Sunil "Neil" Tagare's personal views on the Telecom industry

More Oxygen in the Network: By Jean Devos

2012-02-12T09:50:00.000-08:00

Dear Neil

Not sure exactly when you and I met for the first time. It must have been around 1995. The submarine cable activity was a bit low at that time and you came in my office with your amazing idea, nothing less than a global network. Project Oxygen!! “Let’s mobilize all the existing resources and build as quickly as possible a global network accessible to everyone if and when then needed “. Half of my brain was telling me “never, never” but the other half “fantastic”. I decided right away, just the necessary time to get some kind of internal approval or understanding, to support this idea as much as I could. I was telling myself “A man has found his life’s work, and a task has found its man”. I remember telling my colleagues “Neil is the new Cyrus Field. “The courage of someone who will not listen to reason has the power to give the creative stimulus”

As we all know and despite your huge work, Neil and your convincing marketing talents, project Oxygen could not be implemented as such. Does that mean that reason and realism has prevailed over eccentricity and madness? If one looks carefully I claim that it is exactly the opposite. Building project Oxygen would have been a better choice than what we have done! Building oxygen would have been the wise choice!

We have built a global network which works, but at least two times more costly, basically unfair to the less developed countries and designed with no long term strategy! Too many cables here, not enough over there! Early access for the rich, late access for the poor. Low cost for the rich, high cost for the poor. The today network is the sum of individuals initiatives not the result of a well thought plan. It has perpetuated the model and actually increases the differences. It is only recently that some corrective efforts have emerged through the mobilization of public money. The impact of several cable breaks have play the role of wakeup call.

Project Oxygen was carrying a political vision, perfectly illustrated by the word oxygen, a vital need. The idea was to give to the new broadband network the opportunity to reshape the world.

Dear Neil, Project Oxygen was an attempt to stimulate and regulate the market. It is my opinion that the submarine cable community should create its own “self-regulatory body» so as to move slowly but really toward a more intelligent network; We need to inject more oxygen in this network!

Jean Devos

Governments of the world: Shame on you

2012-02-08T08:30:00.000-08:00

15 years after the Internet became commercially viable, most of the governments around the world are leaving the fate of the future generations of their citizens to the whims of the carriers in their countries. With the exception of the United States, Malaysia and Singapore, no other country has given a helping hand to their carriers, leave alone make it a strategic initiative at the country level to boost their infrastructure.

How many more years will it take for the governments to realize that the economic health of their country including jobs, healthcare, education, training, entertainment and prosperity lie in the state and economics of internet infrastructure in their country? Not to mention innovation, narrowing the gap between haves and have-nots and being at the forefront of science and technology.

Is it a wise decision to leave the future of your entire country in the hands of privately owned carriers whose only objective is the welfare of their shareholders? Why would you blame them for maximizing the prices of bandwidth? It is not their job to worry about the future of the country. That is your job.

Instead of helping the carriers or investing in the Internet Infrastructure of the country, the governments are all counting up the millions or billions of dollars they will make from the next auction or the next sucker who buys a license, not to mention the revenue-share thereafter. The money the government makes today selling the licenses is a pittance compared to the huge benefits the citizens of their country will get from an abundance of cheap and reliable bandwidth changing the future of the entire country.

If anything, some countries like India have extreme regressive policies. If you cannot help, at least get out of the way. But of course not. The Indian government wants to sell licenses for anything related to telecommunications services including ISPs. If you want to transit India (in and out), it costs $10/Mbps which is the government-regulated fee. On top of that, the carriers charge their prices making Internet Transit in India extremely expensive, only next to the African countries. And this is a country whose entire economy got a shot in the arm providing IT services. This is a country that now lands a dozen submarine cables.

So how bad is the situation? It's pretty depressing and humiliating. It costs ten times to transit less than 5 km for a cross-connect from one cable station to the other than it costs to drop traffic in the UK and serve it to the entire world! Enough said.

What will happen if the Indian government lifted all regulations for starting an ISP and landing submarine cables? Unlike wireless spectrum which is a finite resource, fiber provides unlimited bandwidth. Then why restrict the number of players in the space? And what is the rationalization for charging fees or revenue-sharing? My recommendation is to give away the ISP licenses for free to as many companies that want them. I guarantee you that within two years, the Internet Transit prices will drop from $25-$50 per Mbps to $1 per Mbps. When that happens, all of the Indian companies and MNCs who host their data in Singapore and the US, will come back home creating such a tidal wave, it will be a defining moment in the history of telecommunications. There is a demand for another few dozen cables to India if the government gets out of the way.

Now think about it. Why would any Indian content provider worth his salt host his content anywhere in the world but in India? Because it is expensive to host it in India. I don't blame them. Would you? So who is the winner? Singapore -- a country with a fraction of the size and population of India hosts almost all of the content being served in to India. Shows you what good governance can do to a country. Guess who wants to compete for that business? No, not India. It's Malaysia!

I don't mean to single out India. It is the same story in every other country in the world. Planning may have become a dirty word after the fall of the Soviet Union but if governments don't plan, who will?

Google has invested more money to the betterment of the global infrastructure industry compared to any government in the world. What does that tell you?

Global telecommunications has now become a zero-sum game. If someone is winning, it is at your expense and vice-versa. Stop treating telecom as a golden goose that lays an egg every time a license needs to be sold or auctioned off. Start thinking of telecom as a key strategic investment that will forever change the fortunes of your country.

Malaysian Government's strategic investment in submarine cables

2012-02-07T10:04:00.000-08:00

The Malaysian Government has a big initiative to build a cable from Malaysia to the US. A consortium of 24 telecom companies has been created called Konsortium Rangkaian Serantau Sdn Bhd (KRS). The main goal of the consortium is to reduce the transit costs for Internet traffic in Malaysia.

