Seacom seizes first-mover advantage by completing financing and being ready for service by June 2009

Telecoms

What was once the dark horse of the East African fibre race has pipped all other contenders to the post. This week it announced it had completed its financing (the majority of which is African) and that it will seize the all-important first mover advantage by being ready for service in June 2009. Prices offered to carriers for volume purchases go well below the US$500 mark.

A clearly exhausted Seacom President Brian Herlihy spoke to us last week just after completing the long and arduous financing process. He dismissed the potential hurdle of the South African Department of Communication’s insistence that all fibre companies be majority South African owned:”We believe we’re in compliance. It’s a majority South African-owned company.”

The US$ 650-million cable covers more than 15,000km. The investors in SEACOM are Industrial Promotion Services (25%), an arm of the Aga Khan Fund for Economic Development, Venfin Limited (25%), Herakles Telecom LLC (25%), Convergence Partners (12,5%), and the Shanduka Group (12.5%). Nedbank Capital, the investment banking arm of Nedbank Limited, was appointed as the Mandated Lead Arranger for all debt funding requirements of the project and the funding will be provided by Nedbank Capital and Investec Bank. South Africa’s new Black investors are well represented: Convergence Partners is Andile Ngcaba’s investment company and Shanduka is Cyril Ramaphosa’s. Herakles Telecom is Seacom’s vehicle for US investment in the project. On this basis, the project is 75% African-owned.

Approximately half of the 18 month build period ahead will be for the production of the fibre and half for laying. According to Herlihy,”We negotiated a price and a Ready for Commercial Service date with Tyco.” It took a risk on the project by more than $10-million in the marine survey and engineering of the cable. This advance work has allowed SEACOM to maintain its ready for service date of June 2009. Actual production of the high-tech cable and undersea repeaters starts next week.

Carriers already signed up include South Africa’s Neotel, India’s VSNL and Telecom Egypt. In the more open markets of Kenya and Tanzania, the company will set up its own subsidiaries and apply for licences, thus uncoupling the usual connection between carriers and the supply of international bandwidth. It will also land in Mozambique and Madagascar and arrangements here are being finalised. Its arrangement with Telecom Egypt means that it will have all of its own fibres from Johannesburg to the European landing point in Marseilles.

Seacom was in conversation with the Kenyan Government about offering a co-built structure the TEAMS project but the Government decided against it because it believed it was important to have another cable for redundancy. It has spoken to NEPAD about the possibility of building a west coast cable.

Herlihy is extremely bullish about demand for the project’s capacity:”Africa has the opportunity to move into the next evolution of the data wave. 3G is a data, not a voice technology.” Wireless broadband will lead to significant increases in demand over the next 3-5 years.

Nitel owes two months salaries and has less than 100,000 fixed Lines in Nigeria

As everyone in the industry suspected, Nitel’s claims for operational fixed lines are somewhat exaggerated. It has reported numbers between half million to just over a million. But according to a source (clearly from within the company) who spoke to News Agency of Nigeria, there are actually less than 100,000 fixed lines operational.

Clearly disgruntled employees are leaking company information to show their dissatisfaction with the new owners over non-payment of salaries to senior management. September and October salaries remain unpaid. The company currently has 3,000 staff but management has announced that it will lay off 16% of them by the end of the year.

If the figures quoted are to be believed, then the company revenues are in free fall. Another source claimed that prior to the sale of Nitel to Transcorp in 2006, it was making a monthly income of some N1.5b, but made an income of a mere N4.88b in the first nine months of 2007. These might be taken with a small pinch of salt as when the company was Government owned it could generate revenues often not collect them. Management had extended the probation period of all Nitel workers re-employed since the take-over by Transcorp, for another three months from Nov. 1, 2007 to Jan. 31, 2008.

Leadership