capacity even as more and more are installed.
Speaker 12 (15:55):
Basically, down each end of a piece of fiber, you
put different colors of light and pull them out at
the ends into you know, virtual fibers, and the first
technology we had in this space, we think we can
make you know, four fibers out of the single fiber,
and they said, that's fantastic. We don't think we'll ever
(16:18):
need four. By the time we got to deploy it,
it was eight and they said, we're never going to
use eight fibers. And now we're putting literally, you know,
thousands of virtual fibers down a single fiber.
Speaker 2 (16:30):
In the boom years of the nineteen nineties and early
two thousands, building transoceanic cables seemed like a great business
to be in.
Speaker 13 (16:38):
I was like, where do we build the next one?
How do we leverage the debt and equity markets to
get the capital? And then this deploy it very very quickly.
Speaker 2 (16:46):
Mike Constable was a global crossing during that time, a
company that pre sold capacity to telecom carriers before cables
even hit the water. But then the music stopped, and.
Speaker 13 (16:57):
At that stage, the all the sculation about how much
data the world was going to need was not being
accurately analyzed and forecast. So suddenly the debt levels were
super high and they couldn't pay off that debt. So
ultimately there was a collapse. Investment pretty much stopped. Around
(17:19):
two thousand and two, investment in subse cables effectively stopped,
and it took a long time to see investment come back.
Speaker 12 (17:28):
Everybody built so much capacity with this kind of technology
because all of a sudden we could scale up the fibers.
The challenge was no one knew what to do with
that capacity, right, and no one would pay for it.
Speaker 2 (17:41):
For years, nothing new was built. But the twenty first
century brought new demands, this time for financial transactions measured
not in milliseconds but in microseconds. Michael Lewis captured it
in Flashboys a World War. Speed meant profit. Joe hilt Now,
with a Nova Financial new Works, led the commercial team
(18:01):
behind a bold new cable called the Hibernia Express. You
were particularly involved, as you say, in the financial part
of the business, and obviously people really want to be
able to trade fast.
Speaker 14 (18:15):
Yeah, And I think we saw that there was a
cable system that was built between New Jersey and the
Chicago Mercantyle Exchange that was built as a straight line, right,
and we said, wow, we're a cable system provided in
the Atlantic. Somebody must need between the two financial pillows
of the world in New York and London. Twenty eleven,
we'd started begun signing clients that would become financial customers
(18:35):
on the system, and when we did that, we started
to do subse surveys.
Speaker 2 (18:39):
Wall Street helped finance it alongside Chinese partner Huawei, but
that set off alarm bells in Washington, and as the
pressure mounted, the message was clear the project wouldn't get
approved if it relied on Chinese technology.
Speaker 14 (18:54):
We originally had started out with Huawei. Global Marine had
decided to move away from wahweih Global Marine about mid
project right, and most of that was based on the
United States and feelings towards companies like Huawei and H
three C.
Speaker 2 (19:12):
At that time, Huawei was out along with its technology,
and in came te SubCom and Sienna.
Speaker 14 (19:20):
So we did need to make a change in our equipment,
and we chose to have a bigger relationship with Siena,
you know, so much like we laid the cable systems
with t SubCom. We decided to make Sienna at that
point in time our the facto standard for wavelength services.
Speaker 12 (19:36):
Frankly, the whole Huawei piece was really a wake up
call for the West you know, in general around the
criticality of this infrastructure. By deploying this infrastructure, letting someone
you know else have that infrastructure was you know, was
a real challenge.
Speaker 2 (19:53):
Unlike others, Sienna hadn't partnered with Chinese firms for years.
That was seen as a mistake until it wasn't.
Speaker 12 (20:01):
And we decided really to be sort of in some
ways the sort of our main competitor around the world
was Huawei, so we decided to be, you know, the
antithesis of that. We had no manufacturing in China. We
were very unusual in that regard, but that was a
strategic decision on our part. Now you look at the
marketplace now and you see a very bifurcated market between
(20:23):
those that utilize Huahweh and those that don't want to,
which is really a proxy for geopolitical divide that you're
seeing in the world. Governments are very conscious of it now.
It's not just left to normal commercial decision making, for sure.
Speaker 2 (20:40):
Mike Constable was tapped to lead Huawei Marine as the
Chinese giants sought to push past US resistance. But as
geopolitical tensions continued to rise, the US stood firm.
Speaker 13 (20:53):
So that was really quite damaging at that time. Slowly
the our access to vietitions to bid on a number
of projects started to dry up. Way while our marine
weren't able to build cables into the US, we were
not able to build cables into Europe and to other
nations such as Australia. In fact, at the time we
(21:13):
had won a contract to build a cable from Solomon
Islands to Australia and that was subsequently terminated.
Speaker 2 (21:20):
The US intervened in several planned Transpacific cables, including the
Pacific Light Cable Network linking Hong Kong and California. According
to Jennifer Bacchus, acting head of the State Department's Bureau
of Cyberspace and Digital Policy, it came down to one
word trust.
Speaker 8 (21:38):
What started to become apparent to us is that we
do not see the world in the same way that
China sees the world, and that ultimately, while we view
this as a positive way to work together, to bring
people together, I think the Chinese view it as a
way to control, surveil and steal, and so as a result,
I think it's been a gradual realization that we don't
(22:01):
have the same worldview. We don't share the same values.
Speaker 2 (22:03):
Specific light cable was one that was going to go
to Hong Kong got shut down. Is that why you
decide not to allow them to have a land station
in Hong Kong?
Speaker 8 (22:12):
So on the Pacific like cable, Yes, What it would
do is if it landed in Hong Kong, the Chinese
government could very easily access that landing station and both
take any information they wanted to exfiltratee it, steal it,
call it what you want. They also could potentially use
that access to interrupt the data flows, to reroute the
(22:35):
data flows. There's no way to tear apart espionage from
intellectual property, theft from essentially having the dagger poised at
your neck that you're going to cut off somebody's communications network.
Speaker 2 (22:49):
Is there a cost here in protecting so the data
that you suggest to potentially US businesses competing with their
Chinese counterparts in third parts of the world.
Speaker 8 (22:59):
What we found in going around the world is that
there's enthusiasm for trusted connectivity, especially when you're talking about
subse cables and when you talk about how do you
attract investment into a country, whether you are a small
island state or a large country. They want advanced Western technology,
(23:20):
they want AI, they want data centers, they want hyperscale cloud.
You look at sort of the share of the market
that HMN Tech, which is the Huawei company, is had
worldwide where they were five years ago versus where they
are today. They're on a downward trajectory as countries, economies,
and people embrace the idea that they want to have
(23:42):
sovereignty and control over their information and over their future
success and prosperity.
Speaker 2 (23:50):
And that's where we turn next to the investment prospects
for the boom and bust business of undersea cable. Who's
doing the investing, what are the economics, and what are
the opportunities. Undersea cables may be ubiquitous, they may be
(24:14):
something all of us use every day without even knowing
about it. But are they a good investment and who's
doing the investing? Enter the hyperscalers, led by Google with
its investment in the trans specific Unity cable.
Speaker 7 (24:29):
In twenty ten, Google invested in a single fiber pair,
which we thought initially was going to be enough capacity.
But the one thing Google and all of the hyperscalers
always get wrong is forecasting and demand models. Demand has
(24:52):
always outstripped actual need. So shortly after completing Unity, we
started on a second transpact cable called Faster, because that's
what we kept getting told, build it faster, we need
it now.
Speaker 2 (25:11):
Jane Stowell was the first employee for Google's subse unit
when the Hyperscaler moved into the business, connecting their data
centers around the globe.
Speaker 7 (25:21):
There was definitely a rising need with Google driving that need.
