Two new Africa-South America Undersea Cables will open in Q3, 2018 adding to downward pressures on international wholesale prices

27 July 2018

Top Story

By this autumn, two new undersea cables – SACS and SAIL - will connect Africa to South America and the USA. Whilst all new fibre capacity to the continent is to be welcomed, these routes will need to find something more than just national demand to be feasible. Russell Southwood looks at what each cable promises and the likely downward pressure on international wholesale prices.

As we reported earlier this year, the SACS cable has landed in Fortaleza in Brazil from Luanda where it connects to the MONET Cable that goes from Praia and Fortaleza in Brazil to Boca Raton in Florida. The consortium behind Monet includes Angola Cables, Algar Telecom (Brazil), Antel (Uruguay), TESubCom (a part of the US company TE Connectivity) and Google.

The idea for the SACS Cable came out of an agreement signed between the Angolan and Brazilian Governments in 2009 to create a digital bridge between the two lusophone countries. This led to practical discussions in 2013 out of which came SACS.

The SAIL cable will go from Kribi in Cameroon (where the country’s other landing stations are located) and Fortaleza in Brazil. The contract to build SAIL has been signed with Huawei Marine by Cameroon’s state telco that is partnered with China Unicom, China’s state-owned telco. Doubtless the financing of the cable has been underwritten by Chinese finance.

China Unicom’s CEO Lu Yimin said at the signing of the contract:”China has strategic partnerships with Africa and South America. SAIL not only provides high-quality international telecommunication services to countries in these two continent, but also better serves Chinese companies to develop their business in these region.”

Coincidentally China Unicom has opened an office in Johannesburg this week. Although as ITWeb oberserved:”… the services provider offered little by way of detail around its immediate go-to-market strategy and its value proposition to compete in South Africa”.

3,000 kms out of the 6,000 kms SAIL route were announced as having been completed in May 2018 and an end September, 2018 opening date was mentioned. The landing station in Kribi is also well advanced. The cable will have a capacity of 32 Tbps.

According to Camtel’s Managing Director, David Nkoto Emane, the project whose installation speed is 80 to 120 km per day and the project is estimated to cost FCFA 200 billion (US$410 million). According to Emane, it will propel Cameroon to its digital independence. He sees it as putting Cameroon among the twenty or so African countries to have submarine cables and whose national economy intends to derive significant benefits.

Having just landed at Fortaleza, the other cable SACS is now entering the final phase of completion and is expected to be fully operational by the third quarter of 2018 (around July this year). The undersea cable claims to be “one of the most advanced submarine telecommunications systems and will have initial capacity of 40Tbps (100Gbps x 100 wavelength x 4 pairs of fibre)”.

So how will the business model work? In the case of SACS, although Brazil and Angola have close ties, this alone would not be enough to create a business case. So how’s it going to work?:”The business case definition of the cable was the need to reach the USA direct. When we looked at it, the costs of going from Brazil to the USA were so high that we added the Brazil-USA cable (MONET) to achieve this.”

“We’re looking to African countries (wanting to get to the USA and Latin America) and Nigeria and South Africa are very interesting markets.” Both of these countries are on the WACS cable in which Angola Cables is a consortium member. It has already been pre-selling capacity on SACS and MONET entered service in December last year.

In the case of SAIL, the business pitch must surely be very similar although there has been no mention yet of a connection to the USA. Angola Cables is 51% owned by state telco Angola Telecom but it is in consortium with Angola’s other carriers: Unitel (31%), MSTelcom (9%), Movicel (6%) and Startel (3%). This independent consortium structure seems to have made Angola Cables commercially more adept than its state-owned parent.

State owned Camtel has a monopoly over the landing stations in the country and the Government even bought out the WACS landing party MTN for it. Past experience has shown that it is slow moving both in terms of sales and maintenance and does not have a commercially progressive strategy to grow the use of bandwidth in Cameroon. It is not clear how it will repay the loans it has undoubtedly taken for the cable’s construction. China Unicom will presumably bring in international deals both from China and elsewhere.

Both cables have been pre-selling in the market regionally and the prices offered appear to be half of the current prices offered at volume by other cables. As might be expected, the addition of another 72 Tbps of capacity into the international wholesale market will have a downward pressure on prices. This pressure will be felt most strongly by countries nearest to Angola and Cameroon. Good news for consumers and enterprise buyers, less good news for cable owners.

* We will return with our next News Update on Friday 10th August.

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