The East African undersea cable project Eassy claims to be on track for a mid-2010 launch after successfully landing in Djibouti and South Africa.
Now Eassy’s largest shareholder vehicle WIOCC says the cable, which has already landed in Mozambique and…
The East African undersea cable project Eassy claims to be on track for a mid-2010 launch after successfully landing in Djibouti and South Africa.
Now Eassy’s largest shareholder vehicle WIOCC says the cable, which has already landed in Mozambique and Sudan, should reach the Kenyan shore next month.
“Everything is right on track, and we expect to start testing the system at the end of April 2010,” Chris Wood, a cable veteran who joined as CEO of WIOCC in 2008, said in a statement.
For several years, Eassy’s progress was watched with wariness as the project treaded slowly along. What has taken Eassy seven years to achieve – it was founded in 2003 – has taken rival projects Seacom and Teams less than three.
Yet the project has been gaining traction of late. Over the past year, the cable doubled its capacity to 1.8terrabits, secured landing licences in all 10 countries along the coast, sealed its US$263m financing and finalised its management structure.
Alcatel Lucent started laying the 10,000km-long cable between South Africa and Sudan last autumn and in the meantime, Eassy has been readying commercial offers to pre-sell its bandwidth to operators.
To some extent, Eassy will have to face the consequences of its slow start – by the time its cable is up and running, Teams and Seacom will have been operational for nearly a year and will have had plenty of time to secure valuable customers.
However, speaking with TelecomFinance last year, Wood was quick to brush away these concerns. Falling prices and the rising use of bandwidth-hungry services such as YouTube means demand will be far larger than yet anticipated, he said at the time: “The capacity demand in the next two years will go through the roof, it will be far ahead of any analyst predictions”
In addition, Eassy is confident that its ownership structure – it is owned by 10 small carriers and two government bodies – ensures it a readily available and significant customer base.
Having a guaranteed customer base is key considering that Eassy is backed by five development banks and has to adhere to strict development and open access principles. Unlike its rivals, it must put development goals above pure profit, giving it less leeway to bring its investments home.
This led an IDC report last year to single out Eassy as the least promising of the three East African cable projects, citing its developmental focus and complex shareholder structure as drawbacks.
Eassy’s developmental focus also requires it to link landlocked countries to its cable through a parallel fibre backbone initiative, also backed by the IFC. Several of the operators set to benefit from this, such as Uganda Telecom, Zamtel and Onatel Burundi, are represented among its shareholders.
In its latest form, Eassy is 70% owned by 16 direct investors, mainly large operators including FT, BT, Bharti, STC, Telkom, Etisalat, MTN and Vodacom. The remaining 30% is shared by 10 smaller operators and two governments through a special investment vehicle, the West Indian Ocean Cable Company, or WIOCC.
Setting up this vehicle was key in helping the smaller players raise funds and gain more leverage in the project, while guaranteeing them a set amount of bandwidth at a set price.
Last year, Eassy completed a financing round with a 10-year loan of US$263m. The facility was coordinated by the IFC and syndicated to four development banks including the AfDB, Europe’s EIB, Gemany’s KfW and France’ AFD.
This, along with the equity from the operators, is expected to cover its costs forecast of US$247m, which excludes construction of the cable stations, ancillary services and backhaul networks.
One challenge that Eassy has had to face was the threat from Somalian pirates, especially in the narrow Gulf of Aden. Like Teams, Eassy had to modify its route and secured the escort of a French ship with 18 commanders onboard.
Eassy’s budget is comparable to that of Teams, which pinned its cost at US$110m for its 5,000km cable, but in sharp contrast to the more than US$600m spent by Seacom. The projects also vary in their planned business model. Seacom’s is straightforward, offering its bandwidth to any buyer on a wholesale basis. Teams, meanwhile, had guaranteed its shareholders a right to buy a certain amount of bandwidth in proportion to their ownership stake. The bandwidth that is not sold then goes into a ‘pool’ which is made available to any buyer.
As with Teams, Eassy’s shareholders will be guaranteed a share of the bandwidth corresponding to their ownership. However, there will be no ‘pool’ – instead, shareholders will each be selling the bandwidth onwards as they wish. In the case of WIOCC, the vehicle will get 30% of the bandwidth which it will sell on to its shareholders.
Repeatedly, the cable projects have insisted that they are not in competition, but are instead completing each other. Kenya’s communications ministry, which owns around 17% of Teams, has been particularly eager to stress that it welcomes all the cables on its shore. This is unsurprising, considering the major boost that they will provide to the country’s connectivity and business potential.