So I had never done Latin American cables before, so
I turned my attention there and put together a consortium
to build from the US to Brazil, and then a
second mini consortium to build from Brazil to Uruguay and
(25:44):
then onward to Argentina. One of the important things to
understand about putting together consortium is sometimes it can take
as long to build a consortium as it does to
build a cable. If you build it yourself, you can
move much faster. There are three primary reasons. One is cost,
(26:07):
the second is speed to market, and the third is
network architecture technology. Google wanted control all three elements.
Speaker 2 (26:20):
You said that historically it's been very difficult to predict demand,
that often people are wrong with demand. What is the
risk today that there's overbuilding going.
Speaker 7 (26:31):
On, I think relatively low because we had been building
cables for the Internet and for the cloud, for cloud computing.
The next advent is AI. This is not just about cables.
This is about cables that are connecting the lifeblood of
(26:53):
data centers and for artificial intelligence. You need to build
the the artificial intelligence models first before you can have
the inference for anything that's useful for you and me.
So building those models requires mass, mass amounts of data
(27:14):
transport to key data centers that are modern, energy efficient,
plentitude of energy and nearby access to subsea cables. So
you will see a whole new model of data centers
moving outside of city centers to locations with the large
(27:40):
amounts of reliable power and ready access to big fat
types of subsea cables.
Speaker 2 (27:49):
One such fat pipe is the Hafru cable connecting New
Jersey to Norway's low cost renewable energy. Petter Narbo, executive
Chairman of Bulk Infrastructure with Google and Meta on the project.
Speaker 10 (28:04):
Norway has about one hundred percent of releuble energy, so
and we have a surplus of it because we have
one hundred years a history of building hydropower plants from
high altitude lakes that runs intracts to the river into
the ocean where we harvest the energy several times. So
(28:25):
that's why Norway is such a good place for laws
and computes and the new power hunger industry that we
see today.
Speaker 2 (28:35):
For hyperscalers like Google and Meta, building and owning subsea
cables became much more than simply a cost of doing business.
It was the backbone of their growth, and they decided
they couldn't rely on others. They had to invest and
build for themselves and work directly with firms like SubCom
for the cable and gear and Siena to provide the
(28:56):
optical technology.
Speaker 12 (28:58):
The entry point for us was actually aligned around the
cloud players coming into that space, because all of a
sudden you needed very high speed performance and capacity step
function more than you'd seen in the past. And so
the timing of that, you know, was such that these
cloud players really wanted a very high performance you know,
(29:20):
submarine cables. Their ambitions are you know, into all the
you know, most of the countries around the world and
submarine without that submarine cable capacity, and no one was
going to build it for.
Speaker 2 (29:31):
Them given the demand. Why is it that others didn't
step in to build what the Hyperscalers needed. Projsbenergy is
infrastructure managing director at KKR and says that the economics
are quite different for subc cables than for other private
equity investments.
Speaker 15 (29:49):
What has happened historically is that though data demand has
gone up exponentially, the price of data has come down
substantially over time. So if you owned the cable itself
and you owned the fibers, you would have effectively a
depuciating asset from a pricing power perspective. Data centers are
(30:10):
quite different because data centers, again, yes you're in a
specific availability zone or connected into network architecture, but the
value of that land should be appreciating overtime, right the
value you're not selling bandwidth and connectivity. You're selling power
and real estate, very strategic real estates within a certain
(30:32):
availability zone on network architecture.
Speaker 2 (30:35):
So if it's the hyperscalers who are destined to be
the dominant investors in the undersea cables themselves, what does
that leave for other investors?
Speaker 13 (30:44):
Where we do say private equity and digital infrastructure funds
coming into the market is in the services or the
support companies. The support the market. So the digital infrastructure
frunds and private equity appliers aren't investing in grain failed
networks or building cable systems themselves. They are very focused
(31:07):
on broadly speaken on the service industry that supports this
critical infrastructure.
Speaker 2 (31:14):
Kkrc's opportunity in the services surrounding undersea cables, providing critical
functions that hyperscalers need but prefer not to manage themselves.
Speaker 15 (31:26):
Subsea cables are to data centers what railway tracks are
to railway stations. You can't just upgrade the stations in
the terminals and have those tracks lying completely unrepaired and
having them break down. You know, as traffic goes up,
you've got to invest in both parts of the ecosystem
to ensure that you have uninterrupted service, especially today when
(31:49):
the cost of the downtime right for the OTTs, for
the hyperscalers, for the e commerce players, the cost of
network interruption has gone up meaningfully. It's mission critical infrastructure
services provided through asset heavy companies, but not exposed to
the actual volume and the price of that data that
(32:09):
goes for that piper system.
Speaker 13 (32:11):
As an industry, we have a global flight of around
sixty ships, and around thirty percent of that flight is
going to reach its end of use by date within
the next decade. So while we are putting tens of
billions of dollars of investment into new cable systems as
an industry, we're not putting the same sort of capital
(32:32):
to help maintain these systems.
Speaker 15 (32:35):
Nobody wants to build a navy right to service their
own subs needs, because that's also inefficient. You need independent
service providers who can use those same vessels to service
other people. To let us build the cable ships and
service all the hyperskillers and the tel course, let them
focus on their core competence, their revenue drivers, you know
(32:59):
exactly what they want to be using their capital budget
allowances towards, and let us stick on the button of
managing the subscen needs.
Speaker 2 (33:07):
First came deregulation and the Internet boom and a rush
to lay undersea cables. Then came the bust when overbuilding
and deal making got ahead of business fundamentals. Now we're
in the middle of a new boom powered by hyperscalers
and the rise of AI data centers. So what's next?
Smith says, Sienna is busier than ever, and they are
(33:29):
just getting started, so.
Speaker 12 (33:31):
We're still at the very early days of this. If
people are going to monetize all this investment that they're
making in GPUs and AI, it's got to come out
onto the network. It's got to come out of the datacience.
I think as an ecosystem, as an industry, we're grossly
(33:52):
underestimating how much capacity will be required.
Speaker 13 (33:56):
Is there a grete investment opportunity that demand drivers say
there are, but really it is who is going to
move into this space because it is dominated by the
people who are moving the most data around the world.
From the cable industry perspective, we're not quite sure exactly
what the development of AI is going to do to
(34:19):
the deployment of cables. I think, you know, it's obviously
going to require a lot more cable deployments, just how
much we're not sure.
Speaker 2 (34:30):
Coming up. Since World War II, the US government has
partnered with the American universities on a wide array of
research projects, but that partnership may be coming to an end.
We take a look at what it could mean for
business in the economy. This is a story about the
(34:53):
cost of privatizing American innovation. For many years, the US
has led the world in innovation, driven in large part
by government funding of university research. But President Trump ramped
up efforts to get higher education back into line with
cuts in research funds and last week saying international students
have to leave Harvard altogether. As Scarlet Food reports, the
(35:15):
ramifications extend far beyond lecture halls and science labs.
Speaker 16 (35:20):
US research universities are the envy of the World Prize
for their ability to attract top students and faculty who
specialized academic work often seed economic clusters of innovation on
and off campus, and that has led to technological breakthroughs
from the birth of the Internet and GPS to life
saving mRNA vaccines. Backstopping all of this uncle sam last year,
(35:45):
the federal government funded sixty billion dollars of research at
American universities.
Speaker 4 (35:50):
I signed an order creating the Department of Government Efficiency,
which is now really waging more on government waste, fraud,
and abuse.
Speaker 16 (35:59):
But this TREU re cycle is now under threat as
President Trump targets elite schools in multiple ways, notably by
pulling public funding and cracking down on immigrants, including international
students reliant on student visas. All of this leads to
an erosion of American soft power, a phrase coined by
the late Harvard scholar and NIC director Joseph Nye.
Speaker 2 (36:20):
Soft powers the ability to get what you want through
attraction ratherland, coersion, or payment, a.
Speaker 16 (36:26):
Power that the US has capitalized on for most of
the last century.
Speaker 6 (36:30):
During World War Two and the United States leveraged its
scientific excellence and the high quality scientists we had in
universities and some of those that we attracted from abroad.