In addition to the US-Malaysia project, the Malaysian Government has also initiated a couple of regional submarine cable projects such as Cahaya Malaysia Submarine Cable and the Batam Dumai Malaka Submarine Cable. The Malaysian Government's target is to add at least another 3 Tbps of international bandwidth capacity to the country by 2020.

According to the Government, more than 50% of Malaysia's capacity is already video-based and growing fast. While overall traffic is projected to grow 43% per year through 2012, the video traffic is expected to grow more than 100% per year. The three major video categories are IPTV VoD, Internet Video to TV and Internet Video to PC.

The Malaysian Government is one of the very few in the world (probably the only one other than Singapore) that is being pro-active in taking a leadership position in initiating new submarine cable projects as opposed to letting the carriers decide the fate of the country.

With billions of dollars in government backing, Malaysia wants to rival Singapore in connectivity and become the major Internet hub in Southeast Asia.

Telkom Malaysia wants to go Commando

2012-02-05T22:40:00.000-08:00

Telkom Malaysia is talking to carriers about a new cable called Commando which will reach the US through Guam. This is continuation of the trend of trying to create alternate paths to Japan and Singapore. Also Malaysia wants to create an alternate hub to Singapore by providing independent routes.

2G spectrum scam and fallout gives Indian government a chance to do the right thing

2012-02-02T23:41:00.000-08:00

Indian politics is very interesting. On one hand, the 2G spectrum scam and subsequent cancellation of all licenses has brought great shame to the government. On the other hand, there are reports that some people in the government are excited about making even more money through fresh auctions of the old spectrum.

I think actually this is a perfect time for the Indian government to do the right thing for its citizens. In my earlier blog, I had floated an idea saying that the Indian government should not charge any money for the spectrum, but rather have a reverse auction to see which carrier can offer the best deal to its citizens. Sure, the government treasury will not gain from the auctions and so also the ministers will not benefit. But the benefits to its citizens would be immense. Not saddled with having to raise billions of dollars to pay for the spectrum, the carriers will provide the cheapest possible service anywhere in the world to the remotest corners of the country. The advantages of improved communications don't have to be repeated but it will definitely create more efficiency and the people will be better off in terms of jobs, healthcare, education and so on.

This should be applied to voice as well as data. Imagine being able to have a T-1 Internet access from home at Rs.100 per month? And unlimited outgoing voice calls for the same amount? Imagine the uptake in applications that will drive in entertainment, healthcare, education, training, high tech jobs and so on. The government should take a long term vision by creating this reverse auction and putting its citizens ahead of the corrupt ministers.

We already know the old system does not work. Why not try something innovative and do the right thing for a change? It won't erase all the bad will created in the 2G scam but it will go a long way to convince its citizens that the government is willing to mend its ways.

Facebook needs to build out another Google-size network

2012-02-02T08:51:00.000-08:00

This article talks about challenges Facebook has in Asia as it builds out its global infrastructure. There are many estimates about the size and scope of Google's network. One thing is for sure. If Google were an ISP, it is the fastest growing ISP in the world. If you don't count for voice traffic where Tata Communications is a global leader, Google is the largest data carrier in the world using its private network. And because of YouTube, it will continue to be the largest data-hogger in the world.

Facebook has its work cut out as it tries to copy Google's success. The one thing Facebook needs to realize is that a number of structural changes have occurred in the global infrastructure space since Google started building out its network. It is possible for Facebook to build out a Google-size network today for a lot less than what Google paid for it. Also Google has laid the foundation and fought a lot of the regulatory wars in many countries around the world to make it easy for other private networks to come in.

If I were to bet, Facebook would be another Tier 1 ISP in half the time it took Google to get there.

NTT makes aggressive move in Indian Data Center market

2012-02-01T11:32:00.000-08:00

As reported earlier, the Indian Data Center market is red hot. NTT recently announced the purchase of a majority stake in Netmagic, a carrier-neutral Data Center -- one of the first non-carrier data centers started in India more than 10 years ago. The deal was struck for $150 million.

Every VC in India is desperately looking for a Data Center investment. And Indian companies are commanding top valuations. FlipKart, the wanna-be Amazon of India raised $150 million on a $1 billion valuation. I won't be surprised if the next data center deal will start approaching that number.

The Data Center demand is so hot , one of the large Indian DC players reportedly took potential customers to an empty ground and pre-sold the entire DC capacity based on drawings. Hmmm....reminds me of pre-selling submarine cable capacity. Hint: It was one of the three players who knows how to pre-sell submarine cable capacity.

C&W spearheading the Bay of Bengal Gateway cable

2012-01-31T08:25:00.000-08:00

Cable & Wireless is in talks with Bharat Sanchar Nigam Limited (BSNL) and Telkom Malaysia to build the Bay of Bengal Gateway (BBG) cable. The cable will land on the west coast of Malaysia, in Chennai, Mumbai and Oman (all undersea). C&W wants to build their own new cable landing station in Mumbai and is looking for real estate in the Western suburbs. In Oman, the cable will be landed by OmanTel.

As reported earlier, BSNL recently announced they would be selling off excess bandwidth on their domestic network. BSNL seems to be strapped for cash as it spent a lot of money buying spectrum for the national wireless rollout. In this situation, it is surprising they would want to expand internationally. It is possible BSNL may want to invest in the Chennai-Singapore link as it will save them a lot of money on their transit traffic bill but I don't see them investing in the Mumbai Singapore segment. Also given the history of BSNL's decision making, it will be at least 2013 before BSNL, TRAI, DOT and a bunch of government alphabet-divisions stamp their final approval on this deal.

