Subsea Cables & Internet Infrastructure

Rumors have been floating around for several months about a successor project to AAE1 known as AAE2. Like AAE1, the key goal is to connect Hong Kong and Singapore to India, the Middle East, and Europe. The core consortium includes PCCW, Telecom Egypt, Omantel, and Sparkle. Just like other recent projects such as SMW6, AAE2 will avoid the Red Sea. Instead, the cable will land in Oman, then traverse Saudi Arabia and Egypt to reach the Red Sea. I applaud the cable's designers for ditching the Red Sea. It was long overdue. However, a more logical approach is to avoid Egypt all together. The Saudi Arabian desert will be expensive. The consortium has increased both capex and opex further by using Egypt for transit. Egypt treats subsea cables the way a toll road treats cars. It extracts a monopoly fee from them. It makes no sense given that Israel has a competitive telecom market versus Egypt's pseudo competitive market.  Another interesting design feature is that Italy was mentioned ...

Retelit is a competitive Italian carrier with a pan-European network. Retelit together with the Italian Ministry of Economy and Finance have purchased Sparkle with a 30/70 ownership split. Why the current Italian government keeps insisting on public ownership of telecommunications infrastructure is beyond me. There are no real benefits. Italian government interference in important sectors like banking and now telecom have brought only problems, no solutions.  Government ownership often leads to management sacrificing long term financial health to goals such as preserving head count. This purchase together with the recent EXA acquisition of Aquacomm for only $45 million despite a couple hundred million dollars in network investments raises alarm bells about the financial health of the subsea cable industry. Sparkle generated a billion Euros in fiscal 2023 or 1.14 billion dollars at the current exchange rate. Yet it was purchased for far less than current revenues, a sig...

Turkey has bee a very tough market for global ISPs. Until EXA lit terrestrial fibre a few years ago across the Bulgaria's border with Turkey, 100G pricing was $15K per month and above. EXA now dominates the key Frankfurt to Istanbul route with lower pricing. But the situation is not ideal. Physical diversity is an illusion across the narrow border with one conduit system carrying much of the international traffic. Sparkle's old Mednautilus system does provide an alternative to the land routes, but it's primacy has been too high for foreign ISPs in Turkey to flourish. Sparkle has signed a memorandum of understanding with Turkcell to build a subsea cable that will land in the Instanbul suburd of Izmir and at Chania, Greece. The yet unnamed cable will interconnect at Chania, a Greek island, to the BlueMed cable which will carry the traffic to Marseille, Milano, and other key telecom hubs. We have few details on the cable itself other than a target design throughp...

Retelit and its minority partner the Italian government just made a $700 million Euro bid for Sparkle's subsea cable business. The bid expires January 27th, 2025. More details here . My first impression is that this is not a rousing endorsement of the subsea cable service industry. Sparkle does a billion Euros in annual revenue according to a publicly available corporate presentation with wet assets including initially full ownership of the Mediterranean Blue cable and some ownership on Blue-Raman, Equiano, Seabras1, and Curie. However, voice comprises a significant portion of its revenue which most investors will penalize in their valuation estimates. In general, the financial markets view voice as less valuable than data traffic because it is considered a low growth, low margin business. Data is sexy. Voice is not.  I have always viewed Sparkle as a stodgy company with a 20th century management style with too well dressed senior managers. Rigid old hierarchical corporate structur...