My Prediction Comes True: EXA Buys Aquacomms And Its Significance

I predicted a couple months ago that EXA was consolidating the Atlantic and would purchase Aqua Comms, which has been struggling, and whose estimated value was written down by its former owner, an infrastructure fund. An financial disclosure indicates that the buy price is a mere $54 million for all of Aqua Comms' assets. That $54 million includes the the four fibre pair AEC1, two fibre pairs on AEC2, which is a consortium project, and two Irish Sea cables. That's not very good. In fact, it is terrible. The price is probably 15% of of construction costs. It's a great contrarian EXA move because EXA can absorb the company's assets, but fire 99% of the employees. So the revenue should improve the bottom line. Aqua Comms illustrate how a lot of venture capitalists are bullish on telecom infrastructure without really understanding the challenges of making it successful (they should hire me for a lot of money to educate them). 😃

So what went wrong? Poor operational performance probably played a role, but probably focusing on Ireland was a strategic mistake. The big potential clients for Ireland are Google, Amazon, Apple, etc. But the Digital Giants are now really gigantic. They represent probably 80% of the Emerald Isle's international traffic flows, which means they are so big that building their own networks is the most economic choice. The OTTs have outgrown the telecom carriers and are taking most of the whoelsale market with them. In the old days (2000-2010) the OTTs were just really big buyers. Now they supply most incremental capacity. 

The only great return I am aware of on an Atlantic subsea infrastructure investment so far was Hibernia Atlantic, which Columbia Ventures purchased in bankruptcy for $25 million in 2001 and sold for slightly over $600 million to GTT in 2016. See the SEC filing: https://lnkd.in/dCeB-KwW for the initial agreed price of $590 million. Contrarian or vulture investing is a powerful and highly successful way of generating high returns. Note to EXA employees. I know the details of the GTT acquisition of Hibernia better than you do. 😉

EXA Infrastructure's purchase is really about eliminating competition, but it should also boost financial results if properly integrated. The carrier has a terrible reputation for buying network assets and leaving them as standalone entities despite potentially billions in annual cost savings. Lumen, which has five networks instead of one, is a good example. The Aqua Comms purchase means that the wholesale Atlantic market is really a two carrier fight between EXA and Telxius. Flag is still around, but the cable is very old so its days are numbered and capacity is limited. Here is the press release. And here are the purchase details. 




Comments

Post a Comment

Popular posts from this blog

Breaking Story: Facebook Building Subsea Cable That Will Encompass The World

Image
Several sources have whispered in my ear that META is planning a new 16 fibre pair cable that will encompass the world going from the US East Coast to the US West Coast via the Atlantic, Indian Ocean, and the Pacific. The most ambitious subsea project ever undertaken. I do not know the exact routing. I know that the cable will launch from the American East Coast and will go down the West African Coast to South Africa and then head straight to Mumbai. It is not clear if Europe will be online or not. From Mumbai it will head straight to Australia and then up to the US West Coast. I speculate that there may be branching units to Singapore, Malaysia, and Indonesia. But the basic routing is US/South Africa/India/Australia/US. What is not clear is if there will be branching units to add more countries to the cable.  This semi-secret cable reflects META's desire for network resiliency given the four month Red Sea down time that AAE-1 and other subsea cables suffered during the first half ...
Read more

Facebook's Semi-Secret W Cable

Image
 A few days ago I wrote that Facebook was planning a new subsea cable directly linking the US East Coast to South Africa, then up to India, onward to Australia, and finally to the US West Coast. Clearly resiliency is a big theme. It avoids Lisbon, Marseille, Egypt, the Red Sea, and Singapore. All choke points due to their telecom hub status. Note that the map below shows lots of branching units, but I don't have insider confirmation although they make perfect sense. The cable is 16 fibre pairs.  This cable may be heavily influenced by AI considerations. AI data centres require lots of space and power. The US, South Africa, India, and Australia are good candidates for AI data centres in terms of space. All of them except for South Africa have modern power grids. But South Africa is still the best place on the continent for large scale AI facilities. An AI theme makes particular sense given the cable's high latency. An AI data centre does not directly serve custo...
Read more

How To Calculate An IRU Price For a 100G Wavelength

The IRU price should reflect your forecast of future lease revenes. If the current MRC is high and prices have been stable and are expected to remain so, then the opportunity cost of selling an IRU is high. You are sacrificing a lot of lease revenue if you sell that capacity. In this case the upfront IRU price should equal the three year MRC multipled by 4 to 6 years. So if the three year Faster cable MRC is $17K, then 48x to 72x times that number is fair value. So 48*$17K=$816K. Plus a standard 4% annual fee to cover the wavelength's share of maintenance and operations.. So strong markets and tight capacity mean that leasing is more attractive than IRUs to the supplier. Vice versa, the buyers will be desperate to lower their long term costs via an IRU. In my example, $816K divided by 15 years equates to $4500 per month excluding O&M. Bad for the seller. Good for the buyer. That's why so many of you are looking for IRU capacity to resell to your clients, but finding few se...
Read more