As we noted in the latest edition of TSC’s Radar Screen Report on Submarine Fiber Optic Cables, an important reason for the surge in new contract awards in 2014 was the greater availability of financing. The first months of 2015 have witnessed an example of that, as a privately developed project, Seaborn Networks’ Seabras-1 cable system, announced that it was fully financed.
Although many new submarine cable systems have been built since the industry came out of the crash of the early 2000s, few have been funded as pure “carriers’ carrier.” These require a large amount of private financing and it was the failure of many of these projects during the crash that brought about the exodus of large financial institutions from the industry.
Most of the cable systems built since the recovery from the crash have been funding by large international telecom carriers or Internet giants, either by putting up their own money as part of a consortium or by being able to convince financial institutions of the potential of new cables by pointing to their existing business and demonstrated cash flow.
For a carriers’ carrier, basically a start-up that sells capacity to other carriers rather than to end users, it is harder to gain financing. These projects need strong anchor tenants to allay investor’s fears.
Seaborn Networks found those anchor tenants. Late last year, the company announced that Microsoft and Tata Communications had made major commitments to buy capacity on Seabras-1. It was not long after those announcements that financing was finalized.
Seaborn Networks’ example shows that the carriers’ carrier concept is not impossible. It requires a great deal of effort and all of the common-sense requirements that all successful cable systems must have (solid planning, strong management team, etc.), but it can be done.