A Vanuatu-based company is claiming that Australia’s headline-driving Coral Sea Cable joining Papua New Guinea, Solomon Islands and Australia may be driven more by political concerns than actual business sense.
Despite Foreign Minister Julie Bishop’s affirmations about ‘aid for trade’, the recently announced $135 million cable looks set to cause major market distortions, and could imperil a Melanesian-owned private sector cable endeavour.
Interchange Cable Ltd CEO Simon Fletcher is a well-known and sometimes controversial figure in Pacific ICT. His Interchange cable, or ICN1 as he’s labelled it, joins Vanuatu to the trans-Pacific Southern Cross cable via its Fiji landfall.
The cable has been the subject of contention since it was installed in 2013. In 2017 Vanuatu’s Telecommunications Regulator ruled that ICL had engaged in anti-competitive behaviour and unilaterally mandated bandwidth prices between Interchange and the country’s telecommunications carriers.
Simon Fletcher rebuts the allegations, arguing that contractual obligations required he treat ISPs differently at different times. He also denies any involvement in a subsequent, abortive attempt by Prime Minister Charlot Salwai to remove the telecoms regulator, whose independence is mandated by legislation.
Whatever one thinks of the man himself, his achievement is inarguable. The ICN1 cable was a product of nearly a decade of concerted lobbying and deal-making. The US $30 million project was largely financed by ANZ, with a loan secured by guarantees from the Vanuatu National Provident Fund, which owns the largest share block. The government of Vanuatu and a local private investor are the other main shareholders besides Fletcher himself.
The Telecommunications and Radiocommunications Regulator’s sectoral report for 2017 shows unambiguously how deep an impact ICL has had on the country. Virtually every new mobile subscription came with a data subscription. Residential broadband subscriptions in the capital rose from just hundreds to over 4,500 in the year following the cable’s arrival. Data downloads rocketed upward, from a mere 16.2 million megabytes immediately after the cable arrived to nearly 273 million megabytes in 2016. This trend appears to be continuing.
Most importantly, telco sector gross annual revenues, which had largely stabilised, suddenly jumped by well over half a billion vatu, a 15% rise in just two years. The growth curve closely mirrored the rise in mobile bandwidth consumption.
This growth happened in spite of the fact that having only a single cable continues to place price pressures on consumers.
For years, the government of Vanuatu has been looking for ways to land a second cable. The need for it was discussed even before the first was completed.
The economic arguments are clear:
1. Decreased liability.
As the country relies more and more on digital communication, the potential for lost connectivity becomes an increasing liability. Once traffic passes a certain point, it’s no longer possible for satellite carriers to offset any losses.
2. More competitive bandwidth pricing. Telcos and ISPs don’t just buy an internet connection the way consumers do. They buy transit from local carriers to get their data to other exchanges, then purchase access to those pipes by the megabit. So there’s one cost to get their data to market, then another cost to get it into the ether, as it were. When companies have no choice about how to get their data to market, and access to fewer markets, these limitations can be costly.
3. More traffic. Simply put, the more people use a cable, the lower the cost per person. That includes people crossing over from other cables. These same arguments apply in Papua New Guinea and Solomon Islands, of course. Having access to alternate internet traffic routes is not just prudent, it’s profitable.
This is the case Fletcher makes when he pitches his ICN2 cable, designed to tie in with Honiara’s new cable, and to provide a spur to Vanuatu northern port of Luganville. The plan is committed, and American cable company TE SUBCOM has been contracted to perform the installation.
So why, Fletcher asks, is he being frozen out of discussions concerning the recently announced Coral Sea Cable?
The mercurial entrepreneur is quick to underline his support for the Australian Coral Sea Cable. “We need [cable] to proceed and would like to work cooperatively. Otherwise ICN2 has been a monumental waste of time and resources.” Tying into the Honiara cable would allow ICL to create a networking loop, which is critically important in terms of protecting connectivity and reducing costs.
Almost in the same breath, though, he expresses doubts about the way the Coral Sea Cable project is being handled. “It takes years of planning and preparation to be in a position to bring a cable supply contract into force. So it is inevitable that the fast-tracked CSC will slip up on various issues.”
