13 000-km ‘super cable' aims to raise competitive pressures, reduce prices
Financial close for what is likely be the world's longest high-capacity undersea cable, linking South Africa to the UK through a deep-sea servitude along the African West Coast, could be concluded by late May or early June.
The $510-million project, known as the African West Coast Cable (AWCC), is being led by South Africa's newest State-owned enterprise, Broadband Infraco, which also expects to conclude a supply and installation contract with a leading global supplier soon.
The 13 000-km AWCC is now officially a Presidential lead initiative for the South African government, involving the deployment of a 3 840-gigabits-a-second ‘super cable' terminating in London, but incorporating branching units to at least ten countries along the west coast of the African continent.
CAPACITY SCALE-UP
At full capacity, which will be brought on in stages as demand for broadband infrastructure grows, the cable would be materially larger than the existing 120-gigabits-a-second Sat-3/West Coast Submarine Cable system, which currently connects South Africa, up the West Coast, to Europe, terminating in Portugal and Spain. That system has nine African landings along the way and also connects into the South Africa¬-Far East marine cable that runs eastwards, through the Indian Ocean islands, to Indian and Malaysia.
But at launch, which is scheduled for the first or second quarter of 2010, just ahead of the 2010 FIFA World Cup, only about 320-gigabits-a-second would be available.
The main difference, other than the capacity of the new link, is that the Infraco cable will be deployed on an open-access basis, which, effectively, allows for various competitors on the same system.
In fact, Infraco CEO Dave Smith tells Engineering News exclusively that it has concluded memorandums of understanding with 13 private-sector partners, ten of which are domiciled in South Africa. Infraco will own the largest single slice, at 26%, while a broad base of private sector participants will own the remaining 74%.
PUBLIC-PRIVATE PARTNERSHIP
The final list of shareholders will reportedly include both telecoms companies, such as Telkom, Neotel, Equator Telecom Nigeria, and British Telecom, as well as telecoms-services companies, such as Tenet, Tata Communications, Multichoice, Vox Telecom, Internet Solutions and Gateway Communications. But Smith stresses that it is premature to offer a definitive list ahead of financial close.
Infraco itself would probably use a combination of commercially raised debt and equity, arising from a capital injection from the State. It is also possible that a further injection could arise from the State-owned Industrial Development Corporation, which could take up to 26% of the company in coming weeks.
A similar debt-equity model was used when the company was established to managed and enlarge the capacity of the terrestrial infrastructure it inherited from Transnet and Eskom. This capacity is now being leased on to Neotel, South Africa's second network operator.
Smith also refuses to be drawn on the name of the equipment supplier, saying only that negotiations are well advanced and that crucial manufacturing slots in a factory in China have already been secured.
Infraco director and adviser to the Department of Public Enterprises on the issue of broadband infrastructure Cornelis Groesbeek tells Engineering News that the marine cable is seen as the second phase of a two-phase process to ensure the "wide availability of broadband connectivity in South Africa".
The first phase involved the deployment of a national long-distance backbone across South Africa, which has entailed the roll-out of 13 000 km of fibre across the country. Some 40 gigabits is now said to be live and Infraco estimates that it is offering a 70% price reduction relative to the Telkom retail benchmark.
This is currently available only to Neotel through a leasing arrangement, but once Infraco is licensed (a process that could be completed by the end of 2008) it will offer this infrastructure on a nondiscriminatory basis to others, based on a single-exit pricing structure.
Phase two involves the Cape Town-to-London cable, with two express lines and two omnibus connections, with nine branches.
INCREASING COMPETITION
This development is underpinned by a desire to increase competition in the area of intercontinental infrastructure provision and to sustain above five the number of participants, which is viewed as the minimum number of competitors needed to safeguard against price fixing or monopoly pricing. In fact, a recent Harvard study shows that monopolistic pricing can only be overcome at that level of competition.
Therefore, Infraco is intent on facilitating the entry of as many as ten South African participants in the cable, which will receive a capacity entitlement at a cost that is directly proportional to the size of the stake they purchase. In other words, an investor who funds 10% of the project will receive 10% of the total capacity.
"The idea is to give all participants access to participation on an equal basis at the lowest possible cost," Groesbeek explains.
The open-access model also means that traffic to South Africa and London will terminate at so-called ‘telecoms hotels' or ‘vendor-neutral zones', from where unrestricted onward connectivity rights will be guaranteed. It is likely that the UK hub will terminate in Telehouse, London, which is the world's busiest network traffic hub and which is currently being expanded to the tune of $162-million.
Free-market pricing principles will be entrenched, with all participants to market their respective capacities independently of each other.
"Therefore, there will be no central pricing agreements," Groesbeek explains, adding that the shareholders' agreement will also seek to guarantee a minimum number of participants in instances where a participant wishes either to exit or rationalise another participant's stake.
He says the idea is to foster an environment where all participants operate as though they had "built and own" the cable. This ‘system within a system' approach will enable shareholders to complete circuits, light their capacity and trade capacity independently of the other participants.
"In other words, what we are envisaging is a situation where, although it is one cable, we effectively have between five and 15 infrastructure competitions, which we believe is necessary to fundamentally alter the way infrastructure is operated and priced in Africa," Smith explains.
He adds that, if successful, there will be a migration from seeking to secure profits off the actual infrastructure to competing for market share and margin on the basis of the services overlaid on that infrastructure.
Infraco itself will set its prices on the basis of its costs as well as what Smith terms a "sustainable return" which would enable it to maintain and expand its services.
To facilitate its completion in time for 2010, it is envisaged that the project will be delivered in stages, with only the UK-South Africa link, and the Namibian landing, competed by the start of the tournament. Midpoint landings in Nigeria and Ghana will also probably need to be completed to ensure sufficient power to the cable, which will run mostly in international waters.
Smith says Infraco, which is currently being run by individuals on secondment from Eskom and Transnet, is also in the process of building its corporate infrastructure so as to position it for a more hands-on operational role.
He stresses, though, that it will continue to outsource much of its operations to service providers and will probably end up with a one-to-one matching model with 150 employees and 150 outsourced staff,
"Although we are in a skills stretched environment, we are receiving substantial interest from people with high-level telecoms skills," Smith concludes.
