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FM AMEMBASSY NAIROBI
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RUEHAD/AMEMBASSY ABU DHABI 0153
RUEHDE/AMCONSUL DUBAI 0099
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UNCLAS SECTION 01 OF 03 NAIROBI 003262 
 
SIPDIS 
 
SENSITIVE 
 
SIPDIS 
 
STATE PASS USTR - BILL JACKSON AND JONATHAN MCHALE 
STATE FOR AF/E, AF/EPS AND EB/CIP 
 
E.O. 12958:  N/A 
TAGS: ECON ECPS EFIN KE
SUBJECT: KENYA AND EAST AFRICA: A STEP CLOSER TO FIBER OPTIC 
CONNECTIVITY 
 
REF: A. NAIROBI 1770, B. NAIROBI 565, C. 06 NAIROBI 5265, D. 06 
NAIROBI 2075 
 
NAIROBI 00003262  001.2 OF 003 
 
 
Sensitive-but-unclassified.  This cable contains business 
proprietary information and is not for release outside USG 
channels. 
 
¶1.  (SBU) Summary: Fiber optic connectivity in East Africa may be 
only a little more than 18 months away.  The U.S-owned and managed 
SEACOM submarine fiber optic cable is at the starting line, ready to 
begin system construction in September under a contract with another 
U.S. firm, fiber maker Tyco Telecommunications.  Meanwhile, rival 
projects dither.  Kenya may build its own TEAMS cable independently, 
or co-build with SEACOM, depending on the results of a pending 
tender for system construction.  Kenya is also moving to expand its 
national fiber infrastructure to reap the full benefits of 
international connectivity after a submarine cable is built. 
Similarly, the private sector, sensing an impending explosion of 
pent-up demand once fiber is in place, is looking to bridge "the 
last mile" by connecting households, schools, and small businesses 
to the internet using wireless and related technologies.  End 
summary. 
 
--------------------------------------------- ------ 
Background: The Race to Build a Fiber Optic Highway 
--------------------------------------------- ------ 
 
¶2.  (SBU) Reftels chronicle the efforts of three different projects 
trying to be the "first mover" in the construction of the region's 
first-ever submarine fiber optic cable.  The impetus for all three 
(and a rumored fourth) springs from wide recognition that there is 
money to be made and that without affordable, high-speed broadband 
connectivity to the rest of the world, East African countries will 
continue to miss out on a major opportunity to grow their economies, 
attract investment, generate jobs, and generally plug into an 
increasingly "flat", globalized marketplace. 
 
¶3.  (SBU) The American-driven SEACOM undersea cable project 
continues to lead the field to be first in the water and first to 
start operations.  SEACOM, though legally a Mauritian entity, is 
being built and financed by the Sithe Group, a New York-based 
turnkey infrastructure provider 100%-owned by the Blackstone Group, 
also of New York, and the world's largest venture capital firm.  Ref 
A reported that unlike its rival projects, SEACOM has lined up and 
finalized funding for its cable, using its own funds and by 
attracting money from three other private sector partners, two of 
which are based in Africa. 
 
------------------------------- 
SEACOM: Key Recent Developments 
------------------------------- 
 
¶4.  (SBU) In late July and early August, Econ/C met with SEACOM 
President (and Sithe Vice President) Brian Herlihy, two 
representatives from fiber maker Tyco Telecommunications, also of 
the U.S., and Bitange Ndemo, the Permanent Secretary in Kenya's 
Ministry of Information and Communications.  The news was almost all 
good.  Key recent developments: 
 
-- Survey: The SEACOM marine survey being performed by Tyco for the 
cable's route began in South Africa in June, has reached Kenya, and 
is on schedule. 
 
-- Construction Contract: Tyco and SEACOM moved from engagement to 
marriage by signing a contract for full system construction on July 
¶26.  Herlihy says that the undersea portion is worth $310 million. 
If all other construction options are exercised, the contract could 
come to around $500 million. 
 
