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Cablegate: Seacom Only Undersea Fiber-Optic Cable Project Slated to Be

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RR RUEHBZ RUEHDU RUEHGI RUEHJO RUEHMA RUEHMR RUEHPA RUEHRN RUEHTRO
DE RUEHSA #1278/01 1640543
ZNR UUUUU ZZH
R 120543Z JUN 08
FM AMEMBASSY PRETORIA
TO RUEHC/SECSTATE WASHDC 4750
RUCPDC/DEPT OF COMMERCE WASHDC
RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHZO/AFRICAN UNION COLLECTIVE
RUEHEG/AMEMBASSY CAIRO 0403
RUEHNE/AMEMBASSY NEW DELHI 0491
RUEHFR/AMEMBASSY PARIS 1365
RUEHGV/USMISSION GENEVA 1259
RUEHMRE/AMCONSUL MARSEILLE 0004
RUEHBI/AMCONSUL MUMBAI 0056

UNCLAS SECTION 01 OF 04 PRETORIA 001278

SENSITIVE BUT UNCLASSIFIED
SIPDIS

STATE PASS TO USTDA
STATE PASS TO OPIC
STATE PASS TO EXIM BANK
DEPT FOR EEB/BLAKEMAN

E.O. 12958: N/A
TAGS: ECPS EINV EINT ETRD EAID BEXP TINT SF
SUBJECT: SEACOM ONLY UNDERSEA FIBER-OPTIC CABLE PROJECT SLATED TO BE
ONLINE IN ADVANCE OF 2010 FIFA WORLD CUP

PRETORIA 00001278 001.2 OF 004


This cable contains company proprietary information.

1. (SBU) Summary. SEACOM representatives called on Ambassador Bost
on June 4 to discuss SEACOM's undersea cable project. SEACOM
(developed by U.S. group Herakles Telecom) is based in Mauritius
with 75 percent African ownership and 25 percent U.S. ownership.
The project will provide the first true broadband connectivity for
countries on Africa's Eastern seaboard, which are presently
100-percent reliant on expensive satellite and fiber-optic cable
solutions. Although several other undersea cable projects for the
East and West Coasts of Africa are currently under consideration,
SEACOM is the only one expected to be ready in time to meet FIFA
requirements for the 2010 World Cup (with a delivery date of June
2009). However, at the highest level of the SAG there is still a
lack of understanding regarding SEACOM's ability to deliver adequate
bandwidth to meet FIFA requirements. SEACOM seeks U.S. mission
support in increasing awareness among SAG policy makers and business
clients. SEACOM's sister company, Sithe Global (a Blackstone Group
subsidiary), is also interested in the South African energy sector,
but is frustrated by the lengthy process for project uptake. SEACOM
continues to face many challenges due to entrenched political
interests and preferential treatment of state-owned or backed
projects. End Summary.

-----------------
Genesis of SEACOM
-----------------

2. (U) SEACOM President Brian Herlihy, Government Relations Vice
President Haskell Ward, and Telecom Specialist John Mathwasa
provided an overview of the SEACOM undersea cable project to
Ambassador Bost on June 4. SEACOM is part of a group of companies
owned by New York City-based, private-equity group Blackstone.
Sithe Global, an independent power company, is the largest company
owned by Blackstone. The group has been pursuing an undersea cable
project to increase bandwidth capacity in Africa for several years.
SEACOM President Brian Herlihy noted that the group initially
pursued the project through Sithe Global, one of its sister
companies. USTDA supported the project through an Orientation Visit
in 2006 for East African Telecommunications Ministers where they met
with Sithe Global and interest in an East African cable project was
generated. However, due to the political environment in South
Africa and the calls for majority local ownership, Blackstone
decided to create an African-based infrastructure company (SEACOM)
for the project instead.

3. (U) SEACOM is based in Mauritius with 75 percent African
ownership and 25 percent U.S. ownership. Herakles Telecom, a New
York City-based international development group, owns this 25
percent stake. (Note: The group initially had European partnership
agreements for an additional 25 percent, which were dropped when the
South African Minister of Communications publicly demanded 51
percent local ownership.) The African ownership is now split
between East and Southern African investors: South Africa private
equity Venfin, 25 percent; South Africa private equity Shanduka
(Cyril Ramaphosa), 12.5 percent; South Africa private equity
Q(Cyril Ramaphosa), 12.5 percent; South Africa private equity
Convergence Partners (Andile Ngcaba), 12.5 percent; and East Africa
group IPS (owned by Aga Khan), 25 percent).