Per my earlier post, this is another attempt to bypass Singapore. In addition to the international traffic, this cable will also be used for the Mumbai to Chennai traffic. The Mumbai to Chennai landline cable is very expensive (not to mention unreliable) and carriers have to pay a huge premium to get in and out of India.

Don't call us until you do your homework

2012-01-30T10:40:00.000-08:00

So many customers call us looking for a bid on bandwidth they want to buy. My first question is "What is the best price you have so far?"

The way we work is we want to make sure you are getting the best deal out there. So we make you work. Find the best deal you can. Call every carrier in the world. When you have the absolute best price, call us.

We guarantee we can find a better deal. And when we do, we will take 30% of your savings as our fees.

Important thing is we want to build trust that we are on your side. We benefit only when you benefit.

How do we do it? First, we have built relationships over many years. I have personally traveled to more than 100 countries. We have broken bread together, shared war stories and built personal relationships. Secondly, we are doing a lot of deals. So your deal may be part of a complex deal where the prices get grandfathered.

Try us out.

Stop asking engineers to name the cables

2012-01-29T10:01:00.000-08:00

In 1956 when the first Trans-Atlantic cable was put in to service, it was named TAT-1. And that set a trend that has been going on for more than 50 years now. Now we have the TAT cables, the TPC cables, the Sea-Me-We cables, I-Me-We, the APCN cables, AJC, SJC, EIG ... you got it ...an alphabetical soup that only the submarine cable engineers understand. And there are more than 500 of them with such weird names.

But life has moved on. We are in the Internet age with 24/7 advertising all around us. And the submarine cable maps are not just bought by telecom companies. Every major enterprise knows which cables connect the countries they do business in. Cables have become the lifeline and the bread-earners of every country.

So next time you build a cable, can you have one more sub-committee called the Cable Naming sub-committee? All engineers should be automatically disqualified (I am an engineer too -- face it, we are all right-brain challenged). Get in the artsy types, the advertising types, the creative people in the company. Crowd source the name, have a competition, do something. Hint, hint Sea-Me-We-5 management committee members.

In fact, I would say this is a huge opportunity to make some money for the cable owners. If AT&T can give $50 million for the naming rights of what is now AT&T Park in San Francisco, there must be some value to auctioning off the naming rights to your next submarine cable project. I bet telecom companies like Nokia, Ericsson, Alcatel, Qualcomm, NEC, Huawei, Juniper, Cisco, etc. would drool over the possibility of having the naming rights of a submarine cable for 25 years!

By the way, don't forget to send me that royalty check for the idea every time you monetize your cable's name :-)

Egypt Telecom building a new cable to Asia

2012-01-27T10:42:00.000-08:00

The word is on the streets that Egypt Telecom is talking to a number of carriers about building a new cable linking Egypt with Southeast Asia. This is in competition with the proposed Sea-Me-We-5 cable being planned at SingTel.

Egypt Telecom is in a unique position to be the center of the global telecom industry which is a huge opportunity for Egypt and a scary one for the rest of the world because of its single point of failure status.

Most likely the new cable from Egypt will go to the Middle East, India and Southeast Asia. This will be a consortium system and many players have already signed up. No party from India has signed up yet.

Anonymous

2012-01-27T08:40:00.000-08:00

So do you have any rumors, any news of new projects, latest news of people moving around, submarine cable politics, etc., let me know so I can blog about it. I can assure you all of this will be anonymous. Idea is to let the industry insiders know what's going on that does not show up in the news. Let the rumors come in. neil@buysellbandwidth.com

Or do you need to buy a network without letting your competitors know what you are doing or without the buyer know who's buying. We can front you which will save you a lot of money.

Inviting guest bloggers from the submarine cable industry

2012-01-26T08:35:00.000-08:00

So are you an expert in submarine cables? Business Development, Operations, Restoration, O&M? I would love to have you as a guest blogger. Tell the readers about your experiences, your thoughts, your likes, dislikes......please no PR here......just plain old stories, experiences...something people have never heard before....something that will help the submarine cable community.

Hard to find fiber at a reasonable price

2012-01-25T14:48:00.000-08:00

So I recently met a gentleman who has been searching dark fiber on a specific route in California for 8 years. He has now retained BuySellBandwidth to find it for them. We have extensive contacts in the fiber infrastructure business in telecom as well as in utilities.

Are there any such hard-to-find requirements you have? We specialize especially on the international front. Looking for I-Me-We, EIG, Mena capacity? We can offer a great deal .... sometimes below cost.

Or you are looking for fiber connectivity across the US connecting your cable stations on the East and West Coasts? Or you want to replace some expensive backhaul?

Check out the Name Your Price model on BuySellBandwidth.com

2012: The year of the bypass cables

2012-01-22T22:05:00.000-08:00

2012 will be remembered as the year when carriers start seriously looking at alternate gateways to Japan, Egypt and Singapore. It's not that they don't like these hubs. They love them. But there is just too much concentration of cables in these countries. So any project that gives carriers a way to bypass these countries will be looked upon favorably.

The bypass cables are not restricted to Japan, Egypt and Singapore. Any country/city with a concentration of cables is a target. London, New York, Miami, Mumbai, Marseilles, Rio, South Africa, Hong Kong are all up for competition from other cities/countries in the region.

My advice to first time submarine cable entrepreneurs

2012-01-21T00:07:00.000-08:00

I am deeply concerned that many new private submarine cable projects being planned will fail which is not good for the industry. One of the reasons they will fail is that most submarine cable entrepreneurs really don't understand this business. Having raised a lot of money for submarine cable projects, here is a primer on how to go about launching your first submarine cable project and what your chances of success are:

1.) Mission statement: Before getting excited about a cable say from US to Japan (just because you live in the US), you need to have a mission statement: "I want to build a cable that will halve the latency between US and Japan" or "I want to build a cable from Asia to Europe that will bypass Egypt" is a good starting point.

