What is the SEACOM Project?

SEACOM, which is privately funded and over three-quarters African owned, will assist communication carriers in south and east Africa through the sale of wholesale international capacity to global networks via India and Europe. From June 2009, the 1.28Tbps 15,000km undersea fibre-optic cable system will provide African retail carriers with equal and open access to inexpensive bandwidth, removing the international infrastructure bottleneck and supporting east and southern African economic growth. SEACOM will be the first cable to provide broadband to countries in east Africa which, at the moment, rely entirely on expensive satellite connections.

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How far is the Project and what is currently being done?

The project is well underway with final construction. The cable landing stations have been completed almost entirely and the three cable segments are currently underway. One is making its way from the edge of South African waters north to Mozambique. Another is motoring to the coast of Yemen from the Red Sea coast of Egypt. The third ship is loaded with SEACOM's deepwater cable that will go from India towards Africa.

When everything is in place, the cables will be joined. Once the final ‘splice' happens, there will be six weeks of testing. We're still on target to be ready for service by the end of June.

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How complex is this project and what are the main hurdles that you've had to deal with along the way?

The project itself, solely from a dollar perspective and a technological perspective, is not nearly as large as some of the other projects undertaken in Africa but from a complexity perspective, it's by far one of the most complex projects you can dream of working on.

SEACOM is offering one, seamless product to end users spanning 11 sovereign nations. To deliver that product requires overcoming issues that are tax related; it has to permit someone to sign one contract where, behind that contract, are the inner workings of agreements that permit that product to go through these 11 different countries. SEACOM, as an international entity, has to figure out how to sign contracts at a local level and then deliver that product in and out of all the countries.

As a company, SEACOM either has subsidiaries, which are local entities, or local partners in each one of these countries, who are licensed and established to carry communication infrastructure. You're trying to set that up in a very short period – keeping in mind that construction of the cable is really only 18 to 24 months.

In Kenya for example, you actually need to go to the tax authorities and get a ruling on how they look at an IRU – in other words, the right of usage on the cable and the ownership of bandwidth on the cable itself. You have situations in Egypt, we were the first cable system to ever to do an EIA, an Environmental Impact Assessment.

SEACOM went into many countries wanting to implement best practices and this was received positively with local authorities wanting those practices utilized, but without necessarily having the processes or human resources to process a program such as SEACOM.

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What does the Environmental Impact Assessment study accomplish?

When SEACOM finalized and received the complete environmental and social impact assessment in Kenya, Kenyan officials were incredibly complimentary, not only because SEACOM insured that it was a good neighbor, but it set precedent on what best practices should be and gave a template for other cable systems and marine-associated programs to follow.

People don't understand that an environmental assessment is not just a matter of going out and doing studies, writing a report and submitting it. You actually end up changing your program dramatically from what is was conceptually in order to accommodate the findings and become a good neighbor.

With SEACOM, it includes things like changing the approach of the cable because the approach route that was chosen was also a fishermen's channel. Ultimately, changing the route feeds directly into the design of the cable and the manufacturing of the cabling itself.

Unfortunately this is not linear process, and with a project just taking 18 months to complete, you'll encounter delays and higher costs.

In the first six months of doing any project, people aren't really interested ibecause they don't really know how tangible and real it is. Feedback is scarce and it takes a while before you actually start getting different views and concerns

There are two ways to approach this – refuse to consider their input because the official process deadline has passed or adopt the ‘good neighbor policy' and try to accommodate them. We have followed the latter but this comes with monetary sacrifices and time restraints on the overall development.

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How have you managed to stay on any pre-projected timeline?

Persistence! Experience in building major infrastructure projects is a key. SEACOM recognizes which are critical-path issues and tackles them.

This comes with necessary adjustments that have a monetary impact but permits SEACOM to keep to the timeline. These decisions are made by the shareholders because of the importance of delivering the cable on time. The region has proposed cables for over 15 years with none of them being implemented. SEACOM wants to establish itself as the pre-eminent infrastructure developer.