And in the wake of World War Two, the government
vastly expanded the amount of funding that it provided two
American universities in order to conduct research on behalf of
(36:51):
the American people. So this has led the United States
to be a leader in innovation, in building the information
economy that we have today, in health care, and in
a wide variety of other fields that help us support
our economic prosperity, in our security. And when you ask
why is it that's such a huge proportion of Nobel
Prizes get awarded to Americans, Why is it that the
(37:12):
best scientists and engineers from all over the world want
to come to the United States, It's because of this
extraordinary partnership we've had here where the government says we're
going to do research through these universities, We're going to
fund that, and we're going to enable these universities to
become the best in the world and produce these extraordinary
innovations on behalf of the American people.
Speaker 16 (37:32):
But first we start with the money.
Speaker 4 (37:34):
One of the most important initiatives is DOGE and we
have cut billions and billions and billions of dollars. We're
looking to get it maybe to a trillion dollars if
we could do that.
Speaker 16 (37:48):
Under President Trump, the latest federal budget proposal slashes one
hundred and sixty three billion dollars in non defense programs,
including student aid and research funding. It's already led to
the suspension of more than two billion dollars and funding
for Harvard, eight hundred million in grants for Johns. Hopkins,
four hundred million in funding cuts for Columbia. The list
goes on.
Speaker 6 (38:08):
It's deeply worrisome. This pact between the government and research
universities has been fundamental to the excellence of American research universities,
and it has contributed tremendously to the prosperity, health and
security of our country. And that pact has depended on
the idea that the American government will come to universities
and ask them to do research that is in the
(38:30):
interests of the American people, and universities have done that spectacularly,
making both the country and the universities stronger. Throughout that time,
the American government has respected this principle of academic freedom.
That means that when that research has undertaken, universities and
their faculties can pursue the truth as they see it.
(38:50):
What we're seeing now is the use of research and
funding and the leverage that it gives the government over
universities as a lever to try to change what it
is they take, and that threatens to disrupt the quality
of our universities and the principles that are fundamental to them.
Speaker 16 (39:05):
The funding that the government provides isn't easily replaceable either.
Speaker 6 (39:09):
There's no way the private sector could substitute for what
American research universities are doing now, both on their own
and in partnership with the government. And I suspect if
you ask the private sector, right our tech companies or
our farmer companies, they would agree with that. And the
reason is because we do the kind of long term
research that doesn't have the predictable immediate term or medium
(39:31):
term payoff that is going to matter to our corporations.
Speaker 16 (39:35):
And the ripple effects stretch well beyond a university's physical campus.
Speaker 17 (39:39):
Many of our students, about three quarters of them live
on campus.
Speaker 16 (39:42):
Michael Samwellian is a founding director of the Jacobs Urban
Technology Hub at Cornell Tech in New York City. Cornell
Tech and Johns Hopkins received donations from Michael R. Bloomberg,
founder and majority owner of Bloomberg LP.
Speaker 17 (39:56):
So we work on building bridges between university research and
and the city.
Speaker 16 (40:01):
He says, US universities have evolved beyond just places to
learn in two key drivers of industry specific growth.
Speaker 17 (40:08):
Well, I think there's a really interesting shift that's happened
over the past generation. Increasingly universities are urban. We're in
the middle of New York City right now at Cornell Tech.
There's an increasing shift of universities to be far more
urban because that's where talent is and that's where diversity is.
So in many cases, I think cities are learning that
universities are economic powerhouses. I bicker with my dean every
once in a while on is Cornell Tech a school
(40:30):
or are we an economic development project? As an urban planner,
I think of us as an economic development project one
that New York City over a decade ago saw the
power of universities in terms of increasing the tech talent
that New York has and diversify in New York City's economy.
So Cornell Tech was a mechanism to basically help diversify
us not away from finance, but also make sure that
New York City was going to be a tech powerhouse.
(40:52):
We are a visual manifestation of tech in New York.
New York City is probably the number two kind of
VC destination for my the in for technology companies across
the country, and back in twenty twenty you probably know this.
There are more tech jobs in New York City than
finance jobs that would not have happened without places like
Cornell Tech and deep investment in the tracting schools in
New York City. We recently did a report back in
(41:15):
twenty twenty four to look at the economic impact of
Cornell Tech, and every year we're bringing about three quarters
of a billion dollars to New York City economy, and
that's just six undred graduate students.
Speaker 16 (41:25):
One of the universities most dependent on federal funding is
Johns Hopkins in Baltimore. From twenty twenty to twenty twenty three,
Washington DC was responsible for just under twelve billion of
its more than thirteen and a half billion dollar R
and D expenditure, and people like Christy Weiskill, the head
of Johns Hopkins Technology Ventures, are working to make sure
there's a return on the government's investment.
Speaker 18 (41:48):
Our role is to take the great ideas from our
faculty in students and bring those to market. We really
leaned into this a little over a decade ago when
we realized that there was an opportunity to think about
the application of so much of the amazing research here
at Johns Hopkins, and also the opportunity for Baltimore. So
we built a team that goes and speaks to our
(42:10):
researchers and faculty about their most promising research ways that
can change lives for the better, and then we connect them,
help them pitch to the VC industry, help them connect
with corporate America. And we've seen a dramatic increase in
venture funding as a result of that.
Speaker 16 (42:26):
Why Scille says more than four billion dollars in venture
capital has flowed into companies incubated by Johns Hopkins.
Speaker 18 (42:32):
There's a company in Boston called Lantheas that licensed Pilarify.
It's a prostate cancer diagnostic that helps over two hundred
thousand men a year with metastatic prostate cancer. Without this technology,
clinicians would not be able to treat patients as well.
And we are thrilled that this diagnostic allows a patient
(42:52):
to basically view in technicolor what earlier clinicians had described
as trying to diagnose a patient in black and white TVs.
So this diagnostic, which is a product that brings in
over a billion dollars a year for Lantheus, was developed
here with nih dollars at Johns Hopkins.
Speaker 16 (43:09):
So given all that is, the US now at risk
of losing its edge as a global destination for that
scientific talent and innovation.
Speaker 18 (43:17):
Anytime there's uncertainty that can create potential problems. People might
rethink where they study, what they study, how they study.
We have the chance to seed that global dominance to China.
China has increased research spending nine hundred percent in the
last decade as a percent of GDP. Unless we continue
to fund research, they will outstrip US in terms of
(43:40):
patents companies innovation.
Speaker 16 (43:43):
Decades of government funded research has attracted a pipeline of talent,
homegrown and increasingly from outside the US. When you think
of America's most cutting edge companies, they often share some
common traits. Giant market caps, global reach, and oftentimes founders
and or CEOs born and raised abroad and educated in America.
Speaker 18 (44:03):
I believe that it's nearly half of fortune five hundred
CEOs that are either immigrants or children of immigrants.
Speaker 17 (44:10):
Who's the next leader of a big multinational American company.
They're the one to five chance that they were an
international student.
Speaker 19 (44:17):
The US represents the premier destination for international students around
the world.
Speaker 16 (44:23):
What's become clear is as much as US research universities
depend on federal government money to operate and fund their research,
they also depend on international students for the same starting
with paying tuition that has come under direct threat when
the Trump administration announced it would bar Harvard from enrolling
international students. While the State Department halts interviews for student visas,
(44:44):
a federal court has temporarily blocked the ban on Harvard.
Speaker 19 (44:47):
Over two hundred thousand international students work in the US.
Speaker 16 (44:51):
Mirriam Feldbloom is the president and CEO of the President's
Alliance on Higher Education and Immigration.
Speaker 19 (44:57):
Overall, the Department of Commerce has simated that international students
contributed fifty billion dollars to the US economy in twenty
twenty three, twenty four. That actually makes international education of
the tenth largest export in the US even though the
students are coming here. International students are only six percent
(45:19):
of total student enrollment and higher education, so we're not
talking about a large population. But the contributions that international
students provide by their skills, their talents, what they buy,
what they do is far greater than what the six
percent would indicate.
