Flag Flies After Subsea Market
The subsea cable market has been under water a while (ouch!), but at least one operator says it is committed to spending a few hundred million to build a new subsea network. That's right: We said spend and build, not buy for cents on the dollar.
FLAG Telecom will spend hundreds of millions of dollars building a new 15,000 kilometer network -- called "Falcon" -- linking the Middle East, India, and China within a year, in an effort to capitalize on the growing capacity demands from these emerging markets (see FLAG Announces New Network).
The operator, which recently became part of the Reliance Group (see FLAG Amalgamates With Reliance), says the new network will be operational at the beginning of 2005. Pent-up demand for international capacity will provide revenues from day one, especially from national operators in the Middle East, says Flag CEO Patrick Gallagher.
The new 1.28 terabit (1,280 Gbit/s) network will allow Flag to divide the network into multiple 10-Gbit/s wavelengths, delivering capacity to international and national carriers in the region. The growth in telecom traffic, especially data, in the Middle East, India, and China is phenomenal, Gallagher says, and Flag wants to meet the demand for international capacity.
Consultancy Ovum Ltd. estimates the demand for international capacity from the five Gulf countries to be served by the Falcon network -- Oman, Qatar, Bahrain, Kuwait, and Iran -- will grow 1,000 percent between 2003 and 2010, when it will reach about 30 Gbit/s.
The network will run from Egypt, around the Arabian peninsula [ed. note: which is extremely tiring], east to India, across India on the Reliance Infocomm network, and then east to Hong Kong. "This is an investment that will last us through this decade and the following two decades," Gallagher says.
It'll also help Flag get around one of its current problems -- meeting demand from international carriers wanting to serve the Indian market. Flag is in the middle of a dispute with incumbent Indian operator Videsh Sanchar Nigam Ltd. (VSNL) (NYSE: VSL) about international landing rights (see FLAG Hits Out at VSNL Monopoly). The new network will not have to interconnect with VSNL at any point.
The exact cost of the Falcon network is unknown at present, as the carrier is still in the final stages of negotiation with an unspecified number of suppliers. Gallagher says the network can be built "faster and cheaper than ever before" thanks to equipment advances and readily available inventory.
The final cost will be "between a third and a half of what it would have been three or four years ago," says Flag's CTO, Andrew Evans.
Vendors are welcoming the news, given that the subsea construction market has dried up in the past few years (see Report: Undersea Cable Market Has Sunk). Final contracts will be awarded in the next few weeks, and the awards could go to several suppliers, says the CTO.
Likely candidates for the work are Fujitsu Ltd. (OTC: FJTSY), the incumbent supplier for Flag's Asian and Middle East network, and Alcatel SA (NYSE: ALA; Paris: CGEP:PA), which built Flag's transatlantic infrastructure. In a recent interview with Light Reading, Gallagher said Fujitsu's systems were of "astounding quality."
Gallagher also says the operator can build the network without slipping back into debt. He contends the full amount can be met from existing cash, financial help from parent company Reliance, and from ongoing revenues. Flag recently paid off the last of its outstanding debt (see FLAG Announces Reduced Debts and FLAG Plans to Pay Off Debt). It came out of Chapter 11 bankruptcy protection just 16 months ago (see FLAG Emerges From Chap. 11), having sunk under the debts it built up during its original construction phase in the late 1990s (see FLAG Flies Into Bankruptcy).
— Ray Le Maistre, International Editor, Boardwatch