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Can you give an example of a compromise that's had to be made in order to keep the project on track?

SEACOM was seeking to approach the landing in South Africa through a specific access way. The area we come into is a national reserve, but there is a public access route that is currently the host to other conduits. The process – to come to an acceptable agreement with all parties – was going to directly impact our delivery date.

SEACOM approached the head of the national reserve and some of the affected parties and asked them if it would be possible to move the cable down the beach line 500 meters. A horizontal directional drill was used to drill from below the high water line directly underneath the reserve and come out a kilometer inland, so that it would have no environmental impact and no impact on any other parties.

Ultimately, everybody was incredibly happy with this solution, but it certainly was a more expensive solution – maybe three times more than projected. The shareholders recognized that although we were technically not any better off, we were able to maintain our timeline and status as a ‘good neighbor'.

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What's the total investment and are you still within budget?

The total investment is US$600 million, with 76.25% of financing coming from African funders and the balance from Herakles Capital, a US entity.

Overall, we are on budget. Banks impose pretty stringent oversight to ensure that the project is fully funded at all times. SEACOM is completely compliant with this process throughout the project.

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What are the complexities relating to tax and other regulatory issues?

From a product perspective, SEACOM is selling units of bandwidth which amount to ownership rights to the cable, or a multi-year lease for a segment of bandwidth. In some cases, customers wanting to purchase an IRU – usage rights – find that they there are no tax regulations on how to account for an IRU in their jurisdiction and end-up incurring huge costs rather than benefiting from an asset for over 20 years forcing them to purchase the lease option which is not always desirable in their particular case.

As a company, SEACOM takes a pro-active stance to go out and seek rulings from the tax authorities on these IRUs and other issues. It's not a matter of resistance from the tax authority, it's that this is something new… there needs to be a time to explore and understand it. Luckily there are case precedents in the United Kingdom, and a lot of the East African law systems follow loosely the UK systems therefore, they can look to those systems for guidance.

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What does it take to find and commission cables such as SEACOM's?

The actual manufacturing and laying of the cable is commissioned to a turnkey contractor, you only have three majors in the world. Tyco Telecommunications is the contractor for this project. For the most part, they either utilize their own cable-laying ships or outsource, if necessary. With a project like this there is a huge list of permits that need to be acquired, starting with environmental permits and working up to the ministry of defense permits for the Tyco vessels working in specified territorial waters. All these permits are inter-linked to a certain extent.

Ultimately, if permitting is done correctly, the process of laying the cable is not a difficult one, but it's a very interesting one. You start with a marine survey – a topographic survey of the ocean floor, so you can determine the most benign route to follow. You look at the seismic activity under the water, to avoid the cable being exposed to underwater earthquakes. Then that data feeds into software that spits out a manufacturing specification for the cable itself. The cable is then manufactured completely on land per the specs of the marine route. Once the cable is manufactured, it's loaded onto large vessels. In SEACOM's case we have three cable-laying ships carrying some 6,000 km of the cable.

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How will SEACOM make money?

Let us use an analogy to illustrate this. Look at a high-rise building which is the equivalent of the cable. You have the ability to sell multiple units and each one of those units is the procurement of bandwidth by a customer. In the early years, SEACOM will only sell say 20 percent of them and this will serve to recover the project costs until we pass the break-even line. The remaining units will then move SEACOM into the profitable category. You can also do a combination of selling and leasing, as you would with condo apartments.

Typically, what happens in telecoms is that prices go down as volumes go up. Over time, customers may be spending the same amount of money, but they're always securing more capacity, because the unit pricing is coming down. SEACOM's unit price from day one has been 90 to 95 percent cheaper than the equivalent unit price of satellite. Going forward, it will continue to lower as the volumes go up.