-- Backhaul Included: SEACOM will build backhaul in several of the 
countries where it will land to ensure a link between the SEACOM 
cable and major inland cities.  In Kenya, for example, it will build 
a backhaul fiber link from the landing point in Mombasa to Nairobi. 
 
-- Timing: The contract signing and SEACOM's $10 million down 
payment to Tyco has bought SEACOM a place in line in an increasingly 
tight global supplier market for fiber and fiber laying services. 
It expects to instruct Tyco to begin manufacturing fiber at 
factories in New Hampshire and Japan on September 1.  Fiber will 
actually be installed from ships on the ocean floor beginning in 
 
NAIROBI 00003262  002.2 OF 003 
 
 
approximately one year. SEACOM expects the system to be operational 
by March, 2009. 
 
-- Regulatory Issues: Herlihy has spent much of the last 18 months 
working with lawyers in all of the countries in which SEACOM will 
land, painstakingly lining up the necessary partnerships and 
approvals to operate. He foresees no significant hurdles at this 
point. On the day he met Econ/C, he was dropping off SEACOM's 
application at the Communications Commission of Kenya (CCK) for an 
international data carrier (or "gateway") license.  Approvals for 
gateway licenses have become routinized at CCK, and he expects the 
application to be approved in 30-60 days. 
 
-- Who's Buying?: On August 13, SEACOM had its "coming out party" at 
an event at a Nairobi hotel attended by approximately 25 local and 
regional representatives of ISPs, cell phone companies, local loop 
operators, and TV companies.  Herlihy provided an in-depth briefing 
on the origins, structure, pricing, and operations of the SEACOM 
cable.  He is aiming to pre-sell $100 million in capacity, and his 
presentation was well-received. 
 
------------------------- 
TEAMS: Still on the Fence 
------------------------- 
 
¶5.  (SBU) Meanwhile, the shorter Government of Kenya-led TEAMS 
submarine cable linking Mombasa to Fujaira in the UAE, is also 
making progress.  The tender for system construction was published 
on July 23, with bidding restricted to five companies: Alcatel of 
France, Tyco, Fujitsu and NEC of Japan, and China's Huawei.  Bids 
are due August 25.  As TEAMS moves ahead independently, however, it 
still has an offer on the table from SEACOM to co-build the two 
cables in order to save both projects millions of dollars in 
up-front capital costs. 
 
¶6.  (SBU) Permanent Secretary Ndemo favors the "cable within a 
cable" co-build proposal, but explained to Econ/C that the Ministry 
cannot evaluate and then publicly defend the economic merit of the 
SEACOM offer until it has the bidding data for the TEAMS project. 
If comparing the bidding data for TEAMS to the co-build proposal 
shows the latter is clearly a better deal for Kenya, then Kenya 
might opt to co-build under SEACOM's contract with Tyco and the 
TEAMS tender process would go away, with Tyco winning all the 
business outright. 
 
-------------------------------------------- 
TEAMS Likely to Face Delays Due to Financing 
-------------------------------------------- 
 
¶6.  (SBU) Even if the co-build offer is a better deal in terms of 
cost, however, Kenya may still choose to build TEAMS independently 
if Ndemo and others believe that it can be built faster than SEACOM. 
 Tyco reps told Econ/C August 2 that because TEAMS is a much shorter 
cable, they think Tyco can complete construction by the end of CY 
2008 - a few months before SEACOM is due for completion.  But this 
assumes the Government of Kenya (GOK) and its partner in the UAE, 
Etisalat, are ready to move to construction as soon as the tender is 
awarded (in September, according to Ndemo). 
 
¶7.  (SBU) This is a dubious assumption, according to Herlihy, who 
says TEAMS simply doesn't have its financing lined up yet.  The GOK 
has $16 million set aside for the project, but little else is firm. 
A long-awaited briefing for prospective local and regional investors 
in TEAMS, held in early July and organized by Standard Chartered 
Bank on behalf of the GOK, was a disaster according to Ndemo 
himself, as well to a local ISP owner, who wrote later in the press 
that the meeting yield "very little real information" about the 
project and its financial viability. Herlihy points out that it took 
Sithe many months to identify and then come to agreement with its 
partners, who number only three.  He believes the GOK (and others 
around Africa announcing plans to build new cables) seriously 
underestimate the time it takes to line up funding and nail down the 
many cross-border legal and regulatory details involved in such 
major projects. TEAMS and the EASSy project (below) aren't even at 
the starting line, in his view. 
 