2.) Talk to as many industry experts as possible. Don't worry. Nobody is going to steal your idea because in this business ideas are plenty. It's all about execution. I am happy to talk for free. Similarly Jean Devos, an industry veteran and respected retired Alcatel executive will also talk to you for free. At this point, if anybody is asking you for money, run away as far as possible. You don't need consultants at this stage. Talk to people who will not benefit if the deal goes forward or not. And trust me, if any of us tell you it is not a good idea, that is a huge red flag. In fact, if we tell you it is a bad idea, you should buy us lunch because we will have saved you plenty of time, money and pain. Other respected industry veterans you can talk to are Bill Carter (ex-Global Crossing), KP (Tata), Pierre Godiniaux (ex-France Telecom) and Lim Toon (ex-SingTel) -- basically anybody who has built a cable as a Principal.

3.) Once you have confirmation from this expert panel that the idea has merit, start putting together an executive team. Do not hire a consulting firm to do a traffic study at this point of time. You will need it later when you go to the banks to raise the equity and debt. But that is just a formality. I have seen a lot of traffic studies but do not recall a single one that was accurate. Do not spend money on it right now. Your team needs to write a business plan. Do not farm this out. That is a really bad idea. Your entire team needs to be involved in this exercise so everyone knows precisely what the pain points are and what you need to do as a team to make the project a success.

4.) The most important thing in your business is your team. Nobody raised money showing which consultants they hired. Team, team, team.......is the most critical factor especially because submarine cable deals are not IP deals...it's all about execution. And you need to have a team that can execute. You don't need a lot of people. You need a CEO, a COO and a VP Marketing at a minimum. The COO need not be from the industry. You can get a really solid project management executive who is especially good at procurement. Depending on the deal, you may need a part-time or full-time CFO. You will also need a couple of sales guys as part of your internal team. That's it. Keep your team lean and mean.

5.) The biggest mistake you can make is to outsource your pre-sales. You need to own the contacts and the relationships with your customers. That is your only IP. Don't ever think of farming it out. Guard your relationships with all your heart.

6.) With the right people in your team, start approaching carriers with your cable idea for pre-sales. Do not hold Data Gathering Meetings at this point. First sign up one or two carriers before calling on everybody. This is the time to refine your business plan based on the feedback you get from your customers.

7.) If this starts looking good, it is time to start bringing in the consultants. The first one you will need to hire is a law firm. You have to be very careful here as this can be very expensive. You should have two law firms. One for the regular corporate stuff and one for the telecom expertise. That will save some money.

8.) Do not hire consultants to tell you the price and length of the system. Go to the vendors. They will do that for free. Ask the vendors to send their technical team so you will get a complete understanding of the industry. The vendors can also tell you the process and all the things you need to do to make the project a reality from an operations perspective. And there are four of them. So use them as much as you can to get free advice. The vendors (not in order of preference) are: TE Subcom, NEC, Alcatel-Lucent and Huawei Marine.

9.) Do not fall in the trap of doing desk top studies, environmental studies, etc. prior to getting any funding. There will be plenty of time to do that once the project is funded. The only engineering study you will need to do is if you are building your own cable station. David Ross is a respected engineering firm that can help you with designing a cable station if required. To the extent possible, try to co-locate in an existing cable station.

10.) You do not need an events-management company to plan your data gathering meetings to pre-sell your bandwidth. Have your in-house secretary do it. It's no big deal. If you really want to hire an events-management company, do not let that company or any outside consultant get hold of your customer list. They will use the same list to help your competitors.

11.) During your presentation to the carriers at the DGM, you need to show them that your team is completely capable of owning and maintaining the cable for its life. You need to own the presentations and your teams should do all the presentations. The customer must feel that they will be in good hands for 25 years. Do not ask any consultants to make the presentations. The only exception is the vendors and that too if the technology being used is still under development. In that case, the vendor needs to assure the customer that the technology will be ready by the time the cable goes in to service.

12.) During the presentation, you must be able to answer all the questions such as: How will you repair the cable if it breaks?, how long will the repair take?, which maintenance agreements will your cable belong to?, what happens if your company goes bankrupt?, who owns the backhaul?, how much does the backhaul cost?, how will you do restoration? and so on. For this level of detail, you can hire a consultant such as WFN Strategies who has the right expertise to prepare this level of background information. But your team needs to own the information and present it to customers.

13.) While the pre-sales are going on, you need to hire an Investment Bank to raise the equity and debt. A number of banks can help you with the raise. At this point, they will need a traffic study. The best company in that space is Telegeography which has the traffic data the banks need. They also have data on wholesale bandwidth rates which you will also need to complete your business plan. Here is a list of some of the bankers that specialize in submarine cable financing. Now you will have to face the investment community and answer difficult questions like: How will you compete with sunk cost?, how will you compete with consortium cables?, what happens if the demand growth declines from 50% per annum to 20% per annum?, what happens if there is a major earthquake under the ocean and your cable gets washed away?, what happens if 3 more cables get built on exactly the same route as yours next year?, what happens if the sharks eat your cable? (Hint: observe carefully how the Japanese suck air when they can't answer a question and practice, practice, practice:-)

14.) Once the pre-sales are in the bag and you have finalized the vendor, the banks will be able to close on the equity and the debt.

15.) Do not spend too much money on project management except the minimum required by the banks. As long as the vendors are on the hook to deliver a system with pre-agreed SLAs and technical parameters, there is no need to over-engineer that. The vendors will be more worried than you and there is no need to micro-manage them by hiring expensive consultants. The best example of this is Matrix Networks which spent no money on project management.