--------------------------------------------- ----------
SEACOM to Provide Much Needed Bandwidth and Competition
--------------------------------------------- ----------

4. (U) The project will provide the first access to true broadband
connectivity for countries on Africa's Eastern seaboard, which are
presently 100 percent reliant on expensive satellite and fiber-optic
cable solutions. Once functional, SEACOM will provide
high-capacity, fiber-optic bandwidth along the East Coast of Africa
through South Africa, Mozambique, Madagascar, Tanzania, Kenya,
Djibouti, and Egypt and onwards to the rest of the world via landing
points in Marseille, France and Mumbai, India. According to SEACOM,
the aim is to create a high-demand, low-cost model for bandwidth.
Africa is currently the least covered continent in terms of internet
content, and SEACOM representatives believe that increased bandwidth
capacity offered by their product will spur increased demand for
content.

PRETORIA 00001278 002.2 OF 004


5. (U) SEACOM will land in South Africa and connect with the
India-based, second-national-operator Neotel's land operations
providing much-needed competition to dominant, partially state-owned
Telkom. In South Africa, Telkom has tightly controlled supply on
the existing fiber-optic system along Africa's west coast. SEACOM
is gambling that demand for bandwidth will increase once prices
decrease drastically. SEACOM's relationship with Neotel (and all
landing parties in Africa) is based on "open access", market-based
co-location, meaning that any customer can co-locate at no cost. In
contrast, existing systems operate on a "club approach", meaning
access is granted at cost only to participating governments in the
countries that have a landing station and to a select group of
companies. Other African projects have been struggling for years to
develop an "open access" model like the one SEACOM is pursuing. The
SEACOM price structure will be significantly lower (about one-tenth
of current costs) than current satellite or fiber-optic pricing in
Africa.

6. (U) SEACOM will have the capacity to enable high-definition
television, internet protocol television, peer-to-peer networks, and
surging Internet demand. SEACOM has already released its pricing
structure, and South African mobile-operators MTN and Vodacom have
indicated a desire to purchase bandwidth from SEACOM because of its
early availability, even though they would prefer to have their own
fiber-optic cables.

---------------------------------------
SEACOM First to be Online for World Cup
---------------------------------------

7. (U) Several other undersea cable projects for the East and West
Coasts of Africa are currently under consideration, but SEACOM is
the only one to have started construction. Additionally, the other
African projects would need to get in line to secure construction
partners/contracts as demand is on the rise around the world for new
undersea cable projects. According to Herlihy, SEACOM is already
first-in-line for construction with Tyco Telecommunications and
predicted that it would be first-to-market by at least a year.
(Note: U.S.-based Tyco Telecommunications manufactures all of the
major sub-systems required for undersea system construction from
cable and repeaters to dry plant, power feed equipment and network
management and marine installation.)

8. (U) SEACOM is expected to be fully operational by June 17, 2009,
well in advance of the FIFA 2010 World Cup. Herlihy added that it
most likely will be the only new undersea cable project to be
operational in time to meet the FIFA high-definition broadcasting
requirements.

------------------------------------
South African Government Misinformed
------------------------------------

9. (U) Herlihy expressed concern that at the highest level of the
SAG there is still a lack of understanding regarding the
availability of adequate bandwidth to meet FIFA requirements.
State-owned infrastructure company Infraco has been stating that
there will be no broadband solution available in time for the 2010
World Cup. Herlihy noted that there has been a lot of
QWorld Cup. Herlihy noted that there has been a lot of
misinformation in the media on which projects will be available in
time for 2010. He added that SAG officials do not recognize that
other undersea cable projects currently on the drawing board will
not be ready in time unless they are approved in the next few days
and construction begins shortly thereafter. This is because there
is only limited global capacity to lay fiber-optic cable. Failure
to secure cable-laying contracts in the next week means the signing
of such contracts will not be available in the foreseeable future.


10. (U) Minister of Communications Ivy Matsepe-Casaburri said, in
her budget speech on June 3, that the SAG has approved the building
of the African West Coast Cable undersea cable project (which is led
by state-owned broadband company Infraco) and gave support to
NEPAD's East Coast Uhuru Net project (which is led by Baharicom and
would install undersea cable around the entire African continent to

PRETORIA 00001278 003.2 OF 004


connect it to Brazil, Europe, the Middle East and India). She
announced that both undersea cables should be ready by May 2010.
(Note: The FIFA World Cup begins on June 2010.) This date is in
question as the industry for cable supply is very tight.

