The investors behind the proposed development of new submarine telecommunications cables linking Africa with the world are facing a range of obstacles - regulatory, political and economic - before the projects can even get off the ground. The planned cable systems, if laid, will put significant downward pressure on the cost of international telephony and bandwidth.
But the projects' backers - money for three of the four planned projects will come mostly or entirely from private-sector investors - will first need to convince governments to grant them the necessary licences. This could prove difficult, given that many African governments, including SA's, have pledged their support to the East Africa Submarine System (Eassy), a project to build a cable up Africa's east coast, linking SA with systems in the Red Sea.
WHAT IT MEANS
 Numerous investors looking at undersea cables to Africa
Telkom's profitability could be undermined
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Eassy has become the flagship information and communications (ICT) project of the e-Africa Commission, an initiative of the New Partnership for Africa's Development (Nepad). There are fears that some governments, including SA's, will try to protect Eassy at the expense of rival systems.
Some investors backing Eassy, including Telkom, have already expressed concern that too much competition in the provision of international bandwidth could undermine the business case for all of the planned systems. "Eassy has the support of all the major operators in the East and Southern African region," Telkom says in a written response to the FM. "With a design capacity of 640 Gbit/s, Eassy can serve the East Africa region for the next two decades."
The deployment of two or more cables in the same region will affect the commercial practicality of all the systems, Telkom adds. For many years, Telkom, by virtue of its state-sanctioned monopoly, has been able to charge excessive fees for international bandwidth on existing cable systems, Sat-3, Sat-2 and Safe.
This has kept broadband prices in SA at high levels, while other African countries, including Morocco and Mauritius, have achieved higher broadband penetration levels.
Telkom is particularly concerned about the proposed expansion of Flag Telecom's network along Africa's east coast and a new cable system called South East Africa Telecoms (Seat), which will follow a similar route.
It's not yet clear whether Flag Telecom, which is owned by India's Reliance Communications and operates the world's largest privately owned undersea cable system, will partner a local telecom operator or seek its own licence from the department of communications. Currently, only Telkom, second network operator Neotel, state-owned broadcasting company Sentech and the three cellphone operators are licensed to provide international telecom services. Most have expressed an interest in investing in Eassy.
Reliance Communications is the biggest competitor in India to VSNL, the telecom company in the Tata Group that owns a controlling stake in Neotel. Neotel and/or VSNL are expected to participate in the Eassy project and provide funding for its construction.
It is not known when Reliance will begin construction of the African leg of the Flag network.
Even less is known about Seat's plans. Separate sources have linked Seat to Blackstone, the US private equity group, and to Cornastone Technology Holdings, a local, black-owned ICT group. Blackstone denies it is involved, while Cornastone chairman Lufuno Nevhutalo did not respond to an interview request.
But details are leaking out. The FM understands that Brian Herlihy, the former development director of Africa One, an AT&T-backed initiative that was launched in the 1990s to build a cable system around Africa, is one of the players in Seat. The Africa One project failed after equity participants pulled out after the dot-com collapse. Local businessman John Mathwasa is also understood to be a senior figure behind Seat but declined to comment when contacted last week.
If Seat gets the green light from government, it will be the third cable system to be launched along Africa's east coast to be funded with private money.
A fourth cable system, this one linking SA with the Azores in the north Atlantic, has also been mooted. But this system, proposed by public enterprises minister Alec Erwin, would be funded using taxpayers' money. Erwin has created an infrastructure company, InfraCo, to provide wholesale telecom services. The idea is that this new entity, which will house the inter-city telecom assets of Eskom and Transnet, will also take ownership of the submarine cable project. The national treasury has capitalised InfraCo with R647m.
It's not clear whether Neotel, which told the FM this week that InfraCo will supply it with long-distance bandwidth on an exclusive basis, will also enjoy exclusive access to the proposed cable.
Telkom CEO Papi Molotsane has said that he will object strongly if Neotel is also afforded exclusive access to InfraCo's proposed cable system.
Several telecom industry executives have expressed concerns about Erwin's cable plan, warning that it could undermine investments by the private sector in new cable projects.
The plan is also leading to friction in cabinet. A government source says communications department director-general Lyndall Shope-Mafole was livid when she heard of Erwin's plans, believing that Erwin was invading her department's turf. Shope-Mafole and other departmental officials have invested enormous time working on the rival Eassy project.
But Eassy has not been without its problems. African governments, represented through Nepad's e-Africa Commission, have been accused of trying to hijack the project from the companies that originally conceived the idea.
Ugandan newspaper The Monitor recently quoted Eassy finance committee chairman Donald Nyakairu as saying that the politicians tried to hijack the process and were making unreasonable demands.
Last year the Kenyan government, fed up with the delays, said it would build its own, US$110m cable system to link the port city of Mombasa with Fujairah in the Gulf of Oman.
Kenya Data Networks, a data communications carrier, is also believed to be planning to invest in a new cable system to connect to a Flag Telecom-owned cable system in Yemen.
Licensed telecom operators have until February 12 to sign Eassy's construction and maintenance agreement, failing which they will be excluded from the project.
