Cosier cable ties

By: Belinda Anderson

Contrary to what the cynics may have thought, it seems the Nepad-led mega undersea and terrestrial cable project - about which very little was known until weeks ago - may just get significant private sector buy-in.

CEO Alan Knott-Craig says Vodacom will definitely buy a stake in the US$2bn, 3,8 terabit capacity cable. The only issue will be whether it can get a big enough stake, given that there will be so many investors interested.

Seacom, the competing but smaller scale private sector cable initiative - it planned to spend roughly $550m to connect Africa to Europe, India and the Middle East - has also said it could be open to co-operation.

Although declining to answer specific questions, a spokesman for Seacom says: "The company has engaged with Government and is discussing with them how best to co-operate in the interests of providing faster, cheaper broadband capacity for Africa. The discussions are characterised by a very positive atmosphere."

And although it's unclear whether the East African Submarine Cable System (EASSy) project would co-operate with the Nepad-led initiative, some EASSy investors haven't excluded the possibility of being involved in multiple cables. It seems the various players just want as much capacity as quickly and cheaply as they can lay their hands on.

The anticipated cable-landing impasse also seems to have melted away, with Government softening its stance on the requirement that cables should have majority local ownership to majority SA or African ownership.

The confirmation that there could well be significant private sector interest in the Nepad-led project - although funders haven't yet signed on the dotted line - comes in the run-up to a summit held under the guise of the International Telecommunications Union (ITU), World Bank and UNGAID (the United Nations Global Alliance for ICT and Development), in Kigali at end-October. Nepad's e-Africa Commission will take its cable plans to other governments and prospective private sector investors for further discussion at the summit.

Speaking at a recent media conference, southern African communications ministers involved in the commission undertook to have the necessary parts of the cable ready by 2009 - in time for South Africa's 2010 deadline.

Knott-Craig says there were limited ships and resources worldwide equipped to lay undersea cables, so if the various parties could pool their efforts, then the deadline could be achieved. "It's worthwhile to co-operate. Our only enemy is time."

The project will include not only an extensive network of undersea cables running from South Africa up each of the West and Eastern coasts of Africa (including all the island states) to Brazil, Europe, the Middle East, the Mediterranean and India, but also an extensive terrestrial network. The undersea cable element is being called Uhurunet and the terrestrial network Umojanet. The holding company's proposed name is Baharicom.

Although Knott-Craig agrees that the more cables the better for competition, he says the proposed Nepad cable will have more than enough capacity for everyone and is the best way to go over the short term. However, there would be other cables laid over time, he says.

Knott-Craig says while Government's stance regarding the cable had been portrayed as dictatorial, it hadn't come across like that in Government's dealings with Vodacom. He says director-general Lyndall Shope-Mafole had "consulted with us at length" and the proposals for the cable had improved dramatically over the past six weeks. He says Shope-Mafole really wanted there to be an extensive Nepad-led cable system but had realised that wouldn't happen if private investors weren't involved. The current proposals make a lot of sense, Knott-Craig says.

The Baharicom project has its roots in the original EASSy project, but the groups broke away some months back over differences that are still unclear to most observers. Baharicom is now a much bigger project and will be 30% owned by a Nepad-led special purpose vehicle (SPV), with the remainder from the private sector. At least 60% of investors overall would be African, the e-Africa Commission promised.

Meanwhile, EASSy is proceeding separately. But whereas African governments previously led it, the project is now a partnership between 26 telco operators and is more than 90% African-owned. An SPV created to facilitate open access will be the biggest shareholder, with 46%.

Vodacom is also an investor in EASSy, through its 50% parent Telkom (assuming they remain partners; the market awaits the outcome of Telkom and MTN's cautionary announcements).

Other SA companies investing in EASSy include Neotel and MTN. Altech also recently cast its hat into the ring through possibly buying a controlling stake in Kenya Data Networks, which has a stake in EASSy.

Telkom said in its annual report that it would spend $18,9m (around R130m) for a roughly 18% stake in EASSy. Asked whether it would also consider investing in the Nepad-led project (not forgetting that it also has SAT-3/SAFE), communications group executive Lulu Letlape said in a written reply that it would always evaluate any cable proposal "that has a relevant footprint within the markets that are important to the company". However, such an investment would have to make business sense and would be evaluated according to factors ranging from viability to business need, cost effectiveness and market access, she said.

Letlape said the size of a cable didn't provide economies of scale but the way in which it was positioned, structured and owned did: "Focused shorter routes addressing specific markets are very cost-effective and avoid unnecessary duplication, which in turn results in a lower unit cost that ultimately benefits end consumers."

With its more than 90% African ownership, Telkom remains confident that EASSy will be permitted to land in SA.

Also in a written response, MTN group executive for corporate affairs Nozipho January-Bardill said that MTN required capacity throughout the continent and the Middle East and would consider options that would provide it with the most cost-effective solutions.

January-Bardill says MTN was working closely with Nepad, in line with the Nepad Protocol. "At this stage we don't see the two as mutually exclusive," she says of Baharicom and EASSy.

Just as Baharicom's Uhurunet is planned to connect Africa with various other continents, January-Bardill says within the EASSy design there would also be provision for onward connectivity to Europe, the Middle East and the Asia Pacific region.

In addition to being an investor in EASSy, second national operator Neotel has signed a partnership agreement to land the Seacom cable in South Africa.

In terms of the agreement, Neotel will own the cable landing station and all facilities within SA's borders. The actual cable will be 25% owned by South Africans, 27% by East Africans, 25% by Europeans and 23% by US group Herakles Telecoms in international waters. However, Seacom has yet to provide further details about those investors.

The World Bank is one of the developmental funders of EASSy, through the International Finance Corporation (IFC), which has committed $32,5m in funding. It's repeatedly reiterated its stance as being "the more cables the merrier" - based on the premise that only competition will deliver the cheapest possible bandwidth to Africa.

There's been considerable politicking and uncertainty behind Africa's prospective undersea cable investments. It remains difficult to predict how many cable projects will eventually hit the ocean bed running.