Telecoms operator Neotel has become the anchor tenant on the Seacom cable, poised to deliver vast quantities of cheaper bandwidth to SA through a deal struck by its parent company, Tata Communications.
Tata, which owns 56% of Neotel, has signed up as the undersea cable’s first big customer, and has struck another deal to actually manage the cable, its billing systems and customer relations on behalf of Seacom.
Neotel had already invested R20m in the project and will manage the cable’s landing station in Mtunzini. That deal has now been substantially extended with Tata pumping in far more cash in return for bandwidth.
“We are investing in the system in a joint investment with Neotel,” said Byron Clatterbuck, Tata Communications’ senior vice president for global transmission services. “We are not announcing now how much we are investing but it’s a significant amount.”
Bombay-listed Tata will also land the cable at Mumbai and connect to it in Marseilles when the 13500km cable reaches India and France.
“We will handle the network administration because Seacom isn’t really an experienced telecoms operator, it’s an investment consortium building the cable,” Clatterbuck said.
The $600m cable will deliver 1,28 terabytes of bandwidth, which is roughly 10 times the capacity available on Africa’s only existing undersea cable, Sat3. Local access to Sat3 is controlled by Telkom, and that monopoly has resulted in artificially high fees to use its bandwidth. Tata was a major investor in Sat3 but its capacity was low and expensive by modern standards, Clatterbuck said.
“Seacom will give Neotel a lot more international capacity on a completely different route. Seacom provides a new high speed leg with more capacity and as data applications grow and internet and broadband penetration grow that demand needs to get fulfilled through a mix of different systems.”
In time Neotel will need more capacity than the 10GB per second it has ordered as demand for bandwidth soars.
“In a growing market if this capacity lasts 18 months I’ll be surprised. After a year we may need more,” said Clatterbuck.
“This investment brings quite a few changes with more capacity, better quality and a more robust network managed by a company very closely aligned to the South African market. When competition enters a market, prices go down and quality goes up. You are going to see the range of services for businesses and residential customers improve.”
Seacom president Brian Herlihy originally expected the cable to slash SA’s bandwidth fees by 80%, but the threat of its arrival has already prompted Telkom to drop its own data fees by up to 80%. Herlihy still believes Seacom can charge at least 50% less for its bandwidth when it goes live in June or July.
Seacom’s other local backers are Venfin, which has a 25% stake, Shanduka investment house 12,5% and Convergence Partners 12,5%. Another 25% is owned by a development agency in Kenya, with US based Herakles owning the rest.