Some people are saying that the price of broadband won't come down as dramatically as people hope. It will depend on many factors. There are three parts to getting the service to the end user. One is the last-miles solution, and that can be DSL, 3G or WIMAX. Second is the national network, which is made of different backbones that can be microwave, fiber optics or satellite regional transmission. The final element is international bandwidth, which can be submarine fiber optic cables or satellite transmission. SEACOM is focused on the last one and will bring that price down by 90 to 95 percent.

That leaves the other two components, which also need to come down in price. In many countries, the national backbone and the last mile connectivity aren't as robust or adequate as the end user would like them to be. When SEACOM brings down the international bandwidth cost substantially, it economically justifies further investment into these other two components, national and last mile. SEACOM can be seen as a catalyst for these other investments.

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Have you already begun seeing tangible changes in the sector?

The anticipation of SEACOM's arrival has already started to bring about changes. There are three national networks now being built up in Kenya. In South Africa there are four different national networks being developed. We're seeing people explore business cases in Mozambique and Tanzania. The government of Rwanda has rolled out huge fibre networks throughout the country.

All of these investments would never make sense for delivering pure satellite connectivity. Now, with submarine cables, they make economic sense. It's not just a price issue. It's about the quality of the product being delivered to the end user.

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What does a fibre optic cable mean for internet users in Africa?

Internationally, the Internet has become the dynamic means of delivering media. Most international websites are a mix of print, video, file sharing and blogs. However, to deliver these types of websites at high quality of service, one must have a large broadband connection to the global networks. SEACOM is going to open the broadband tap for African consumers. SEACOM expects that African consumers will be using the Internet in ways they wouldn't think of today: on-demand movies, sharing music, homemade video, watching news programs, etc. Just look at the US elections, the major provider of reporting was no longer the CNNs and NBCs, it was the individuals putting up daily video blogs of everything and anything that was happening. The Internet is the greatest leveling tool we have ever known and this is what Africa is about to experience.

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What does it mean for the business sector?

With SEACOM, Africa will truly be connected to the international broadband networks. With this infrastructure in place, Africa should be a major competitor for Call Centers, BPO. Furthermore, clinical research which must share data real-time with hospitals around the world will now be possible, science, education and other research will be conducted in Kenya as easily as it could be conducted in Cambridge, Massachusetts. Financial, manufacturing and other sectors will bring down their cost of business while increasing productivity.

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What are the social benefits that will be unleashed by SEACOM?

The major one is education. Education is so important for economic development in Africa. Take for example the concept of creating a completely three- dimensional textbook – this is completely within technical reach and visual learning can definitely help a lot in Africa because of the diversity of languages.

Africans will have the same access to information as the rest of the world. But the world needs more access to African content, and the idea of adding a billion people worth of content to the worldwide web is incredibly exciting.

At a groundbreaking ceremony in Mozambique, Graca Machel came. One of our shareholders gave a speech and he spoke about natives and immigrants. He said everyone over the age of 30 is an immigrant to this technology age. The natives are younger people. They can pick up technology and use it like an additional gene that they have.

When you consider that 50 percent of Africa's population is under the age of 25, it really makes you smile that these are the people who will exploit this technology and be limitless with what they can do.

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How are energy constraints going to affect your supply and demand?

Running fiber optics has an incredibly low energy requirement. We're quite fortunate that energy itself is not a problem for SEACOM as the cable is powered by very low voltage from each end.

Having said that, our end users are primarily computer based and the ability to access the worldwide web or data applications via the computer are constrained by energy. The planning for energy growth in Africa has been insufficient and it will be a limiting factor for economic growth. Demand in Africa will grow at exponential rates and governments need the foresight to create a supply that will meet that demand.

South Africa has been the perfect example of that. The country is getting a little respite right now because the mining industry has cut back on production, but commodity demand will be a long-term boom. High cost of energy and inadequate supply will continue to be a hurdle within Africa

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FAQ - South Africa - East Africa - Fiber Optic Cable