Speaker 16 (45:38):
As the Trump administration cracks down on public funding to
universities and visas for international students, other countries like Canada, Australia,
and the UK are stepping up their recruitment efforts. The
administration's rhetoric would just discourage international students from choosing the
US as a destination, and they'd end up gravitating away
from the country. Is that something you can think about
(46:01):
every day?
Speaker 19 (46:02):
There's no doubt that if there's continued rhetoric, policy proposals,
and actions that discourage international students from coming. That impact
will be seen in decreased enrollments in the fall.
Speaker 16 (46:18):
Does it lead to the closure of certain programs or
innovative programs, or certain potential research breakthroughs.
Speaker 19 (46:24):
We know with based on history, based on research, that
our research productivity will diminish. Probably the number of patents
being filed will decline based on past history. We don't
know what will be lost. We know things will be lost.
And this isn't about internationals students or international talent or
(46:45):
domestic talent. The US needs talent. I think one of
the things that we have to acknowledge is that the
climate of fear and anxiety and uncertainty that international students
are feeling across the country at big and smaller institutions,
public and private, highly elite, and those who are not
known except to their community where they're beloved, is that
(47:08):
it's also generating uncertainty and anxiety among researchers, staff, faculty,
and others in these campus communities in which I am
hearing from campus leaders that some of their faculties, some
of their star faculty, are saying, I'm not quite sure
if I should remain in the US. So again, the
(47:29):
loss is not only about individual students who may be
directly impacted, but it's about a community of generation of students, graduates, faculty,
researchers who we may lose, and we're going to feel
the impacts of that loss.
Speaker 2 (47:49):
That does it for us Here at Wall Street Week,
I'm David Weston. See you next week for more stories
of capitalism.
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:19):
This is Wall Street Week. I'm David Weston, bringing you
stories of capitalism. This week we travel to the depths
of the world's oceans to explore the world of undersea
cables carrying ninety nine percent of the world's communications and
where there may be investment opportunities to address the ever
increasing demand. And in the wake of the Trump administration's
(00:39):
telling Harvard it could no longer have international students, we
look at the costs and benefits of the government going
to war with its universities. But we start with the
continuing focus on the nation's air traffic control systems. With
the Trump administration committing to fixing it. What does fixing
it mean? How long will it take? A safe in
(01:00):
the meantime.
Speaker 3 (01:06):
There's always a challenge that has to come with whatever
system they choose to do. But you're right in saying
the FA's air traffic control system is by far the busiest,
most complex, but at the same time the safest in
the world. So as we approach this, it's got to
be a unified approach, a collaborative approach with support of
all the stakeholders.
Speaker 4 (01:27):
Could just put vector.
Speaker 2 (01:28):
Out Mike McCormick went to teach air traffic management at
every Riddle Aeronautical University after a career at the FAA
as a control tower operator. He says that addressing the
outages and making the necessary changes are going to take
longer than we would like.
Speaker 3 (01:44):
It's like changing to tire on a bus while the
bus is rolling down the road. You can't shut down
the air traffic control system to upgrade it or to
fix it. You need to be able to keep the
system up and running while you deploy new technology and
you upgrade old equipment. Fixing the FAA's air traffic control
(02:10):
system requires a very structured, very formalized approach to what
is going to be done, When is it going to
be done, how is it going to be integrated into
the current system, and then how is it going to
be waterfalled or to the rest of the air traffic
control facilities across the country. So it's not going to
(02:32):
be an overnight and it's not going to be simple.
Speaker 2 (02:36):
We hear various stories about the system now using floppy
disks and using copper wires and things. At the same time,
I also understand there's been some modernization going on over time.
Are we going in the right direction right now or
do we need to change direction?
Speaker 3 (02:53):
Absolutely, the Federal evased miministration is going in the right direction.
They have been engaged in a multi tie decade improvement
program of the air traffic control system and they have
updated all the controller facing technology on the displays for
the controllers to state of the art to be able
(03:14):
to handle not just today's air traffic, but tomorrow's air traffic.
What needs to happen now is to support systems. A
lot of the backroom equipment that supports the larger system
has a definite need for an upgrade, and that's where
you hear things like still using floppy disks, still using
(03:35):
CDs because that equipment over time has not been able
to be upgraded due to lack of funding. So, with
improvement to the system a critical component of it, there
has to be reliable multi year funding available in order
to strategically plan and implement any improvement to the air
(03:55):
traffic control system.
Speaker 2 (03:57):
Reliable multi year funding you talk about. That's one of
the issues that we've heard about. Congress doesn't necessarily do
things in a regular way over a long period of time.
Is that a fundamental problem the way we funded.
Speaker 3 (04:12):
The Federal Evation Administration is generally funded on an annual basis.
They have an operations budget, then they have a facility's
equipment budget, and that budget is generally only good for
one fiscal year, so from October first to September thirtieth.
After that the money disappears.
Speaker 2 (04:32):
The need to reform air traffic control is becoming more
urgent as outages in the system and the resulting delays
become more frequent. The government agency responsible for reporting on
government programs and policies has taken a hard look at
the existing air traffic control system and found it to
be unsustainable.
Speaker 5 (04:52):
I FADE did this risk assessment to understand of the
existing systems, which ones are unsustainable, which ones might be
potentially unsustainab and need investments to modernize them. Many of
these systems are aging in face long standing challenges.
Speaker 2 (05:07):
Heather Kraus is the managing director of Physical Infrastructure at
the GAO, which produced a report on the overall state
of the air traffic control system in the United States
in March. She testified before Congress about its findings.
Speaker 5 (05:22):
So around seventeen, we found to be somewhat concerning in
terms of the timelines that they have as well as
four of those systems not having baselines, so not knowing
when those systems will be delivered, so important that FA
focuses on what are the most critical systems? How are
they going to mitigate risks in the meantime as they
are working through the modernization efforts and then delivering on
(05:45):
those modernization plans.
Speaker 2 (05:48):
Modernization is part of the problem, but far from the
only part. What about the controllers who run the system?
There's general consensus about their being outstanding professionals.
Speaker 3 (06:00):
States Federal Aviation Administration is short over three thousand air
traffic controllers across the entire system, and that came about
not just overnight, but it took decades to reach that
level of shortfall. And essentially what happens whenever there is
a government shut down, the FA cannot hire or train
(06:21):
air traffic controllers. This was disacerbated by the pandemic when
over year the FA could not hire a single controller
and could not train new controllers. That has led to
where the system is today with over three thousand controllers
short across the country. The only way out of that
is to hire and train new controllers and every Reddal
(06:42):
Aeronouk University is proud to be a part of that initiative.
As we enter into agreement with the FAA, we are
authorized and certified by the FAA to test our students
to the same level that the FA Academy does, enabling
them to be hired directly to fair traffic control facilities
upon graduation. Previously, it would take one to two years
(07:05):
post graduation for one of our students entered the controller workforce.
Now can happen within days.
Speaker 1 (07:15):
By the time that the air traffic controllers can get
a new piece of equipment, it's about seven or eight
years old. It's not as modern as there should be.
It took forever for the air traffic control system to
have a GPS system.
Speaker 2 (07:27):
Elaine Chow was the Transportation Secretary under President Trump during
his first term.
Speaker 1 (07:33):
It's a tribute to the men and women of the
air traffic control that they can keep the system kind
of safe and maintained with their expertise.
Speaker 2 (07:44):
Secretary Chow agrees that the path to overhauling air traffic
control in the United States is long, but the problem
may be in the very structure of the system.
Speaker 1 (07:53):
In twenty seventeen, there was an effort under the first
Trump administration to reorganize the structure of the air traffic
control and basically it would take the air traffic control.
