Seacom finish line in sight

By Paul Vecchiatto, ITWeb Cape Town correspondent

Johannesburg, 28 May 2009

Seacom has completed the critical portions of its 13 700km undersea cable and land-based infrastructure, meeting its deadline for the completion of this phase, and commencing with system testing.

This is the first undersea cable to link Africa's East Coast region, which currently is heavily dependent on expensive satellite connectivity.

The cable - expected to go live in just over a month - will stretch from KwaZulu-Natal's North Coast and touch down in Mozambique, Madagascar, Tanzania, Kenya and Djibouti.

It will split in the northern Indian Ocean, with one leg running to the northern city of Mumbai and the other will travel up the Red Sea, across the Mediterranean and terminate in the French city of Marseille.

Today's milestone in the project's implementation includes the completion of the branching units and shore-ends necessary to direct the traffic to the landing stations across eastern and southern Africa. Seacom says all cable landing stations, including terminal equipment, have also been completed and are operational.

In a statement released this morning, the company says testing is now under way and will cover the network's connections, interfaces and synchronous digital hierarchy systems. This will ensure optimum configuration and traffic flow are attained before customers go live. The entire system will be operated and controlled through Seacom's Network Operations Centre, which is based in Pune, India.

Seacom CEO Brian Herlihy says: “The team has made tremendous progress over the past couple of months and we are truly excited to finally have the finish line in sight.

“With the system substantially completed and testing under way, we are one step closer to delivering on our commitment and become the first project to provide eastern and southern African retail carriers with equal and open access to inexpensive bandwidth.”

Breaking free

Seacom held a function in Durban today to mark the completion of the system. It is seen as the first cable project that will break the stranglehold Telkom has on international connectivity, especially as far as SA and some of its surrounding countries are concerned.

Despite this, speaking to ITWeb at the function, Seacom's current clients noted there has not been a wholesale industry rush to buy capacity, even though the market has been liberalised.

The clients cannot be named due to non-disclosure agreements.

“The IRUs [irrevocable rights of use] are good from the Seacom financing model point of view, but - with at least another two high-capacity cables scheduled to arrive in the next two to three years - many potential clients are saying the IRU model doesn't offer them the flexibility they need,” one Seacom client says.

The client also says Seacom must feel some concern its major competitors have shareholdings in both the West African Cable System and the East African Submarine Cable System (Eassy). This gives them an effective ring around Africa.

Another client says the private equity model for undersea cables has not proved sustainable in the long-term. But despite that, he feels comfortable about Seacom.

“I believe they have made a good portion of their investments back already. Three months ago, I was concerned, but now I am comfortable that the cable is an asset that will be there for a long time, no matter what happens to Seacom itself.”

However, the client concedes this level of comfort would increase if there was more direct telecommunications operator representation in the shareholding.

Seacom shareholders are Venfin (25%), Cyril Ramaphosa's Shanduka (12.5%), Andile Ngcaba's Convergence Partners (12.5) and Industrial Promotion Services (26.25%), while the remainder is owned by US-based Herakles Telecom.

Speedy delivery

The short period Seacom has taken to plan, finance (to the tune of $250 million) and build the cable has taken the market by surprise. Its closest competitor, Eassy, a project of similar size and scope, has been in gestation for more than nine years.

The replacement for Telkom's West Coast SAT3 cable has taken six years of commercial and political wrangling, with the final agreement for WACS signed just over two months ago.

So far, Seacom has Neotel, Internet solutions, the Tenet tertiary education network, and Gateway Communications as committed clients. All these organisations have bought IRUs - an industry term that means a long-term lease of between 15 to 20 years for a certain amount of capacity at a fixed price.

Frost and Sullivan analyst Lindsay Mc Donald says: “Quite a few potential clients are sceptical about the viability of Seacom and other big undersea cable projects. However, Seacom so far has the best record of delivery, but potential clients still want to see the cable being physically demonstrated to them.”

Mc Donald says the return on investment for the Seacom private equity model is from 18 months to three years, and the company has the expertise in place to rollout and manage the cable. She says that should one or more of the private equity partners decide to sell their stakes, Indian telecoms group Tata Communications would be an obvious target to buy Seacom. Tata is already the world's largest undersea cable operator.

“Tata is a key shareholder in Neotel, and Neotel and Seacom have developed a very close working relationship,” says Mc Donald.