----------------------------------- 
But Other Pieces Falling Into Place 
----------------------------------- 
 
 
NAIROBI 00003262  003.2 OF 003 
 
 
¶8.  (SBU) While the GOK continues to dither on financing and on the 
SEACOM co-build offer, it appears to be moving to put in place the 
domestic infrastructure that will be needed if Kenya and the region 
are to reap the full benefits of submarine connectivity. Already, at 
least two privately operated fiber networks link a handful of major 
cities in Kenya.  To complement this, the GOK in February announced 
an ambitious plan to build a national fiber network linking all of 
the country's major towns and cities.  To manage the network, it 
formed a special purpose vehicle, the Fiber Optic National Network 
(FONN), owned by the Kenyan Ministry of Finance, and put out a $50 
million tender in March.  In June, the GOK awarded the tender to 
three different companies, Sagem of France and Huawai and ZTE of 
China.  Three companies were chosen instead of one in order to 
finish the project more quickly, perhaps in as few as 6-7 months, 
according to PS Ndemo. 
 
¶9.  (SBU) Even closer to the consumer, a number of initiatives seek 
to bridge the so-called "last mile" by bringing genuine high speed 
broadband from the fiber networks into homes and small businesses in 
Kenya and the wider region.  One, recently launched by a group of 
experienced local and international telecom executives and backed by 
U.S. investors, has put in an application for $50 million in OPIC 
funding and hopes to raise a total of $100 million.  It recently 
bought a number of existing ICT companies in the region, including 
one of Kenya's largest ISPs, Wananchi.com.  It aims to use these 
acquisitions and the money it raises from OPIC and others to launch 
converged broadband services to households, schools and small 
businesses at affordable prices through the use of WiMax and other 
technologies. 
 
----------------- 
What About EASSy? 
----------------- 
 
¶10.  (SBU) Embassy Nairobi welcomes additional information from 
other posts in the region on the status of the longest-running 
submarine cable project, the East Africa Submarine System (EASSy). 
On the one hand, sketchy press reports indicate there is progress in 
the form of financing being provided by the International Finance 
Corporation.  On the other hand, a recent somewhat confusing 
Economist report indicates that the project continues to be mired in 
disagreements over its structure and ownership, and that some 
governments in the region have vowed to withhold landing rights 
until the problems are fixed.  In Kenya, neither Ndemo nor Herlihy 
of SEACOM believe EASSy is viable as it was originally structured - 
indeed the murky structure and resulting delays in the EASSy project 
provided the very impetus for the GOK and Sithe to strike out and 
build cables on their own.  Both appear to have written EASSy off 
and are unsure about its current status.  Herlihy, however, has 
found the perception of progress on EASSy an annoying distraction 
that has led some potential customers to delay in committing to 
SEACOM. 
 
------- 
Comment 
------- 
 
¶11.  (SBU) The upshot of all this is that East Africa should have 
fiber optic connectivity in a little over 18 months by way of 
SEACOM, a cable planned, financed, and built by one U.S. company, 
with construction provided by another.  Whether Kenya opts to build 
its own cable, or co-build with SEACOM, is almost a sideshow for 
now.  Kenya would probably be wise to join up with SEACOM, but in 
any case, the latter will soon be under construction with the TEAMS 
cable on board or not.  As the other parts of the ICT sector, such 
as terrestrial networks and "last mile" connectivity, also fall into 
place, large swathes of Africa could soon see an explosion of 
pent-up demand for affordable internet-based products and services. 
As this happens, there should be nearly unlimited upside potential 
in terms of new investment, new jobs, and new industries across the 
economies of the region.  For this to work in Kenya, however, the 
country will also need to invest in the new roads and power 
generating capacity (septel) that will be needed to handle the 
higher growth. 
Ranneberger