It's not privatizing yet because it's being put into a
nonprofit organization, but rather I call it liberating the FAA
(08:15):
and the air traffic control. Basically liberating the air traffic
control from FA and even more succinctly, the federal government,
so that air traffic Control, like many others structured like
this around the world, would be their own entity. They
would have their own nonprofit status, they would have their
(08:36):
own board of directors, but more importantly, they would use
their own funding of resources and be able to use
it for long term planning.
Speaker 2 (08:47):
As you look around the world, has anyone done this?
Can we go to school in any other country in
the way they've handled this well.
Speaker 1 (08:54):
Canada is a primary example, Great Britain, Australia. There are
many other countries who have taken air traffic control out
of the government process and put it separately in its
own nonprofit organization. And by doing that it allows this
nonprofit air traffic control system to plan ahead have control
(09:17):
over one hundred percent of its budget and be able
to purchase equipment at a very timely rate and very
efficiently as well.
Speaker 3 (09:27):
There's been discussion for over twenty years now on what
to do about the United States air traffic control system.
The US is the only Western nation that still has
air traffic control system fully operated by the central government.
All the other Western nations, including our neighbors to the
(09:48):
north and south and across the Pacific and Atlantic, have
transitioned to either a privatized or corporatized air traffic control system.
In general, that has worked out very well for those
They ran into a bit of a problem during the
pandemic because it's based upon user fees and that is
apportion generally of a ticket tax that would fund it.
(10:09):
The FA's air traffic control system is by far the busiest,
most complex, but at the same time the safest in
the world. So as we approach this, it's got to
be a unified approach, a collaborative approach, with support of
all the stakeholders. So you have to have support a passengers,
support of aircraft manufacturers, supporting airlines, support a generally vasue community,
(10:31):
and of course support of the whole government. In order
to make a decision on which we had to go. Unfortunately,
to this point that has not.
Speaker 2 (10:39):
Existed coming up connecting the world from Rio to Tuvalu.
This is a story about connection, no matter what the distance,
(11:00):
no matter what the conditions, whether it's air traffic controllers
connecting with airplanes landing at Newark Airport.
Speaker 3 (11:06):
We lost our radar, or.
Speaker 2 (11:08):
President Trump connecting with British Prime Minister Cure Starmer for
a joint transatlantic news conference.
Speaker 4 (11:14):
This looks like the kind of a hookup that's not
going to be causing any problems, and your voice comes
through beautifully gear. So I just want.
Speaker 6 (11:22):
To do it.
Speaker 2 (11:31):
When it comes to connecting, there is no substitute for
undersea cables. Thousands of satellites may orbit the Earth, but
more than ninety nine percent of global Internet traffic still
flows through fiber optic cables laying on the ocean floor.
A single high capacity cable installed today can transmit half
(11:52):
a peti bit over a million home high speed internet connections.
Speaker 7 (11:57):
Private networks for the largest of the companies, rely upon
subse cables for their logistical planning, their transport, their just
in time deliveries, logistics, finance, health, education, science, technology, sharing,
It all goes over subsea cables, the loss of which
(12:20):
would mean life as we know it would be gone.
Speaker 8 (12:26):
If you think about that, you will start to understand
how incredibly important undersea cables are, both in terms of
our connectivity, our ability to communicate across the world, our
ability to run digital technology, but also essentially the national
security risk.
Speaker 2 (12:43):
Some one point three million kilometers of those cables snak
across the world's ocean floor. Eduardo Matteo is head of
strategy for NEC's Submarine division.
Speaker 9 (12:55):
The basic anatomy of subse cables are very long, these
stunts pipes that have optical fibers inside a certain amount
of optical fibers and every certain amount of kilometers ninety
one hundred kilometers, these signals that travel along the fibers
need to be re energized, amplified, energized from the sea
(13:18):
from the landing stations. So it's a very unique network.
That amplifier that sits in the middle of the ocean
receives power from thousands of kilometers away.
Speaker 2 (13:29):
As important as undersea cables are to all global communications,
most of us don't hear about them until there's an interruption,
which happens about two hundred times a year, sometimes because
of wear and tear, but sometimes in suspicious circumstances. That's
why experts like NJFX CEO Gill Sentilles and Norwegian infrastructure
(13:50):
builder Petter Narbo have a system to reroute traffic and
keep the data moving.
Speaker 10 (13:57):
So while we get to shallow water, we bury it on.
The need the sea bed to protect the cable so
it's not hit by some troller vessel or an anchor
by a chance. But you can wonder, like northern parts
of Norway, in Slowbart we had an incident like two
and a half years ago where one vessel had traveled
across the cable one hundred and thirty times and then
(14:20):
it was able to ram the cable and make.
Speaker 11 (14:23):
A power outage on the cables.
Speaker 10 (14:25):
And you can question whether that was intentional or not,
but it was a Russian vessel. If there's an outage,
that's why we come to places like the New Jersey
Fiber Saints that interconnects with you know, six or seven
of these different Subsey cables, so.
Speaker 11 (14:41):
Our facility is prepared to support subse cables and these
cables need redundancy on land as well. It's no longer
possible at a single point of failure. We've got twenty
six terrestrial cables that lead the NJFX in four directions
aerial underground, which allow diversity for these subse cables have options.
Something happens on land, whether it's a highway or railroad,
(15:04):
we could reavert that traffic in a different bath.
Speaker 2 (15:08):
The first undersea cable was laid in the eighteen fifties,
stretching from Ireland to Newfoundland, with Queen Victoria christening it
by sending a telegram to President Buchanan. In the twentieth century,
telegrams gave way to telephone calls, and then the US
deregulated the telephone companies just as the Internet arrived on
(15:29):
the scene, opening up the market to new players and
fueling a boom in competitive investment in submarine cables.
Speaker 12 (15:37):
We have always been focused on being the best in
the world at moving optical bits.
Speaker 2 (15:42):
Gary Smith runs CNM, whose technology powers the modern global Internet,
providing the networking systems and software that increase each cable's
capacity even as more and more are installed.
Speaker 12 (15:55):
Basically, down each end of a piece of fiber, you
put different colors of light and pull them out at
the ends into you know, virtual fibers, and the first
technology we had in this space, we think we can
make you know, four fibers out of the single fiber,
and they said, that's fantastic. We don't think we'll ever
(16:18):
need four. By the time we got to deploy it,
it was eight and they said, we're never going to
use eight fibers. And now we're putting literally, you know,
thousands of virtual fibers down a single fiber.
Speaker 2 (16:30):
In the boom years of the nineteen nineties and early
two thousands, building transoceanic cables seemed like a great business
to be in.
Speaker 13 (16:38):
I was like, where do we build the next one?
How do we leverage the debt and equity markets to
get the capital? And then this deploy it very very quickly.
Speaker 2 (16:46):
Mike Constable was a global crossing during that time, a
company that pre sold capacity to telecom carriers before cables
even hit the water. But then the music stopped, and.
Speaker 13 (16:57):
At that stage, the all the sculation about how much
data the world was going to need was not being
accurately analyzed and forecast. So suddenly the debt levels were
super high and they couldn't pay off that debt. So
ultimately there was a collapse. Investment pretty much stopped. Around
(17:19):
two thousand and two, investment in subse cables effectively stopped,
and it took a long time to see investment come back.
Speaker 12 (17:28):
Everybody built so much capacity with this kind of technology
because all of a sudden we could scale up the fibers.
The challenge was no one knew what to do with
that capacity, right, and no one would pay for it.
Speaker 2 (17:41):
For years, nothing new was built. But the twenty first
century brought new demands, this time for financial transactions measured
not in milliseconds but in microseconds. Michael Lewis captured it
in Flashboys a World War. Speed meant profit. Joe hilt Now,
with a Nova Financial new Works, led the commercial team
(18:01):
behind a bold new cable called the Hibernia Express. You
were particularly involved, as you say, in the financial part
of the business, and obviously people really want to be
able to trade fast.