16.) Since this is very industry-specific, I don't think there is a need to hire any PR firm. But if you must, you can outsource it too after your funding is in place. Do not waste your money prior to that.

17.) Use of consultants. There are some excellent consultants in the industry with decades of experience in the submarine cable industry. You should definitely take advantage of them and use them to do specific tasks or to temporarily fill holes in your management team. Do not let your consultants drive your strategy. Do not let your consultants drive your pre-sales. Do not let your consultants own your customer list. David Ross Group is a good engineering consulting firm with lots of people from Bell Labs. Telegeography is a good firm with lots of industry data such as traffic flow and pricing. SubTelForum is a good place for free maps, newsletters and so on. For network design, feasibility studies, etc., a good company to call is Ocean Specialists (OSI). A couple of good engineering firms in Europe are Aqest and Axiom which have former Alcatel and France Telecom personnel. For project management, you can even talk to the Telecom division of Bechtel, the giant project management firm. SAIC is a very good company for desktop studies and marine surveys. There are a lot of good consulting firms out there. Use them wisely. Just use one or two that you trust and are willing to work inexpensively until the funding is in place.

18.) And last but not the least, do not get emotionally attached to the project. Understand this is a very high risk project and the odds of making it are slim. Let me put it this way. It is harder to build a submarine cable than it is to get in to Harvard. (I got really lucky. I got to do both). Your odds of success are less than 5% Which means one in 20 cables will be successful. Entrepreneurs have a habit of always being too optimistic. Do not be afraid to cut bait and stop the bleeding.

19.) So can you do all of this for under $1 million? Yes if you watch your money like a hawk and spend only on the essential things. You could put your money here or you could bet it on a single poker game. The odds of winning are about the same.

20.) Just the act of being able to raise hundreds of millions of dollars in debt and equity does not guarantee success either. That is the starting point. Now your business plan has to kick in and be valid for several years. Will you be able to flip a company once it is funded? Possibly but that is usually called a distress sale. In order to make real money, you need to hang in there for many years. This is not a get-rich-quick scheme. This is a long-term infrastructure business. And you need to be on top of the game. As soon as you go in to service, the next entrepreneur will announce a cable on exactly the same route as yours with a 50% price discount. Now, you are the incumbent with a $500 million debt and the new cable is the hungry underdog with nothing to lose but his million dollars. If you put your head in the sand (or in the ocean) and pretend there is no competition, you will sink (excuse the puns but couldn't help it). You need to be proactive and reduce the prices aggressively as the market demands. And this has to be factored in your business plan from Day 1. Most entrepreneurs think they are successful if they can raise the big money. That is a complete myth. Ultimately, the banks own the project until you return their money. Success is positive cash flow. Think of owning a submarine cable as if you bought a brand new car or a boat. Every day you own it, the price declines. And the day you build it, that's the highest price you will ever see on that route.

21.) You need to have realistic expectations on how much money you will make even if everything goes right and the project is a huge success. Will you make billions or even one billion dollars? No. Not going to happen. Will you make 100X return on investment? Quite unlikely but there is a 5% chance. Will you make a 10X return on your money? Sure if everything goes exactly according to plan. Starry-eyed Gary Winnick-wannabe Masters-of-the-Universe please take note.

22.) Finally, if you are in it only for money and the glamour, don't do it. This is a really tough industry with tons of competition. The worst part is the competition is from your own customers. The other thing is because a lot of money is involved, competition between private cables gets really nasty with a lot of public name-calling, spreading false rumors, telling customers your system has technical faults, stalking your customers in the bathrooms of hotels where your meetings are held, personal attacks using various tactics, putting pressure on vendors and investment bankers not to work with you and so on. The worst case of abuse involved a very famous case lodged with the London Police by an unnamed carrier against another unnamed carrier who had hired a trawler boat to cut off its competitor's submarine cable. When Scotland Yard intervened and threatened to file a criminal case, the trawler boat was sent back. So unless you are totally passionate about the industry and live it 24 hours a day, my recommendation is don't do it. If you are resilient and focused, you will make it. But you need to be ready for the long haul.

23.) So now coming back to the point where assuming you are the Founder & CEO of a new cable and you have raised say $250 million in equity and $500 million in debt and just as you are about to go live, some other starry-eyed entrepreneur announces a cable on the same route at a 50% discount over your price. The kid has nothing to lose and desperately needs pre-sales. What do you do? Face it like a grown-up would knowing that it was bound to happen sooner or later? And inform your Board that you may have to reduce prices sooner and faster than expected? And the projected 38% IRR on equity is now going to look like 8%? And face the possibility of your paper net worth declining from $1 billion to $150 million? Of course not. You go in to denial mode. You do not reduce your prices. You start behaving like a little kid. The first thing you do is tell your sales force to let all the customers know that the other cable is never going to happen. Do everything you can do squash it. If it means you have to create rumors that the new cable will not work, you do it. I remember, the President of a competitor cable to Flag saying in a public speech that the signal from one end of Flag would never reach the other end because the cable was too long. What else can you do? Start making personal attacks on the founder of the new cable. Start calling the investment bank he is working with and threatening to not give him any business if he funds you, calling your supplier and telling him that the new cable was not going to be funded, and so on. Worst thing is you have become the same person you hated with a passion 2 years ago when you were the new entrepreneur and you were trying to take down the incumbent.

24.) Well, sure enough, the suppliers don't care and the bankers don't care either. So the new cable is now funded. Then you go ballistic and you decide to teach the new cable guy a lesson and put him out of business. So now you reduce prices 20% lower than the new cable guy. Your revenues fall below the covenants dictated by the bank. You are fired. The company files for bankruptcy. Then a really smart operator like Hibernia Atlantic comes in and picks up your cable for 5 cents on the dollar, let's say for $15 million -- all of which goes to pay your bankruptcy lawyers.

