Operators shake up submarine cable market in Latin America

There’s a new submarine cable being planned across the Atlantic. Unlike the typical transatlantic cable, it won’t land in the US, but in Brazil. In fact it’s a Brazilian company building it.

State-run telecoms company Telecomunicações Brasileiras, better known as Telebras, has signed a deal with Spanish telco IslaLink to work together on the link between old world and new.

It’s an interesting sign of the times when it’s a Latin American company, with the backing of its government, making such ambitious moves. Telebras also plans four other cables, one of which, to Angola, is well under way.

Eventually it wants to operate links to the US, Europe, Africa and establish a terrestrial ring around the whole of Brazil. This would amount to some 24,000km of optical cabling in total, forecast to cost an estimated $883 million. All five cables should be up and running by 2014, says Telebras.

It says the purpose of all this building is to create better diversity of cables reaching Latin America, and to reduce latency into and out of the continent. It also envisages that pricing on what has traditionally been a fairly expensive route will be significantly reduced.

With much important enterprise traffic now flowing from Portugal and Spain to South America, and from South America to North, it is high time such an initiative was taken.

And that it is not being taken by one of the fairly small number of interests that has hitherto controlled traffic between Europe, the US and South America is important. Brazil’s government is keen to create more autonomy for the country, hence its active backing for Telebras.

Governmental involvement with telecoms matters is taking a very different turn in another part of the world. In the US, the FCC has controversially moved to remove exemption for network operators providing international services from being obligated to contribute to the Universal Service Fund (USF).

The USF was established in 1996 to ensure that high-quality telecommunications were available across the US. All operators must pay into it, barring those running international systems.

Wholesalers like Level 3, Southern Cross and Pipe International are objecting to the removal of this proviso which they say will force them to give up 15.7% of their revenue at a tough time. They say that unlike retail service providers, they cannot easily recoup this loss of revenue from customers.

It would be an unfortunate unintended consequence if a regulatory measure designed to ensure fairness should end up seriously affecting the competitiveness of submarine cable operators at a time when they are facing added competition from new players with big ideas.