Speaker 14 (18:15):
Yeah, And I think we saw that there was a
cable system that was built between New Jersey and the
Chicago Mercantyle Exchange that was built as a straight line, right,
and we said, wow, we're a cable system provided in
the Atlantic. Somebody must need between the two financial pillows
of the world in New York and London. Twenty eleven,
we'd started begun signing clients that would become financial customers
(18:35):
on the system, and when we did that, we started
to do subse surveys.
Speaker 2 (18:39):
Wall Street helped finance it alongside Chinese partner Huawei, but
that set off alarm bells in Washington, and as the
pressure mounted, the message was clear the project wouldn't get
approved if it relied on Chinese technology.
Speaker 14 (18:54):
We originally had started out with Huawei. Global Marine had
decided to move away from wahweih Global Marine about mid
project right, and most of that was based on the
United States and feelings towards companies like Huawei and H
three C.
Speaker 2 (19:12):
At that time, Huawei was out along with its technology,
and in came te SubCom and Sienna.
Speaker 14 (19:20):
So we did need to make a change in our equipment,
and we chose to have a bigger relationship with Siena,
you know, so much like we laid the cable systems
with t SubCom. We decided to make Sienna at that
point in time our the facto standard for wavelength services.
Speaker 12 (19:36):
Frankly, the whole Huawei piece was really a wake up
call for the West you know, in general around the
criticality of this infrastructure. By deploying this infrastructure, letting someone
you know else have that infrastructure was you know, was
a real challenge.
Speaker 2 (19:53):
Unlike others, Sienna hadn't partnered with Chinese firms for years.
That was seen as a mistake until it wasn't.
Speaker 12 (20:01):
And we decided really to be sort of in some
ways the sort of our main competitor around the world
was Huawei, so we decided to be, you know, the
antithesis of that. We had no manufacturing in China. We
were very unusual in that regard, but that was a
strategic decision on our part. Now you look at the
marketplace now and you see a very bifurcated market between
(20:23):
those that utilize Huahweh and those that don't want to,
which is really a proxy for geopolitical divide that you're
seeing in the world. Governments are very conscious of it now.
It's not just left to normal commercial decision making, for sure.
Speaker 2 (20:40):
Mike Constable was tapped to lead Huawei Marine as the
Chinese giants sought to push past US resistance. But as
geopolitical tensions continued to rise, the US stood firm.
Speaker 13 (20:53):
So that was really quite damaging at that time. Slowly
the our access to vietitions to bid on a number
of projects started to dry up. Way while our marine
weren't able to build cables into the US, we were
not able to build cables into Europe and to other
nations such as Australia. In fact, at the time we
(21:13):
had won a contract to build a cable from Solomon
Islands to Australia and that was subsequently terminated.
Speaker 2 (21:20):
The US intervened in several planned Transpacific cables, including the
Pacific Light Cable Network linking Hong Kong and California. According
to Jennifer Bacchus, acting head of the State Department's Bureau
of Cyberspace and Digital Policy, it came down to one
word trust.
Speaker 8 (21:38):
What started to become apparent to us is that we
do not see the world in the same way that
China sees the world, and that ultimately, while we view
this as a positive way to work together, to bring
people together, I think the Chinese view it as a
way to control, surveil and steal, and so as a result,
I think it's been a gradual realization that we don't
(22:01):
have the same worldview. We don't share the same values.
Speaker 2 (22:03):
Specific light cable was one that was going to go
to Hong Kong got shut down. Is that why you
decide not to allow them to have a land station
in Hong Kong?
Speaker 8 (22:12):
So on the Pacific like cable, Yes, What it would
do is if it landed in Hong Kong, the Chinese
government could very easily access that landing station and both
take any information they wanted to exfiltratee it, steal it,
call it what you want. They also could potentially use
that access to interrupt the data flows, to reroute the
(22:35):
data flows. There's no way to tear apart espionage from
intellectual property, theft from essentially having the dagger poised at
your neck that you're going to cut off somebody's communications network.
Speaker 2 (22:49):
Is there a cost here in protecting so the data
that you suggest to potentially US businesses competing with their
Chinese counterparts in third parts of the world.
Speaker 8 (22:59):
What we found in going around the world is that
there's enthusiasm for trusted connectivity, especially when you're talking about
subse cables and when you talk about how do you
attract investment into a country, whether you are a small
island state or a large country. They want advanced Western technology,
(23:20):
they want AI, they want data centers, they want hyperscale cloud.
You look at sort of the share of the market
that HMN Tech, which is the Huawei company, is had
worldwide where they were five years ago versus where they
are today. They're on a downward trajectory as countries, economies,
and people embrace the idea that they want to have
(23:42):
sovereignty and control over their information and over their future
success and prosperity.
Speaker 2 (23:50):
And that's where we turn next to the investment prospects
for the boom and bust business of undersea cable. Who's
doing the investing, what are the economics, and what are
the opportunities. Undersea cables may be ubiquitous, they may be
(24:14):
something all of us use every day without even knowing
about it. But are they a good investment and who's
doing the investing? Enter the hyperscalers, led by Google with
its investment in the trans specific Unity cable.
Speaker 7 (24:29):
In twenty ten, Google invested in a single fiber pair,
which we thought initially was going to be enough capacity.
But the one thing Google and all of the hyperscalers
always get wrong is forecasting and demand models. Demand has
(24:52):
always outstripped actual need. So shortly after completing Unity, we
started on a second transpact cable called Faster, because that's
what we kept getting told, build it faster, we need
it now.
Speaker 2 (25:11):
Jane Stowell was the first employee for Google's subse unit
when the Hyperscaler moved into the business, connecting their data
centers around the globe.
Speaker 7 (25:21):
There was definitely a rising need with Google driving that need.
So I had never done Latin American cables before, so
I turned my attention there and put together a consortium
to build from the US to Brazil, and then a
second mini consortium to build from Brazil to Uruguay and
(25:44):
then onward to Argentina. One of the important things to
understand about putting together consortium is sometimes it can take
as long to build a consortium as it does to
build a cable. If you build it yourself, you can
move much faster. There are three primary reasons. One is cost,
(26:07):
the second is speed to market, and the third is
network architecture technology. Google wanted control all three elements.
Speaker 2 (26:20):
You said that historically it's been very difficult to predict demand,
that often people are wrong with demand. What is the
risk today that there's overbuilding going.
Speaker 7 (26:31):
On, I think relatively low because we had been building
cables for the Internet and for the cloud, for cloud computing.
The next advent is AI. This is not just about cables.
This is about cables that are connecting the lifeblood of
(26:53):
data centers and for artificial intelligence. You need to build
the the artificial intelligence models first before you can have
the inference for anything that's useful for you and me.
So building those models requires mass, mass amounts of data
(27:14):
transport to key data centers that are modern, energy efficient,
plentitude of energy and nearby access to subsea cables. So
you will see a whole new model of data centers
moving outside of city centers to locations with the large
(27:40):
amounts of reliable power and ready access to big fat
types of subsea cables.
Speaker 2 (27:49):
One such fat pipe is the Hafru cable connecting New
Jersey to Norway's low cost renewable energy. Petter Narbo, executive
Chairman of Bulk Infrastructure with Google and Meta on the project.
Speaker 10 (28:04):
Norway has about one hundred percent of releuble energy, so
and we have a surplus of it because we have
one hundred years a history of building hydropower plants from
high altitude lakes that runs intracts to the river into
the ocean where we harvest the energy several times. So
(28:25):
that's why Norway is such a good place for laws
and computes and the new power hunger industry that we
see today.
Speaker 2 (28:35):
For hyperscalers like Google and Meta, building and owning subsea
cables became much more than simply a cost of doing business.
It was the backbone of their growth, and they decided
they couldn't rely on others. They had to invest and
build for themselves and work directly with firms like SubCom
for the cable and gear and Siena to provide the
(28:56):
optical technology.