25.) So let's follow the money trail here. Who has made it and who has lost it?
Lawyers: They always make money whether you are starting a company or closing it.
Consultants: The good news is they are not yet charging $600 per hour like the lawyers but hey, even at half that, it is good living. Plus they get to travel Business Class at the customer's expense to exotic places like Hawaii, Dubai, Paris, Phuket, etc. No lawsuits, no liabilities.
Suppliers: There is a reason they take all the money as soon as the cable is activated.
Investment Bankers: 7%-10% Commission on equity and debt means big bonuses.
Equity: $250 million all worth nothing
Debt: $500 million all worth nothing
Entrepreneur: 15 minutes of fame, lost $1 million seed capital, equity worth nothing, bunch of lawsuits, guaranteed divorce.

26.) So what is wrong with this picture? Let's follow the money. So when you start a submarine cable project, you start paying out your own cash to the lawyers and the consultants. Their compensation is not dependent on the success of either your "Project" or your "Company" -- which are two totally different entities in their eyes. Nor do they have any liabilities. Now you add the suppliers and the investment bankers to the mix. Their compensation is tied to the success of the "Project". If the "Project" can raise say $750 million, they are both compensated fully. As long as the "Project" is delivered as per contract, neither of these two also have any liabilities. You on the other hand, my fellow entrepreneur, are not compensated on the success of the "Project". You are the only one compensated on the success of the "Company" and guess what, you alone have assumed the entire risk of the "Project" and the "Company." Everyone else has made millions or tens of millions of dollars without assuming any risk or liability and declared the "Project" a success. You are the only one left holding the bag and all of the liabilities. You are the only idiot sitting alone at the table when everyone else is on their yacht. You are the only one who needs an "exit" in the form of an IPO or a merger to see any money. Everyone else had their exits when the "Project" went live. And guess what, you can't do an IPO of a single submarine cable in this market. You are in the twilight zone my friend. How about a merger? With a full debt on your books? You got to be kidding.

And that is what is wrong with the private submarine cable industry. This model is unworkable, unsustainable and broken in my opinion. And that's why I am sitting out until I can find a model that makes sense.

Good luck and wish you a lot of success.

Why is there a boom in privately funded submarine cables?

2012-01-20T16:08:00.000-08:00

While at PTC, I was approached by a trust-fund baby in his late 20's who wants to be a submarine cable entrepreneur. Trust-fund baby's father had just approved a million dollars worth of seed funding for his new venture. He wanted to hire me as a consultant to help him with project management, getting licenses and doing his pre-sales. I looked at his plan, asked him a few questions and found out quickly that not only did he have no idea what he was doing, but there were bigger problems. The cable route was so inhospitable due to weather extremities, the deal would never get insured, leave alone funded. And surely no customer would take the risk of going through such a harsh climate without guarantees on cable uptime. And to top it off, the business plan made no sense at all since it would cost more on this cable compared to other alternatives.

It's hard to turn down consulting money in this economy but that's exactly what I did. I told him to fold up and go home and save his trust-fund money. It was ethically impossible for me to take his money knowing that the project was not going to materialize.

When the cable industry first began, building a cable was a big boy's game. It would require tens of millions of dollars just to know if the cable project was a go or no go. But the advent of boutique consultants has changed all of that. You can now "launch" a submarine cable project for under $1 million. Today you can hire consultants for pre-sales, project management, engineering studies, cable route surveys, capacity demand studies, data gathering meetings, industry research, competitive scenarios, getting landing licenses, cable station surveys as well as the entire management of this process.

And it is cheap to hire these consultants a-la-carte. You don't need any employees, offices or infrastructure -- just a bunch of consultants who do what you tell them to do. The entrepreneurs are all smitten by the lure of becoming billionaires overnight. If the consultants can get the entrepreneur one-third pre-sales, one-third equity and one-third debt, he is on his way to declaring success and thinking about an IPO. I am sure the trust-fund baby could very well still continue with his dream by hiring a bunch of consultants eager to please.

The lure of being able to make a run on a $500 million to a $1 billion submarine cable project by putting up just $1 million down is too hard to pass up. That's what is driving the private cable industry.

If you look at the batch of the new entrepreneurs, you will see retired bankers, trust-fund babies, former hedge-fund managers and so on. Most of them have no experience working in the submarine cable industry. That is the big difference I saw this year. It is now so cheap to "start" a submarine cable company, a lot of personal money is coming in at the seed level.

I don't think the consultants should take any blame for this. It is entirely the entrepreneur's fault who wants to make quick bucks by hiring consultants so he does not have to go through the trouble of hiring employees, setting up offices in multiple countries, managing and training people, building a company culture, really understanding the business, creating a sound business strategy and so on. If the short term vision is to flip the company as soon as possible, then the entrepreneurs should not complain if they lose their seed capital.

I am officially calling a top to the privately-funded cables. We are certain to see many going under.

Another transit route to bypass Egypt

2012-01-20T15:01:00.000-08:00

TIC from Iran and Rostelecom from Russia are about to announce a new landline cable which will bring some of the Middle East traffic to Germany. It is likely that Iran will build out a cable to UAE or Oman to provide a diverse path of getting out of Egypt. In fact, two submarine cables are being discussed, one involved all of the ISPs in Iran (about a dozen or so) and other involving TIC. If Iran plays its card right, it will be able to provide a real alternative for the Gulf countries to go to Europe bypassing Egypt.

As long as they are not greedy and the service provided is world class, this should be a very interesting alternate route, US sanctions not withstanding.