11. (U) Matsepe-Casaburri noted in her speech that infrastructure
provision for 2010 will involve an upgrade to Telkom's core network
to meet FIFA requirements and Telkom will implement the access
network from its exchanges into the stadiums. Herlihy stated that
Telkom is hinting at partnership with SEACOM to provide the upgrade
solutions to meet the FIFA requirements. Telkom wants its brand to
be a part of the 2010 solution and is recognizing the need to
partner with SEACOM. SEACOM representatives noted that there is not
much additional capacity left on Telkom's Sat-3 system. SEACOM will
connect with Neotel's land operations, but Neotel will not have
monopoly access to SEACOM's bandwidth, and opportunities exist for
Telkom and others to purchase directly from SEACOM.

---------------------------------
Marketing and Advocacy Assistance
---------------------------------

12. (U) SEACOM representatives sought U.S. Embassy assistance in
dispelling misinformation regarding undersea cable project timelines
and capacities. Herlihy stated that SEACOM has focused thus far on
project management and finance and conceded that the company's
marketing needed to improve. For example, SEACOM will provide 10
gigabits of bandwidth to South African universities at a minimal
administrative fee (at two percent of Telkom's current charges).
Currently, all of South Africa has a total bandwidth capacity of 17
gigabits. However, this initiative has not received much press
attention outside of technical journals. Ambassador Bost suggested
targeting radio audiences to educate consumers and noted that South
Africa was a good starting point to reach audiences throughout
southern Africa.

13. (U) SEACOM representatives said they could benefit from Embassy
efforts to better inform South African policy-makers about the
availability of bandwidth for 2010. For example, they would like to
promote the SEACOM university bandwidth initiative with the
Department of Education. The U.S. Embassy offered to organize a
media/business lunch in Johannesburg with the press and potential
customers and a dinner in Pretoria with government decision-makers
during Herlihy's next visit to South Africa during the month of
July.

14. (U) Ward added that while SEACOM is focused on just the undersea
cable infrastructure, there is a huge potential for U.S. content
providers to become involved once the cable lands in South Africa.
SEACOM representatives also noted that USTDA-supported feasibility
studies could benefit both U.S. businesses and the African
continent. They advocated for studies exploring opportunities for
U.S. companies to assist with the installation and maintenance of
the land-based cable infrastructure into the interiors of the
African nations participating in SEACOM. SEACOM would like the U.S.
Embassy to promote these types of partnership opportunities. SEACOM
QEmbassy to promote these types of partnership opportunities. SEACOM
also offered to provide low-cost bandwidth solutions for
USAID-supported projects.

--------------------------------------
Group Also Interested in Energy Sector
--------------------------------------

15. (SBU) Herlihy stated that Blackstone is also interested in
investing in energy projects via its energy arm Sithe Global, but it
is frustrated by the long wait time involved with getting projects
up and running in South Africa. He noted that the Blackstone Group
is uniquely positioned to provide quick delivery of solutions to
address the current power shortage, but it seemed that state-owned
utility provider Eskom was "frozen" in its decision-making ability.
Herlihy also underscored the exchange-rate risk of the Rand-based
purchase agreements that the SAG would like to pursue.

16. (SBU) Ambassador Bost commented that the government was not as
desperate as it needed to be to address the power shortage. The
SAG's inability to make decisions regarding energy projects
frustrates potential investors, especially given the high global

PRETORIA 00001278 004.2 OF 004


demand for energy projects. Herlihy agreed that the SAG mindset is
that it has a budget surplus, so it can build whatever it wants
without taking into account global market conditions and the
scarcity of suppliers.

17. (U) Comment. SEACOM's potential impact on South African
economic development and university education is great. The SEACOM
undersea fiber-optic cable project will revolutionize the ICT sector
in the participating African nations. The increased bandwidth
provided by the project will not only reduce ICT costs drastically,
but should improve access and drive innovations in content quality.
The project will also introduce U.S. ICT standards in Africa.
Finally, SEACOM's offer to provide subsidized access for
universities and USAID-funded projects should positively impact the
development issues the SAG is grappling with, such as skills
development. End Comment.

BOST

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