Speaker 12 (28:58):
The entry point for us was actually aligned around the
cloud players coming into that space, because all of a
sudden you needed very high speed performance and capacity step
function more than you'd seen in the past. And so
the timing of that, you know, was such that these
cloud players really wanted a very high performance you know,
(29:20):
submarine cables. Their ambitions are you know, into all the
you know, most of the countries around the world and
submarine without that submarine cable capacity, and no one was
going to build it for.
Speaker 2 (29:31):
Them given the demand. Why is it that others didn't
step in to build what the Hyperscalers needed. Projsbenergy is
infrastructure managing director at KKR and says that the economics
are quite different for subc cables than for other private
equity investments.
Speaker 15 (29:49):
What has happened historically is that though data demand has
gone up exponentially, the price of data has come down
substantially over time. So if you owned the cable itself
and you owned the fibers, you would have effectively a
depuciating asset from a pricing power perspective. Data centers are
(30:10):
quite different because data centers, again, yes you're in a
specific availability zone or connected into network architecture, but the
value of that land should be appreciating overtime, right the
value you're not selling bandwidth and connectivity. You're selling power
and real estate, very strategic real estates within a certain
(30:32):
availability zone on network architecture.
Speaker 2 (30:35):
So if it's the hyperscalers who are destined to be
the dominant investors in the undersea cables themselves, what does
that leave for other investors?
Speaker 13 (30:44):
Where we do say private equity and digital infrastructure funds
coming into the market is in the services or the
support companies. The support the market. So the digital infrastructure
frunds and private equity appliers aren't investing in grain failed
networks or building cable systems themselves. They are very focused
(31:07):
on broadly speaken on the service industry that supports this
critical infrastructure.
Speaker 2 (31:14):
Kkrc's opportunity in the services surrounding undersea cables, providing critical
functions that hyperscalers need but prefer not to manage themselves.
Speaker 15 (31:26):
Subsea cables are to data centers what railway tracks are
to railway stations. You can't just upgrade the stations in
the terminals and have those tracks lying completely unrepaired and
having them break down. You know, as traffic goes up,
you've got to invest in both parts of the ecosystem
to ensure that you have uninterrupted service, especially today when
(31:49):
the cost of the downtime right for the OTTs, for
the hyperscalers, for the e commerce players, the cost of
network interruption has gone up meaningfully. It's mission critical infrastructure
services provided through asset heavy companies, but not exposed to
the actual volume and the price of that data that
(32:09):
goes for that piper system.
Speaker 13 (32:11):
As an industry, we have a global flight of around
sixty ships, and around thirty percent of that flight is
going to reach its end of use by date within
the next decade. So while we are putting tens of
billions of dollars of investment into new cable systems as
an industry, we're not putting the same sort of capital
(32:32):
to help maintain these systems.
Speaker 15 (32:35):
Nobody wants to build a navy right to service their
own subs needs, because that's also inefficient. You need independent
service providers who can use those same vessels to service
other people. To let us build the cable ships and
service all the hyperskillers and the tel course, let them
focus on their core competence, their revenue drivers, you know
(32:59):
exactly what they want to be using their capital budget
allowances towards, and let us stick on the button of
managing the subscen needs.
Speaker 2 (33:07):
First came deregulation and the Internet boom and a rush
to lay undersea cables. Then came the bust when overbuilding
and deal making got ahead of business fundamentals. Now we're
in the middle of a new boom powered by hyperscalers
and the rise of AI data centers. So what's next?
Smith says, Sienna is busier than ever, and they are
(33:29):
just getting started, so.
Speaker 12 (33:31):
We're still at the very early days of this. If
people are going to monetize all this investment that they're
making in GPUs and AI, it's got to come out
onto the network. It's got to come out of the datacience.
I think as an ecosystem, as an industry, we're grossly
(33:52):
underestimating how much capacity will be required.
Speaker 13 (33:56):
Is there a grete investment opportunity that demand drivers say
there are, but really it is who is going to
move into this space because it is dominated by the
people who are moving the most data around the world.
From the cable industry perspective, we're not quite sure exactly
what the development of AI is going to do to
(34:19):
the deployment of cables. I think, you know, it's obviously
going to require a lot more cable deployments, just how
much we're not sure.
Speaker 2 (34:30):
Coming up. Since World War II, the US government has
partnered with the American universities on a wide array of
research projects, but that partnership may be coming to an end.
We take a look at what it could mean for
business in the economy. This is a story about the
(34:53):
cost of privatizing American innovation. For many years, the US
has led the world in innovation, driven in large part
by government funding of university research. But President Trump ramped
up efforts to get higher education back into line with
cuts in research funds and last week saying international students
have to leave Harvard altogether. As Scarlet Food reports, the
(35:15):
ramifications extend far beyond lecture halls and science labs.
Speaker 16 (35:20):
US research universities are the envy of the World Prize
for their ability to attract top students and faculty who
specialized academic work often seed economic clusters of innovation on
and off campus, and that has led to technological breakthroughs
from the birth of the Internet and GPS to life
saving mRNA vaccines. Backstopping all of this uncle sam last year,
(35:45):
the federal government funded sixty billion dollars of research at
American universities.
Speaker 4 (35:50):
I signed an order creating the Department of Government Efficiency,
which is now really waging more on government waste, fraud,
and abuse.
Speaker 16 (35:59):
But this TREU re cycle is now under threat as
President Trump targets elite schools in multiple ways, notably by
pulling public funding and cracking down on immigrants, including international
students reliant on student visas. All of this leads to
an erosion of American soft power, a phrase coined by
the late Harvard scholar and NIC director Joseph Nye.
Speaker 2 (36:20):
Soft powers the ability to get what you want through
attraction ratherland, coersion, or payment, a.
Speaker 16 (36:26):
Power that the US has capitalized on for most of
the last century.
Speaker 6 (36:30):
During World War Two and the United States leveraged its
scientific excellence and the high quality scientists we had in
universities and some of those that we attracted from abroad.
And in the wake of World War Two, the government
vastly expanded the amount of funding that it provided two
American universities in order to conduct research on behalf of
(36:51):
the American people. So this has led the United States
to be a leader in innovation, in building the information
economy that we have today, in health care, and in
a wide variety of other fields that help us support
our economic prosperity, in our security. And when you ask
why is it that's such a huge proportion of Nobel
Prizes get awarded to Americans, Why is it that the
(37:12):
best scientists and engineers from all over the world want
to come to the United States, It's because of this
extraordinary partnership we've had here where the government says we're
going to do research through these universities, We're going to
fund that, and we're going to enable these universities to
become the best in the world and produce these extraordinary
innovations on behalf of the American people.
Speaker 16 (37:32):
But first we start with the money.
Speaker 4 (37:34):
One of the most important initiatives is DOGE and we
have cut billions and billions and billions of dollars. We're
looking to get it maybe to a trillion dollars if
we could do that.
Speaker 16 (37:48):
Under President Trump, the latest federal budget proposal slashes one
hundred and sixty three billion dollars in non defense programs,
including student aid and research funding. It's already led to
the suspension of more than two billion dollars and funding
for Harvard, eight hundred million in grants for Johns. Hopkins,
four hundred million in funding cuts for Columbia. The list
goes on.
Speaker 6 (38:08):
It's deeply worrisome. This pact between the government and research
universities has been fundamental to the excellence of American research universities,
and it has contributed tremendously to the prosperity, health and
security of our country. And that pact has depended on
the idea that the American government will come to universities
and ask them to do research that is in the
(38:30):
interests of the American people, and universities have done that spectacularly,
making both the country and the universities stronger. Throughout that time,
the American government has respected this principle of academic freedom.
That means that when that research has undertaken, universities and
their faculties can pursue the truth as they see it.