The quest to bypass Japan is just beginning

2012-01-20T14:56:00.000-08:00

Just like Egypt is the single point of failure for the Asia to Europe traffic, Japan is almost the single point of failure for the Asia to US traffic with majority of the cables transiting in Japan. While there are a handful of cables that bypass Japan, it really is the epicenter of international transit in Asia. The earthquakes in Japan shook not only the cables and the data centers but also the international community. The quest has begun now to find ways to bypass Japan.

One initiative is led by the Malaysian government which wants a Malaysia-USA direct cable bypassing not only Japan but also Singapore, although it is likely Singapore might get invited to build a spur off of the main cable. Another initiative being discussed is a direct cable from Korea to the USA. If you notice, there is huge business rivalry between Japan and Korea and between Malaysia and Singapore. So countries will try to take advantage of each other's weaknesses.

Both the initiatives would be good for the industry as I have said before that concentration of cables in one cable station or country will make the global infrastructure more unstable than it is without the new cables.

Looking for dark fiber in the US

2012-01-19T11:12:00.000-08:00

PTC has been good for BuySellBandwidth. We have been retained to buy a dark fiber network with a national footprint in the US. One of the reasons major carriers prefer dealing with us is the anonymity it provides until it is time to make a deal. In fact, we also signed up with another carrier looking for dark fiber in California. The market is robust and it validates the need for our services.

New Europe to Middle East cable bypassing Egypt

2012-01-19T11:06:00.000-08:00

RCN (Regional Cable Network), will make an announcement by the end of Q1 2012 that it has created a path bypassing the Egyptian network. RCN will originate in UAE, pass through the desert in Saudi Arabia and bypass Egypt through Syria and Jordan. The cable is owned by a handful of carriers for their own traffic and the capacity is currently not available for external parties.

Final blessings from the Syrian government are still awaited but it looks like the deal will get done soon. The mobile company in Saudi Arabia along with Etisalat are behind the project.

This does not solve the Asia to Europe transit problem nor the Middle East to Europe transit problem. It just gives two countries in the Middle East (UAE and Saudi Arabia) one more diverse path.

EIG is finally offering end-to-end traffic

2012-01-19T11:00:00.000-08:00

Egypt Telecom announced at PTC in Hawaii a couple days ago that EIG is finally working and offering end-to-end connectivity. That is a big sigh of relief to the handful of carriers (mostly the top carriers from the US and Europe as well as Bharti).

Turns out that the real fault with respect to the delay lies with the Egyptian government and not with Egypt Telecom. Although it is 80% owned by the government, Egypt Telecom is an independent company and the executives are trying hard to win back the trust of the international community.

BSNL to auction off its excess fiber network

2012-01-12T09:13:00.000-08:00

Just as if on cue with BuySellbandwidth.com announcing its group buying website, BSNL (Bharat Sanchar Nigam Ltd), India's largest telecom operator, made an announcement (http://bit.ly/A6VJB3) that it would be auctioning off its spare bandwidth it has in its national fiber optic network. BSNL expects to generate $134 million through this auction.

This is a great example of where the industry is heading and the mistakes it makes. BSNL will likely hold a traditional auction in India where only the top 5 operators or so in the Indian infrastructure market will be invited. What kind of a competitive auction is that? A truly competitive auction would be to list it on BuySellbandwidth where every carrier in the world would be able to participate and BSNL could get the best prices. Why restrict the auction to Reliance, Tata and Bharti when tens of ISPs, carriers and enterprise customers could participate by way of group buying resulting in reducing the monopoly power of the big guys and getting a better valuation for the assets? Let foreign telcos bid on the fiber too. Once they own the fiber, they will figure out a way to get carrier licenses. In any case, the big boys are going to do a buy vs. build analysis and will buy only if they can get the infrastructure for pennies on the dollar. Small guys do not have the build option and will surely pay a premium over the big boys.

I can see this happening in every country in the world where carriers will want to sell off their depreciating assets which are costing them a lot of money to maintain. Infrastructure is no longer a competitive advantage if it is hurting your bottom line.

Fiber infrastructure should be treated the same as the tower business where all carriers buy from a single carrier-neutral source so as to not create multiple networks on the same route. The result is that more than 70% of all fiber networks are not used. More on this later.

Group Buying of bandwidth is now a reality

2012-01-11T21:55:00.000-08:00

If you don't have time to read the detailed posting, here is the summary: BuySellBandwidth.com is a group buying website for bandwidth that enables carriers to offer amazing deals on the excess bandwidth they own anywhere in the world. 70% of the world's bandwidth is unused and we enable carriers to monetize their excess inventory.

BuySellBandwidth.com, sporting a mix of Priceline and Groupon, is a website that makes it easy for customers to provide their detailed requirements and also mention the price point at which they would be a willing customer. That makes it easy for carriers to know who is in the market to buy bandwidth and at what price-point they are willing to buy. Typically, less than 10% of the leads carriers have get converted in to signed contracts. BuySellBandwidth.com increases the conversion rates significantly since carriers know exactly what the customer wants and how much he is willing to pay.

Bandwidth is a perishable commodity which if unused, ends up costing a lot of money to the carriers in terms of O&M costs, interest expenses and fixed costs. It makes sense to lease out as much bandwidth as possible even at a steep discount rather than keep it idle. That’s where BuySellBandwidth.com comes in. For the first time, carriers have the ability to selectively lease or sell bandwidth they have in excess. This can be done either through their own brand name or anonymously.

Since the advent of the fiber optic industry, the biggest problem facing the carriers is they always have excess capacity on some routes and not enough capacity on others. Attempts to barter this capacity have resulted in many top telecom executives going to jail for non-compliance of either the tax laws or disclosure laws in disparate jurisdictions. The Global Crossing disaster in the late 1990s resulted in senate hearings in the US followed by hunting down of telecom executives all over the world.