His primary concern is the blithe assumption by planners that the task of meeting operating expenses, to be borne jointly by Solomon Islands and PNG, will happen smoothly. This is not assured, given past experience.
The assumption that the Solomon Islands and PNG governments will be able to dovetail their priorities and concerns is dubious as well. The phrase ‘Melanesian solidarity’ is a well-worn oxymoron in the western Pacific, as likely to raise tired smiles as outright laughter.
So what happens, Fletcher asks, when—not if—things go wrong? “[I]s the most likely scenario that AU shall pick up the OPEX tab on an ongoing basis? Do you see how this kind of issue is a worry from a potential competitor’s perspective? The obvious problem is that [this] provides an even larger competitive advantage to the other team....”
How likely is it that Australian taxpayers will be left holding the bag here? In late April, Fletcher wrote to the Daily Post, stating “The [Australian Undersea Cable] Task Force advise me thattheyareplanningtogoto contract with the cable supplier next month without a formal shareholding structure in place. Which means that [Australia] is underwriting the entire cost... and they’ll work out ‘minor’ details such as actual ownership structure within the next 6 months.”
The head of the task force is Pablo Kang, a former High Commissioner to Vanuatu. Fletcher reports that he was informed by Kang that “he expects to complete the cable by December 2019. However, my understanding is that the landing point permits (including EIA and construction) have NOT been secured yet in Solomons nor have unresolved custom land ownership issues been settled.”
The rush to conclude the Coral Sea Cable may be clouding the government’s judgment. At the beginning of the month, ABC News reported that a major Liberal party donor had been awarded a sole-source contract for AU $2.8 million to carry out a three-month scoping study on the cable project. They reported, “Vocus donated $44,000 to the Liberal Party of Australia in 2013, and a further $50,000 in 2016.”
The report quoted Marc Purcell, the chief executive of the Australian Council for International Development, who said the contract award was ‘not a good look’ for the government.
Interchange CEO Simon Fletcher insists he is completely open-minded about the Coral Sea Cable project, but claims that he’s being frozen out of the dialogue, which he says is bad for everyone. In an interview this week with the Daily Post, he provided several specific examples of contact requests that went unanswered, of apparent evasions, and of what he characterised as meetings with low-level individuals who were uninformed and unqualified to act. Subsequent to that meeting, Fletcher wrote to the Daily Post, confirming that Interchange “has made several genuine attempts to seek [Australia]’s clarification on the market distortion issue. We have not received a substantive reply.”
Later in the same letter, he wrote, “Interchange is licensed in Solomons as a telecommunications operator. We have foreign investment board approval, a valid cable landing station construction permit from the dept of environment and a publicly stated intent to construct a cable from Vila to Honiara. Interchange has the potential tobecomethelargestconsumer of bandwidth capacity on the SI-AU cable (demand fuelled by alternate route pathing to USA from AU via VU plus datacentre operators in VU).
“Despite knowing all of this, AU has not invited ICL to a single CSC stakeholder meeting and my requests to meet face- to-face with the cable task force in Canberra have been rejected.
“[Australia] is stonewalling us.”
Two days before this article went to press, he contacted the Daily Post to report that, after weeks of effort, he was finally given a meeting with senior government representatives stationed here in Melanesia, to take place this coming week.
For years, the government of Vanuatu has been looking for ways to land a second cable. The need for it was discussed even before thefirst was completed. The economic arguments are clear:
1. Decreased liability. As the country relies more and more ondigital communication, the potential for lost connectivity becomes an increasing liability. Once traffic passes a certain point, it’s no longer possible for satellite carriers to offset any losses.
2. More competitive bandwidth pricing. Telcos and ISPs don’tjust buy an internet connection the way consumers do. They buy transit from local carriers to get their data to other exchanges,then purchase access to those pipes by the megabit. So there’sone cost to get their data to market, then another cost to get it intothe ether, as it were. When companies have no choice about howto get their data to market, and access to fewer markets, these limitations can be costly.
3. More traffic. Simply put, the more people use a cable, the lower the cost per person. That includes people crossing over fromother cables.