(38:50):
What we're seeing now is the use of research and
funding and the leverage that it gives the government over
universities as a lever to try to change what it
is they take, and that threatens to disrupt the quality
of our universities and the principles that are fundamental to them.
Speaker 16 (39:05):
The funding that the government provides isn't easily replaceable either.
Speaker 6 (39:09):
There's no way the private sector could substitute for what
American research universities are doing now, both on their own
and in partnership with the government. And I suspect if
you ask the private sector, right our tech companies or
our farmer companies, they would agree with that. And the
reason is because we do the kind of long term
research that doesn't have the predictable immediate term or medium
(39:31):
term payoff that is going to matter to our corporations.
Speaker 16 (39:35):
And the ripple effects stretch well beyond a university's physical campus.
Speaker 17 (39:39):
Many of our students, about three quarters of them live
on campus.
Speaker 16 (39:42):
Michael Samwellian is a founding director of the Jacobs Urban
Technology Hub at Cornell Tech in New York City. Cornell
Tech and Johns Hopkins received donations from Michael R. Bloomberg,
founder and majority owner of Bloomberg LP.
Speaker 17 (39:56):
So we work on building bridges between university research and
and the city.
Speaker 16 (40:01):
He says, US universities have evolved beyond just places to
learn in two key drivers of industry specific growth.
Speaker 17 (40:08):
Well, I think there's a really interesting shift that's happened
over the past generation. Increasingly universities are urban. We're in
the middle of New York City right now at Cornell Tech.
There's an increasing shift of universities to be far more
urban because that's where talent is and that's where diversity is.
So in many cases, I think cities are learning that
universities are economic powerhouses. I bicker with my dean every
once in a while on is Cornell Tech a school
(40:30):
or are we an economic development project? As an urban planner,
I think of us as an economic development project one
that New York City over a decade ago saw the
power of universities in terms of increasing the tech talent
that New York has and diversify in New York City's economy.
So Cornell Tech was a mechanism to basically help diversify
us not away from finance, but also make sure that
New York City was going to be a tech powerhouse.
(40:52):
We are a visual manifestation of tech in New York.
New York City is probably the number two kind of
VC destination for my the in for technology companies across
the country, and back in twenty twenty you probably know this.
There are more tech jobs in New York City than
finance jobs that would not have happened without places like
Cornell Tech and deep investment in the tracting schools in
New York City. We recently did a report back in
(41:15):
twenty twenty four to look at the economic impact of
Cornell Tech, and every year we're bringing about three quarters
of a billion dollars to New York City economy, and
that's just six undred graduate students.
Speaker 16 (41:25):
One of the universities most dependent on federal funding is
Johns Hopkins in Baltimore. From twenty twenty to twenty twenty three,
Washington DC was responsible for just under twelve billion of
its more than thirteen and a half billion dollar R
and D expenditure, and people like Christy Weiskill, the head
of Johns Hopkins Technology Ventures, are working to make sure
there's a return on the government's investment.
Speaker 18 (41:48):
Our role is to take the great ideas from our
faculty in students and bring those to market. We really
leaned into this a little over a decade ago when
we realized that there was an opportunity to think about
the application of so much of the amazing research here
at Johns Hopkins, and also the opportunity for Baltimore. So
we built a team that goes and speaks to our
(42:10):
researchers and faculty about their most promising research ways that
can change lives for the better, and then we connect them,
help them pitch to the VC industry, help them connect
with corporate America. And we've seen a dramatic increase in
venture funding as a result of that.
Speaker 16 (42:26):
Why Scille says more than four billion dollars in venture
capital has flowed into companies incubated by Johns Hopkins.
Speaker 18 (42:32):
There's a company in Boston called Lantheas that licensed Pilarify.
It's a prostate cancer diagnostic that helps over two hundred
thousand men a year with metastatic prostate cancer. Without this technology,
clinicians would not be able to treat patients as well.
And we are thrilled that this diagnostic allows a patient
(42:52):
to basically view in technicolor what earlier clinicians had described
as trying to diagnose a patient in black and white TVs.
So this diagnostic, which is a product that brings in
over a billion dollars a year for Lantheus, was developed
here with nih dollars at Johns Hopkins.
Speaker 16 (43:09):
So given all that is, the US now at risk
of losing its edge as a global destination for that
scientific talent and innovation.
Speaker 18 (43:17):
Anytime there's uncertainty that can create potential problems. People might
rethink where they study, what they study, how they study.
We have the chance to seed that global dominance to China.
China has increased research spending nine hundred percent in the
last decade as a percent of GDP. Unless we continue
to fund research, they will outstrip US in terms of
(43:40):
patents companies innovation.
Speaker 16 (43:43):
Decades of government funded research has attracted a pipeline of talent,
homegrown and increasingly from outside the US. When you think
of America's most cutting edge companies, they often share some
common traits. Giant market caps, global reach, and oftentimes founders
and or CEOs born and raised abroad and educated in America.
Speaker 18 (44:03):
I believe that it's nearly half of fortune five hundred
CEOs that are either immigrants or children of immigrants.
Speaker 17 (44:10):
Who's the next leader of a big multinational American company.
They're the one to five chance that they were an
international student.
Speaker 19 (44:17):
The US represents the premier destination for international students around
the world.
Speaker 16 (44:23):
What's become clear is as much as US research universities
depend on federal government money to operate and fund their research,
they also depend on international students for the same starting
with paying tuition that has come under direct threat when
the Trump administration announced it would bar Harvard from enrolling
international students. While the State Department halts interviews for student visas,
(44:44):
a federal court has temporarily blocked the ban on Harvard.
Speaker 19 (44:47):
Over two hundred thousand international students work in the US.
Speaker 16 (44:51):
Mirriam Feldbloom is the president and CEO of the President's
Alliance on Higher Education and Immigration.
Speaker 19 (44:57):
Overall, the Department of Commerce has simated that international students
contributed fifty billion dollars to the US economy in twenty
twenty three, twenty four. That actually makes international education of
the tenth largest export in the US even though the
students are coming here. International students are only six percent
(45:19):
of total student enrollment and higher education, so we're not
talking about a large population. But the contributions that international
students provide by their skills, their talents, what they buy,
what they do is far greater than what the six
percent would indicate.
Speaker 16 (45:38):
As the Trump administration cracks down on public funding to
universities and visas for international students, other countries like Canada, Australia,
and the UK are stepping up their recruitment efforts. The
administration's rhetoric would just discourage international students from choosing the
US as a destination, and they'd end up gravitating away
from the country. Is that something you can think about
(46:01):
every day?
Speaker 19 (46:02):
There's no doubt that if there's continued rhetoric, policy proposals,
and actions that discourage international students from coming. That impact
will be seen in decreased enrollments in the fall.
Speaker 16 (46:18):
Does it lead to the closure of certain programs or
innovative programs, or certain potential research breakthroughs.
Speaker 19 (46:24):
We know with based on history, based on research, that
our research productivity will diminish. Probably the number of patents
being filed will decline based on past history. We don't
know what will be lost. We know things will be lost.
And this isn't about internationals students or international talent or
(46:45):
domestic talent. The US needs talent. I think one of
the things that we have to acknowledge is that the
climate of fear and anxiety and uncertainty that international students
are feeling across the country at big and smaller institutions,
public and private, highly elite, and those who are not
known except to their community where they're beloved, is that
(47:08):
it's also generating uncertainty and anxiety among researchers, staff, faculty,
and others in these campus communities in which I am
hearing from campus leaders that some of their faculties, some
of their star faculty, are saying, I'm not quite sure
if I should remain in the US. So again, the
(47:29):
loss is not only about individual students who may be
directly impacted, but it's about a community of generation of students, graduates, faculty,
researchers who we may lose, and we're going to feel
the impacts of that loss.
Speaker 2 (47:49):
That does it for us Here at Wall Street Week,
I'm David Weston. See you next week for more stories
of capitalism.
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