Other attempts to smoothen the capacity curve like Project Oxygen failed due to the sheer size of the problem it was trying to address. Telecommunications capacity is probably the most inefficient of all industries in terms of optimal usage. It is estimated that over 70% of the fiber optic capacity in the world is not utilized. That is the reason the industry goes through mega cycles of boom and bust every 7 years or so.

Let us take a random example of a country like Bangladesh. In order to connect to the Internet, it needs to build a cable to Singapore. They would own multiple terabits of capacity on this cable and it would cost them say $250 million. Beyond that, they would have to buy capacity on another cable from Singapore to Japan costing another $50 million if they want the best prices as an initial party in say SJC. Beyond Japan, they would need to buy additional capacity from Japan to USA. Let’s say they bought $20 million worth of capacity. In all of these disparate links, they would have uneven amounts of capacity. The only capacity they could use is the Least Common Denominator of all the three links, which is the Trans-Pacific capacity. The rest of the capacity needs to be disposed off asap. The sooner they dispose it off, the better price they will get, not to mention sitting on the O&M expenses and so on. BuySellBandwidth.com provides this platform where any carrier can now dispose off unwanted bandwidth to customers around the world.

Bangladesh got lucky in the case of Sea-Me-We-4 where all the landing point countries were allowed to invest equally no matter whether a country was a full-landing or a branch-landing country. Rumors are in the case of Sea-Me-We-5, the full-landing countries are not willing to “subsidize” the branch-landing countries. Which means that even if Bangladesh was “invited” to be part of Sea-Me-We-5, they would have to pay (and own) the entire capacity from Bangladesh to the branch costing say $50 million. On top of this, they would have to buy in to the main cable, say another $50 million. This is not the end. Then they would also have to buy a Trans-Pacific route or a Trans-Atlantic route (including the passage from France). So ultimately they would again end up in a similar situation as described above and end up having 70% or more excess capacity which they would have to sit on.

The submarine cable industry has gone through major changes in the last few years with carriers being forced to buy on a Distance Times(X) Bandwidth basis on a multi-country destination cable. This means that on certain cables, a third country can sell bandwidth between other two countries from their bandwidth pool which if unused, is losing money every day sitting on the shelf. These third-countries (10 of them on a 12-country cable in the case of I-Me-We) have every motivation to use up their allocated bandwidth for the entire term whether by selling IRUs or on a lease basis. These rates are only available to the insiders or people with scale power to buy in bulk. BuySellBandwidth.com is making the market more liquid with greater transparency so that every carrier, large or small has access to the same deals.

In addition, new players in the submarine cable industry like Google have different requirements compared to the carriers. The business plan in at least one of the cables Google is involved in gives complete autonomy to each of the owners of the fiber pairs (while the cable itself is built in a consortium model). While this does not allow the consortium itself to own capacity with a view to control pricing as in other pure consortium cables like Sea-Me-We-4, it creates the exact opposite effect of flooding the market with unlimited capacity on a certain route (which is a good thing as it helps customers). The problem is those deals are usually done in private settings where the pricing may not be optimal for either party. In such a distressed-sale situation, only the top carriers with deep pockets are sitting at the table.

This is where BuySellBandwidth.com comes in to make the deals available to all the players in the world who may be interested. Carriers can offer deals that are time-sensitive and very lucrative which will create a time-bound marketplace to get rid of the excess capacity on any given route. Also, the carriers can define the minimum number of customers that need to buy in order to get the deal.

Bandwidth is a perfect commodity for group buying since all the deals are based on quantity. As you buy more bandwidth, the price per unit declines significantly. If all the small carriers pooled their resources, they will get a significant price advantage compared to buying individually. The price differential between a 10Mbps link and a 10Gbps link is at least an order of magnitude if not more.

Carriers have to change their business models to take advantage of group buying sites like BuySellBandwidth.com. Instead of the traditional way of selling 10Gbps circuits individually, they should be open to multiple players pooling their resources to get the price point. It is especially a no-brainer if the bandwidth is being sourced from a data center or the point-to-point link is between two carrier-neutral data centers. This will open up the pool of potential buyers to hundreds of carriers and a new generation of bandwidth brokers as opposed to the single-digit number of carriers willing to buy at those levels. The prices will then stabilize as a real market is formed with multiple carriers willing to bid on the excess capacity.

Another problem facing the industry is the missing Buyer of Last Resort. Without such an entity, it is impossible to create a liquid and transparent marketplace trusted by all the players. A Buyer of Last Resort is a market maker and should be willing to price any bandwidth that comes in the marketplace. Only when this starts happening, a true global bandwidth market will emerge. BuySellBandwidth.com can potentially be the Buyer of Last Resort using its group buying platform.

We have been working with Cogent Communications in the US to showcase their assets. They had a bandwidth sale that lasted only the last two weeks of December 2011 when they were selling 1Gbps of bandwidth for $1 per Mbps per month in every major location in the US. This was an incredible deal for customers who moved quickly to grab the deal. For Cogent, it could be any number of reasons they offered the year-end deal. But customers don’t care. It is these kinds of deals where customers will save tens of thousands of dollars per month and in the case of IRU sales, millions of dollars in CAPEX. The game is on.

My 2012 forecast

2012-01-02T22:02:00.000-08:00

My forecast for 2012 is that Akamai will be bought out by either Google, Microsoft or Amazon. Replicating Akamai's infrastructure will take several years especially in Asia where Akamai has a good foothold. Akamai's mobile solution will be particularly attractive to Microsoft as it is looking for a legup on competition in that space.