Google eyes cable as Infraco flounders

By Paul Vecchiatto, ITWeb Cape Town correspondent

Cape Town, 22 Aug 2008

Google has held exploratory discussions with a number of South African telecommunications operators on building an undersea cable to the country, as government's Broadband Infraco's West Coast cable stumbles, sources say.

Telkom, with cellular operators MTN and Vodacom, also wants to build a SAT-4 cable as its current SAT-3 is close to maximum capacity.

Sources say Telkom specifically wants to exclude its major new competitor Neotel from SAT-4, even though the two are shareholders in the East African Submarine Cable System (Eassy). Neotel is also involved in landing the privately-financed Seacom East Coast cable.

MTN, Vodacom, Neotel and Telkom were supposed to be anchor investors in Broadband Infraco's African West Coast Cable project, but have decided to pull out. This is mainly due to the fact that Telkom, in particular, does not believe bandwidth prices should go as low as Broadband Infraco was planning to charge. It is also concerned about the project's finance arrangements.

Negotiations on potential options between all the major players are at a sensitive stage, because they are trying to see which of these projects will eventually win and so are hedging their bets.

Google's Unity

ITWeb has been reliably informed that US Internet search engine giant Google wants to extend the "Unity" undersea cable. It - along with five other international telecommunications operators - is building this cable between the US city of Los Angeles and the Japanese city of Chikura, at a cost of about $300 million (R2.4 billion).

Google met with Internet Solutions, Telkom, MTN and Vodacom in July to discuss its plans and entice them to join in building an undersea cable to land in SA and other countries. The investment price would be $80 million (R640 million) each for capacity of 450Gb - a rate that is considered to be extremely cheap. It has also held preliminary discussions with Broadband Infraco and Seacom.

"Google definitely has a plan as it has conducted a feasibility study. What it wants are partners," a source says.

Another source says Google's motivation for building a cable is different from the traditional telecommunications operators' as it wants people to use the Internet as much as possible, because that is good for its overall business.

"Google wants people to pay as little as possible for access. In fact, they don't really care if it is totally free, because it is good for them in the long run," the source says.

Infraco sputters

Meanwhile, Broadband Infraco, which has been championed by public enterprises minister Alec Erwin, appears to be struggling to finalise its financial arrangements.

Telecommunications operators were reportedly unhappy about the financial model that links bandwidth capacity directly with the size of the individual investments and the fact that government was reserving 27% of the capacity for itself.

"Essentially, the operators see that they are just financing a potentially very large opponent," a source says.

Last month, Broadband Infraco said it had booked its cable manufacturing slots, but it did not elaborate how and when the cable, which is supposed to run from SA to Europe, will be constructed.

An industry source close to a number of the discussions says: "I don't think the African West Coast cable is a total non-starter; rather, what may happen is that Broadband Infraco will cease to be the main driver and the project will morph into something else. The important thing is that Infraco has booked a cable manufacturing slot and this will be important to any future project."

Johan Meyer, Telkom's executive for global capacity business, says: "Telkom, at this point in time, is considering its options with regards to connectivity along the West Coast of Africa and has not yet concluded its decision."

Neotel CTO Angus Hay says: "Neotel remains interested in any new cable that makes business sense."

Brian Herlihy, Seacom president, says: "Seacom has held several commercial discussions with Google that are of a confidential nature."

Cellular network operators MTN and Vodacom did not formerly respond to ITWeb. Inquiries to the Department of Public Enterprises were referred to Broadband Infraco, which did not respond.