Outsider east coast fibre project comes in from the cold – Seacom goes public

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There are four projects to build an international fibre cable to connect the east coast of Africa. There’s EASSy, the Kenyan Government’s TEAMS, Flag Telecom…and the fourth project? Sithe’s SEACOM has been working quietly on the fringes to put together a privately funded “carriers’ carrier” project. News has been filtering out about it but Sithe’s Brian Herlihy made his first public presentation of the project at a United Stated Trade Development Agency Africa conference ten days ago in San Francisco. Russell Southwood spoke to him about what SEACOM will be and how it will work.

The new cable follows the same route as the EASSy cable down the eastern seaboard but it will either connect internationally directly into Italy or India via VNSL. The latter is important because the total cost of international fibre transit will include any second leg beyond the point where the cable lands.

Brian Herlihy is a veteran of Africa One who has learned the lessons of that over-ambitious project. Sithe is owned by venture capital company Blackstone but is raising private equity to complete the cable which will be called SEACOM. It wants to become a carriers’ carrier for what it sees as an “underserved” market.

Thus far, it has raised money from the following sources: American funding from an African infrastructure fund, an Africa and Middle East Fund based in Europe and two private equity groups in Africa. At the conference presentation, Herlihy told delegates that “50% of the shareholders are African.”

In order to act as a “carriers’ carrier”, it will outsource day-to-day operations and is currently in discussions with an internationally reputable carrier. It will either invest in terrestrial backhaul directly or buy it from others. It has excess funding targeted at inland backhaul.

It is talking to ISPs and carriers about Capacity Purchase Agreements. In effect, it is selling IRUs where the purchaser will put 5% of the price down by an agreed date and make the final 95% contribution at the start of operations.

One of the current obstacles the project has overcome is that the South African Government will not allow it to land the cable in that country itself. Therefore it will make a commercial agreement with an existing carrier (Neotel) and transfer the operation of the landing station to it. Under the ECA Act, it will make sure that the fibre offers open and fair access to all operators and allows co-location of other POPs.

By contrast, in Tanzania it will obtain its own licence and build its own landing station and a large co-location centre and put a large ICT park alongside if it proves to be feasible. It will follow the same licensing and operating route in Kenya and also build a co-location centre there. It is currently talking to the Kenyan utility companies about obtaining terrestrial backhaul.

A factor that will affect all four East African fibre projects is the tightening market for optic fibre cable and build capacity. Having been in the doldrums for a number of years, the two main international submarine cable-laying companies are believed to be both short of fibre optic cable and ships over the next three years. There are now a large number of new fibre projects, particularly in the Pacific. EASSy has chosen Alcatel Lucent as its contractor and we understand that it also bid for the TEAMS project. The Kenyan Government chose Tyco as its contractor. Neither Flag nor SEACOM has appointed contractors although Herlihy says it will do so this month (April 2007).

On pricing, Herlihy told delegates”We have lowered expected pricing twice to unlock pent-up demand.” He said that the company would act as a wholesaler and that it expected that a reseller market would develop for bandwidth in much the same way as already operated in the satellite market. On pricing, he was coy about starting prices but expected prices to drop to US$91 per mbps per month in ten years time. He noted that the price of bandwidth was “killing more business cases (in Africa) than other factor”. Asked whether his company would be interested in building a competitive alternative to SAT3, he replied that there was already interest in Guinea (where it was involved in an aluminium smelting project) and several groups had already approached it.

It is interesting to note that the countries with more competitive markets like Kenya and Tanzania are attracting new operator interest, whilst South Africa is not really open for business in quite the same way.